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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2008

Vol. 13, No. 25 Week of June 22, 2008

BRPC, partners prep North Shore strategy

The four-company joint venture will meet to discuss how to develop the Gwydyr Bay prospect; also plan winter seismic and drilling

Eric Lidji

Petroleum News

A group of independents exploring Alaska’s North Slope is discussing strategies for how best to develop a series of Gwydyr Bay oil prospects, according to a partner in the joint venture.

The four-company partnership lead by the Brooks Range Petroleum Corp., or BRPC, plans to meet in Calgary in July to talk about the different ways of developing the field and satellites of the North Shore prospect, should they ultimately vote to sanction the project, according to Clifford James, president and CEO of TG World Energy Corp.

Speaking at the company’s annual meeting in Calgary on June 18, James said he believes the joint venture could sanction development later this year, citing encouraging test results from recent winter exploration at North Shore, the high price of oil and BRPC’s generally “bullish” nature. If the companies decide to move forward on North Shore, James said the prospect could be online as early as the second quarter of 2010.

“That would be the soonest,” James said.

In addition to TG World and BRPC, the joint venture includes Bow Valley Alaska Corp. and Nabors subsidiary Ramshorn Investments Inc. TG World’s share ranges from 25 percent to 35 percent of the joint venture’s holdings.

Another busy winter on the horizon

The joint venture was one of the busiest on the North Slope this past winter, drilling two wells and two sidetracks, as well as acquiring a portfolio of 3-D seismic data.

The North Shore No. 1 exploration well in Gwydyr Bay, a re-drilling effort carried over from the previous winter, yielded a flow test of 2,092 barrels of oil per day from the Ivishak formation.

However, a piece of coil tubing lodged in the well prevented the companies from completely testing the Sag River formation. The damaged well flowed at an average rate of 50 bpd. TG World believes the actual rate would have been 10 to 20 times higher.

Earlier in June, the companies announced the acquisition of additional leases in the Gwydyr Bay area, including the Pete’s Wicked prospect discovered by BP in 1997.

This coming winter is shaping up to be another busy one for the joint venture.

James expects the companies to focus on Gwydyr Bay for exploration activities with the goal of “establishing a threshold” and sanctioning the development of the North Shore prospects.

Establishing that threshold means justifying the project by finding a way to prove up and develop satellites together with the main North Shore prospect.

James said the companies are considering several options, like using the existing North Shore No. 1 pad to test two nearby satellites or even drilling a 20,000-foot well to reach the Ivishak oil reserve of Pete’s Wicked.

Or, the companies could lump the North Shore satellites together and attack Pete’s Wicked separately from the east along with the Arcturus prospect, essentially creating two production areas, one on each side of a river cutting through the area.

James also mentioned using the Sak River No. 1 exploration well, a dry hole the companies drilled in the winter of 2006 and 2007, to test the Kuparuk Stratigraphic Trap a potential reserve just north of North Shore No. 1.

To get a complete test of the Sag River formation, James expects BRPC to propose using “lateral completion,” similar to tests BP is conducting nearby at Prudhoe Bay.

Another stab at Slugger seismic survey

Next March or April, the joint venture plans to shoot a 130-square-mile 3-D seismic survey over the Slugger prospect south of Point Thomson on the eastern edge of the central North Slope, James said. The companies picked up those leases in October 2007.

“It’s crying for seismic to firm up some of these prospects,” James said.

The joint venture originally planned to shoot that survey this past January, but had to cancel after mid-winter storms blew away snow cover in the area, keeping the fragile tundra closed to off-road travel longer than expected.

In addition to the flow test at the North Shore No. 1 well this past winter, the companies discovered oil at the Tofkat No. 1 well in March.

The companies acquired a 210-square-mile 3-D seismic survey of Tofkat this winter, and expect to process that information by the end of the year. The results will determine whether or not they decide to return to Tofkat this coming winter.

The joint venture owns 329,645 acres of state lands across the North Slope, of which 29,631, or 9 percent, are set to expire this year.

Recent tax changes have benefited TG World

As the smallest explorers to find oil on the North Slope in recent years, the four companies in the joint venture will be test subjects for some of the recent tax changes enacted by state lawmakers last year.

TG World has benefited greatly from an expansion of the tax credit program designed to promote exploration. Even without oil production to pay taxes on, the company has already earned $3.8 million by reimbursing these credits. The state is processing a second claim for $4.9 million and TG World plans to make a third claim for $8.3 million.

Altogether, James said these credits helped TG World pay ultimately only 35 cents for every dollar of exploration costs.

“It’s significantly reduces what we’re paying,” James said of the credits.

TG World and the other companies in the joint venture will see a different side of the tax if they bring a field online in coming years and start paying taxes, but, “Overall, it’s not a bad tax system given the comparison to other jurisdictions,” James said.

Even with the tax credits, though, the ambitious program taking shape will cost TG World and the other companies a lot of money, especially as drilling and exploration costs rise.

Preparing for the long haul, James said TG World raised enough money to cover two drilling seasons. The company raised $25 million through the end of last November, mainly for the work planned for Alaska. The company had $21.1 million in cash and cash equivalents at the end of March.

“We bit the bullet last year and we raised more money than we knew we needed,” James said.

TG World gearing up for lawsuit

In recent securities filings with the Canadian government, TG World Energy said that an un-named third party filed a claim “alleging entitlement to 2.5 percent gross overriding ownership interest for all leases on the Alaska North Slope.”

For helping to negotiate that joint venture, TG World paid the “third party” a $100,000 bonus in March and April, and gave it shares of the company, according to TG World.

As part of the deal, the “third party” also received a “2 percent overriding royalty interest share” of oil and gas produced from an initial slate of TG World leases, as well as a 1.25 percent overriding royalty from any future leases, according to TG World.

TG World officials declined to name the third party, to speculate on the basis of the claim, to say where the suit had been filed or to elaborate on the status of the suit.

In addition to work in Alaska, TG World also maintains operations in Niger.






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