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Vol. 14, No. 44 Week of November 01, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

70 & 148 top bidder

Armstrong affiliate puts down $7.8 million for 68 North Slope sale tracts

Kristen Nelson

Petroleum News

It was déjà vu all over again as Alaska Division of Oil and Gas Director Kevin Banks read 93 bids for 80 tracts in the state’s 2009 areawide North Slope oil and gas lease sale in Anchorage Oct. 28.

Armstrong Oil & Gas Inc. of Denver, bidding as 70 & 148 LLC, dominated the sale, with the apparent high bid on 68 of 80 tracts and 91.3 percent of the dollar value of the apparent high bids.

The same thing happened at the state’s 2008 North Slope and Beaufort Sea areawide sales, when Armstrong, also bidding as 70 & 148 LLC, returned to Alaska’s North Slope after an absence of several years and dominated those sales.

The $8.5 million in apparent high bids topped last year’s $6.5 million as what could have been a low-dollar, low-interest sale, with a few companies picking up small numbers of tracts around known fields or prospects, boomed into the largest sale in several years. Armstrong affiliate 70 & 148 LLC took substantial acreage on the west and southwest side of the North Slope, extending a position the company established last year to the west and south of the Kuparuk River unit.

The company had apparent high bids of $7,791,654.40, adding 68 tracts to the 68 the company acquired in last year’s Beaufort Sea and North Slope areawide sales, and also had the highest per-acre bids, $95.01 per acre on tract 455 (total bid of $547,257.60) and $82.07 per acre on tract 454 (total bid of $472,723.20).

Tract 455 is due south of ARCO’s Meltwater South oil exploration well, drilled to a true vertical depth of 8,377 feet in 1999. Tract 454 is southwest of the Texaco 32-7-8 Wolfbutton, a gas exploration well drilled in 1989 to a depth of 9,550 feet.

Largest state acreage position

Ed Kerr, Armstrong’s vice president for land and business development, told Petroleum News after the sale that with the acreage from the sale, the company’s state oil and gas lease acreage now totals some 475,000 acres.

The company picked up almost 200,000 acres in the 2008 North Slope and Beaufort Sea sales, and once leases from the Oct. 28 sale are awarded, Armstrong will top the list of state oil and gas lease acreage holders, although Anadarko Petroleum, ConocoPhillips and FEX, with substantial acreage in the National Petroleum Reserve-Alaska and, for Anadarko, from Arctic Slope Regional Corp., will continue to have larger overall lease positions.

(Prior to this sale the state had some 4.6 million acres under oil and gas lease; the U.S. Bureau of Land Management has more than 3 million acres under lease in the National Petroleum Reserve-Alaska.)

AVCG, Savant

While the only major to bid, ConocoPhillips, was outbid on that lease by 70 & 148, several other independents took tracts.

AVCG LLC took five leases for $411,840, 4.8 percent of the apparent high bids, going after tracts on the west side near Nuiqsut where the company has a considerable acreage position and one tract closer to Kuparuk, on which it outbid 70 & 148. Prior to this sale AVCG held 109,187 acres of state leases.

Savant Alaska LLC took three tracts on the east side, southeast of Point Thomson on the border with the Arctic National Wildlife Refuge, for $170,028.80, 2 percent of the apparent high bids. Prior to this sale Savant held 12,080 acres of state leases.

Daniel K. Donkel, 25 percent, and Samuel H. Cade, 75 percent, took two leases for $76,800; Donkel, bidding on his own, took one lease for $25,600. Prior to this sale Cade held 135,729 acres of state leases; Donkel held 41,523 acres.

James A. White took one lease for $60,595.20. Prior to this sale White held 5,713 acres of state leases.

A bidding group of J. Andrew Bachner (90 percent) and Keith C. Forsgren (10 percent) also bid in the sale, but were outbid by 70 & 148 and AVCG.

The southern fairway

Banks told Petroleum News after the sale that 70 & 148 LLC affiliate Armstrong has historically done more than just acquire land.

“Folks like Ed Kerr and his company, they’re more than just — historically they’re more than just somebody picking up a piece of ground. Obviously the exploration work they did at Oooguruk and Nikaitchuq led to producing oil fields,” with Oooguruk producing and Nikaitchuq on the way to production, he said.

Asked about what the company might be looking for on the acreage they won at the sale, Banks said “the farther south you go you’re getting into more gas-prone areas and in part that’s because of the rock.”

The fairway where 70 & 148 LLC has acquired acreage stretches to the southwest from Kuparuk.

As you go farther south, “we know that the rock is a little tighter …, but if you can find good quality oil, the good quality oil moves through that rock,” Banks said.

He compared the area to the type of play that exists on the southern and western edges of the Kuparuk River unit, at Meltwater and Tarn. Those are “the same type of plays,” Banks said.

“So if you’ve got fairly good quality oil it can move through somewhat tighter rock and they can make a go of it.

“But gas of course can flow there, too.”

“The rock may be tight as you move farther south, but it’s nothing like a shale,” Banks said, and the technology designed to work on shale would work extremely well on the type of rock in this southern fairway.

Then there is natural gas.

Banks said the state is “fairly confident that with the development of a gas pipeline … we could see some major gas fields in this region.”

Armstrong history

Denver-based Armstrong first took 1acreage on the North Slope in an areawide sale in 2001 and eventually brought three new companies to Alaska to partner on prospects at Oooguruk and Nikaitchuq — Pioneer Natural Resources, Kerr-McGee and Eni.

Armstrong had discoveries at wells drilled on three prospects with the larger partners it brought in, at Oooguruk, Nikaitchuq and Tuvaaq.

The company sold its remaining North Slope acreage in 2005, and acquired Cook Inlet acreage in the North Fork area in 2007.

In 2008 the company returned to the North Slope in a big way, as the largest bidder in both the 2008 North Slope and Beaufort Sea areawide lease sales.

In 2008 the company bid under the name of affiliate 70 & 148 — named for the latitude and longitude of Prudhoe Bay.

Next Beaufort sale early next year

Banks said at the sale that the Beaufort Sea areawide sale, typically held in the fall at the same time as the North Slope and Foothills sales, was delayed because of an administrative error. The state was doing a new best interest finding and failed to advertise it in a statewide newspaper.

He said the new 10-year best interest finding for the Beaufort Sea areawide sale is being completed and will be released shortly.

A Beaufort Sea sale will be held early next year, maybe in February or March, Banks said. A second 2010 Beaufort Sea areawide sale will be held next fall, in conjunction with the 2010 North Slope and North Slope Foothills areawide sales.

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