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December 2002

Vol. 7, No. 50 Week of December 15, 2002

From an attic to the Arctic

Bill Armstrong tells RDC he began his independent oil company in an attic; this winter Armstrong Resources will participate in three Beaufort Sea exploration wells

Kristen Nelson

PNA Editor-in-Chief

The North Slope of Alaska is where the Gulf of Mexico was a few decades ago, Bill Armstrong, president of Armstrong Oil and Gas Inc. of Denver told the Resource Development Council’s annual conference Nov. 21.

Armstrong said he started his firm seven years ago in an attic above a garage, with a primary focus of “pursuing company-impact, big-potential wildcats.” Today the firm has production in a number of basins, including Wyoming, Utah, California and the Gulf of Mexico.

“We typically partner up with bigger companies when we go about the actual drilling phase of things,” Armstrong said. Over the last half a dozen years, Armstrong Oil and Gas “has caused roughly about $500 million work of drilling of wildcat wells,” he said.

Why Alaska?

Armstrong said the existence of the charter agreement, making facilities on the North Slope available to independents, is one reason Armstrong Oil and Gas is in Alaska.

“And to me that was the first indication that an independent could come up here and actually make a profit.”

Before the 1990s, he said, the trans-Alaska pipeline was full: today, he said, it’s half full.

“But we still had to get to the pipeline. So you had to go through the gathering facilities and the processing facilities to get to the pipeline and the charger agreement eliminated that degree of risk for us,” Armstrong said.

The other reason, he said, is that the North Slope “is a fantastic petroleum system. It’s one of the — arguably the best — petroleum system in the entire world.

“And good things can happen to you when you’re in a system that good.”

Gulf of Mexico in the 1970s

Armstrong said that as he sees the North Slope in 2002, “it’s a world-class petroleum system. All the activities to date have been dominated by major oil companies. It’s been generally perceived that North Slope operations are too complicated and too expensive for independents to participate.”

And, he said, there’s “a mindset that all the big fields have been found.”

In fact, it’s “uniquely similar to the Gulf of Mexico in 1970.” There was quite a bit of offshore production in the 1970s, infrastructure was in place and the petroleum system is excellent. The “mindset was at that time that the offshore was too complicated and too expensive for independents.” And because there was a general belief that all the big fields had been found, “the majors were leaving the Gulf Coast in droves.” But 30 years later, Armstrong said, production has expanded, “15 or 20 … multi-billion dollar oil companies … have been spawned in the Gulf of Mexico” and it is “home to dozens and dozens of highly competitive independents” as well as majors.

Armstrong noted that Division of Oil and Gas Director Mark Myers had commented that industry has stemmed the production decline on the North Slope, and said he hoped that with future drilling the production curve will rise again.

Wells the key

“But the key is you’ve got to drill wells. You can’t find new fields without drilling new wells,” Armstrong said. “And it’s kind of similar to the old saying you can’t win the lottery if you don’t buy a ticket. And in this case the lottery winners would be everybody involved: the state of Alaska, the North Slope Borough, the taxpayers in the Lower 48 and all the companies that drill. So we need to drill some wells.

“That’s what brought us to Alaska.”

In Alaska, he formed a limited liability company, Armstrong Resources, to conduct business.

This winter, he said, “we’re going to drill three wells … just adjacent to the northwest Kuparuk field.”

Armstrong has partnered with Pioneer Natural Resources, which will do the drilling.

Regulatory fears

What really worried the company about coming to the North Slope was the “fear factor you hear from people that are up here… (that) the regulatory permitting process is just so formidable that it’s almost impossible.

“I have to say I have been very pleasantly surprised,” Armstrong said.

The company went from the issuing of leases, which it acquired in a sale in 2001, to receipt of permits, he said. “I was very pleasantly surprised.”

Gas the big challenge

Armstrong said that the next big challenge was no news to this audience: “that is you’ve got to get gas off the slope.” Well over 100 trillion cubic feet are known, he said, “but the gas cycling at Prudhoe Bay is putting a limit on how much oil they can produce is and the general perception is” that as companies go deeper into the National Petroleum Reserve-Alaska, and even into the Arctic National Wildlife Refuge, that those are going to be gassy regions.

“We’re going to have to figure out a way to get people up here and if people think they’re going to find gas, they’re not going to drill any wells,” Armstrong said. “You’ve got to find a way to get that gas to market.”

The other challenge, he said, is that existing infrastructure exists in only a very small area of the North Slope. That infrastructure needs to be expanded, Armstrong said:

“You build the infrastructure, they’ll come.”






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