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THE INDEPENDENTS 2003: Armstrong: The little engine that could Small Denver firm paves the way for independents on North Slope, set to drill in 2004 Kay Cashman Petroleum News
If you don’t think you have what it takes to explore on Alaska’s North Slope you can always take lessons from Armstrong Oil and Gas.
Armed with 15 employees and a reputation for finding oil and attracting solid partners to operate its fields, Armstrong saved the day for North Slope exploration in the winter of 2002-2003 when it and partner Pioneer Natural Resources drilled three of the six exploration wells in Alaska’s Arctic that winter.
Doing business in Alaska as Armstrong Alaska and Armstrong Resources, the Denver-based independent broadened its focus from the Lower 48 to Alaska in October 2001when it won 10 of 12 tracts it bid on in the state’s Beaufort Sea areawide oil and gas lease sale. The acreage, which cost Armstrong $4.2 million, is in the shallow waters of Harrison Bay between the ConocoPhillips Alaska-operated Kuparuk River unit and Thetis Island.
First prospect: Northwest Kuparuk On July 19, 2002, Armstrong filed permit applications with the state of Alaska to drill three Beaufort Sea wells from three ice pads at what it would eventually refer to as the Northwest Kuparuk prospect.
Armstrong asked Jacob Adams, president of Arctic Slope Regional Corp., the Native corporation that represents the Native people of Alaska’s North Slope, to name the three wells.
Ivik means walrus in Inupiaq; Oooguruk means bearded seal; and Natchiq, means seal. All are sea mammals that are eaten by the North Slope people and which contain oil — albeit the edible kind.
Armstrong brings in Pioneer True to its reputation of hooking up with solid operators, Armstrong brought Pioneer to Alaska in November 2002, giving the Dallas-based independent a 70 percent working interest in the 10 leases and operatorship of the exploration program.
“Even though Pioneer didn’t have operations in Alaska, they were a natural fit for us. They have a great track record as an exploration company and as a strong operator. They recognized the same strengths in Alaska as we did: great petroleum system, multiple oil zones, reasonable depths, nearby infrastructure and facilities,” company founder and President Bill Armstrong told Petroleum News in November 2002.
Pioneer drilled and completed all three wells in the first few months of 2003, with the Kuparuk C sands as the primary target.
Stu Gustafson, Armstrong’s vice president of operations, said the three wells, which were drilled to true vertical depths in the 6,700 to 6,900 foot range, would target “multiple horizons down to and through the Jurassic.”
The exploration program looked at a range of intervals, the Alaska Division of Oil and Gas later said, including “the Cretaceous Middle Brookian, Cretaceous Torok, Kuparuk A, Kuparuk C and Jurassic Nuiqsut/ Nechelik.”
Fast-track development While it was drilling Pioneer filed a unit application with the state. In its paperwork Pioneer said the Oooguruk unit’s plan of exploration “incorporates current engineering work under way to meet a possible winter 2004/2005 fast-track production start-up.”
Pioneer had a 70 percent working interest in the unit; Armstrong a 30 percent working interest. Two Phillips Alpine Alaska leases in the unit application were assigned to Pioneer and Armstrong effective March 1. ConocoPhillips retained an overriding royalty. A couple of months later Winstar Petroleum, an Alaska-based independent, would do the same with a third lease.
Pioneer finds Jurassic-aged oil On March 31, Pioneer announced it had a 1,300 barrel per day discovery at the Ivik well from the Jurassic formation. The company said it did not find commercial quantities of oil in its main target, the Kuparuk C sand, but found two thick, oil-bearing, Jurassic-aged sand sections, which the company described as “very similar in geologic age, permeability, and porosity to those in the prolific, onshore Alpine field to the southwest.” (See page 35 story on Pioneer and the Northwest Kuparuk discovery.)
As of Sept. 1, Pioneer had still not made a development announcement for Northwest Kuparuk. The company was reportedly in negotiations related to the development.
Armstrong buys exploration leases from BP When Armstrong brought in Pioneer as a partner, Petroleum News asked Bill Armstrong if he intended to put together other North Slope prospects. “Absolutely,” he said.
On July 9, BP Exploration (Alaska) announced that Armstrong was one of three successful bidders for its North Slope exploration acreage, winning close to 10,000 acres in shallow waters of the Beaufort Sea northwest of the BP-operated Milne Point unit.
In August, Armstrong announced plans to drill one to three wells at its “Northwest Milne prospect” in the 2003-2004 winter drilling season. How many wells would be “conditional upon adequate industry support,” Gustafson said Aug. 12, declining to elaborate.
The company would not say if it will drill Northwest Milne or bring in a partner to do so, but Bill Armstrong said, “Very few wells have ever been drilled without multiple partners on the North Slope and we don’t anticipate changing that this year.”
The proposed wells — the Nikaitchuq No. 1, No. 2 and No. 3 — got their name from an Inupiaq word which means “to persevere.”
Gustafson said the company “will target multiple objectives. One of the primary objectives is an attempt to extend the favorable productive Jurassic sand fairway which tested 1,300 barrels of oil per day in the Ivik well. … Other objectives are extensions to established production at the Milne field.”
Stacking the accumulations Armstrong’s current plan is to drill from one or two ice pad locations in “relatively shallow water” of eight feet or less, requiring four to six miles of ice road, Gustafson said.
Myers said the key to success in the area is understanding the Jurassic, which he said Armstrong clearly did at the Northwest Kuparuk prospect.
“The Jurassic … has significant volume potential to it, but typically produces at slower rates. … Other horizons — smaller accumulation — like the Brookian and Kuparuk could add significantly faster flow rates to the project,” Myers said. The result is “long-term productivity at reasonable flow rates if you can stack them up and that’s something Armstrong is looking to do in that area.”
Depending on what they find, he said, production could be handled at a standalone facility or other nearby existing facilities at Milne Point or Kuparuk.
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