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Providing coverage of Alaska and northern Canada's oil and gas industry
November 2003

Special Pub. Week of November 29, 2003

THE INDEPENDENTS 2003: AVCG focuses on Colville prospects

Company drops Sak River prospect, blaming Alaska ‘fear factor’ on inability to find partner

Kay Cashman

Petroleum News

John Jay “Bo” Darrah Jr., CEO of Alaska Venture Capital Group, told Petroleum News Feb. 6 that his company had canceled its plans for the North Slope Sakonowyak River prospect in Gwydyr Bay and asked the state of Alaska to disband the 11,520-acre unit.

The Sak River unit, which contained both offshore and onshore state leases, abutted the western border of BP’s Northstar unit.

The Kansas-based independent, which had spurred exploration of the unit, has been unable to find a partner to help fund the venture.

“There were some tough structural geological problems with the prospect that were hard to explain away and that coupled with other North Slope ‘fear factors’ may be why we could not find help to evaluate” the prospect, Darrah said.

According to the plan filed by operator BP Exploration (Alaska), a 62 percent owner in the prospect to AVCG’s 38 percent, an exploration well was supposed to be drilled at the Sak River prospect in the winter of 2002-2003.

Division good to work with

The Alaska Division of Oil and Gas “was very good about working with us from the start. The unit’s time leash has always been very short with original lease terms expiring July 31, 2001, and Feb. 10.

“Monetary commitments for extension time have been very reasonable to this point in time, but they were becoming more and more expensive to extend a low-grade prospect,” Darrah said.

The project could have been funded “100 percent internally,” he said, but “because AVCG is new to the North Slope, we needed verification for our drilling ideas. … Sak River has some tough geological questions that could not be satisfactorily answered enough to lower the risk to the experienced explorationist that looked at the deal.”

Colville a hotter play

Instead of continuing to look for a partner for the Sak River prospect, Darrah and his partners have decided to focus on their Colville acreage south of ConocoPhillips’ Colville unit which contains the prolific Alpine field.

The Colville blocks are “a hotter play,” Darrah said and will not be as difficult to sell to an investor as Sak River.

“We still have some 110,000 acres under lease,” Darrah said. Under the terms of those leases, the company has “time in which to dispel new entrants’ reservations, fear factors; time to introduce them to the opportunities that were once only available to major companies” on the North Slope.

“The (Colville) traps are stratigraphic and to find sand is usually to find oil and gas,” he said.

Darrah has 30 years of experience managing a privately held oil company based in Wichita, Kan. His partner, Bart Armfield has extensive history on Alaska’s North Slope with Alaska Petroleum Contractors. The other owners in AVCG are privately held, independent oil and gas companies actively exploring and operating in the Lower 48.

AVCG contracted with Alfred “Fred” James, a Wichita-based geologist and independent explorationist with a solid knowledge of North Slope geology. James eventually came to hold an over-riding royalty interest in most of AVCG’s Alaska acreage under Pingo LLC.

North Slope access critical

But as much as Darrah wants to be a player on the North Slope, he said there are still a number of barriers standing in the way of non-facility owners and smaller companies.

Darrah told the Resource Development Council's annual conference attendees in 2002 that some of the Lower 48 independents he talks to about the North Slope see the resource opportunities but are afraid “ ‘environmentalists are running the state up there,' and sometimes I think that's true.”

On the financial side, he said, there is the cost of permitting and the cost of facility sharing access agreements with infrastructure owners on the slope.

Darrah also wants the state to change its policy on requiring removal of roads and facilities. “If we start tearing down pipelines in advance of the final demise of the reserves on the North Slope, it may keep another satellite from coming on stream in another area which just hasn't been found yet.”






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