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Vol. 10, No. 19 Week of May 08, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

Alaska open for business

Independents drill 11 North Slope exploration wells, permit facility in record time

Kay Cashman

Petroleum News Publisher & Managing Editor

State of Alaska officials began saying “Alaska is open for business” to oil companies under the previous state administration of Democratic Gov. Tony Knowles, but government officials saying it and private industry agreeing are two different things.

An executive in a small independent oil company that has been an active partner in drilling 11 North Slope exploration wells in the last three years and, most recently, permitting a standalone production facility in less than 100 days, says he believes the “exploration and production regulatory process” in Alaska is “seamless.”

Armstrong Alaska Vice President Stu Gustafson says his company’s experience on the North Slope proves “Alaska is open for business.”

Regulators proactive

A long-time exploration representative with Exxon in Alaska, Gustafson was gone from the state for almost seven years before he returned with Armstrong to bid at a state lease sale in 2001.

“The feeling you get around the regulators has changed. They seem to both feel more empowered and at the same time they know they are subject to accountability with the current Murkowski administration. I don’t remember them being so proactive with applicants,” Gustafson said.

Armstrong Alaska, an affiliate of Denver-based Armstrong Oil and Gas, put together a group of North Slope prospects and brought in Pioneer Natural Resources and Kerr-McGee as 50 to 70 percent partners to operate those prospects. Pioneer and Kerr-McGee have since officially announced discoveries on two of those prospects.

At the Pioneer-operated Oooguruk unit in the shallow waters of the Beaufort Sea Pioneer is assessing the economics of development and is, among other things, working on a facility sharing agreement with the owners of the nearby ConocoPhillips-operated Kuparuk River unit.

At the Kerr-McGee-operated Nikaitchuq unit, also in the shallow waters of the Beaufort, the company has put together a plan for a standalone processing facility and has a proposal in front of the North Slope Borough to re-zone the area (see related news on page 8).

In this winter’s drilling season, which is rapidly coming to a close, Kerr-McGee led the pack for the number of exploration wells drilled on the North Slope — six wells, including two at Nikaitchuq, one at Kigun, one at Tuvaaq and two at Ataruq (see related story on page 11).

Gustafson oversaw permitting for all 11 exploration wells, played a role in the drilling of the wells, and has been closely involved in Kerr-McGee’s Nikaitchuq facility planning and current re-zoning and pre-permitting work.

$500,000 ‘permitting fee’ gone

He was also key in getting a second oil spill response contractor, Alaska Chadux, to set up business on the North Slope. At about the same time the existing North Slope spill contractor, Alaska Clean Seas, changed its policies, dropping what many newcomers to the state referred to as “Alaska’s $500,000 permitting fee” because state officials demanded participation in a spill response group and the sign up fee with Alaska Clean Seas had been $500,000.

Alaska Clean Seas began offering an associate membership, which allowed companies interested in drilling an exploration well on the North Slope to both get around the $200 million net worth stipulation for full members and pay a fee for an associate membership for the duration of an exploration season which was far less expensive.

Alaska Chadux charges a day rate.

Most recently, Gustafson completed development permitting for what might be Armstrong and project operator Kerr-McGee’s first Alaska North Slope production if the two wells drilled at the onshore prospect this year pass muster. Agency paperwork indicates that the Ataruq standalone production project on the western edge of the ConocoPhillips-operated Kuparuk River unit was permitted in less than 100 days, which Petroleum News confirmed on April 29 with Gustafson.

On a fixed timeline, the U.S. Army Corps of Engineers permit took only 92 days; North Slope Borough permitting was complete in 21 days.

Ataruq, which is part of a group of leases Armstrong calls Two Bits, could set a record for taking the shortest amount of time to permit a standalone production facility on the North Slope, an agency representative told Petroleum News.

If sanctioned by Kerr-McGee and Armstrong, the Ataruq development will set a record as the shortest development from lease sale to production.

Armstrong won the Ataruq leases in a state lease sale in October 2003; Kerr-McGee signed on as operator and partner in January 2005. The first well was spud in March and, if everything goes according to the schedule set out in permitting paperwork, Ataruq could be in production by January 2006.

But the “real story” in Ataruq, Gustafson said, is that it is an example of companies and regulators “working together to make a project happen.”



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