Independents’ Day

Alaska lease sales bring in $14.8M; Armstrong dominates, Devon enters

Kristen Nelson

Petroleum News Editor-in-Chief

One observer called it “Independents’ Day,” and he was right on the mark: Only one major oil company bid in the Oct. 27 state lease sales, and that in partnership with an independent. The state of Alaska took in $14,818.675.10 in bonus bids at the areawide oil and gas lease sales — $5,280,384 in the Beaufort Sea sale and $9,538,291.10 in the North Slope sale. (See map on page 19.)

The sales were dominated by Armstrong Alaska, subsidiary of Denver-based Armstrong Oil and Gas, which had $8,258,449.92 in apparent high bids, $509,777.92 in the Beaufort Sea sale and $7,748,672 in the North Slope sale. Partnership bidding in the Beaufort Sea sale with Kerr-McGee accounted for $465,669.12 of Armstrong’s bids.

Calgary-based Talisman Energy’s U.S. subsidiary Fortuna Exploration was the second largest bidder at $3,453,312.

Other independents with winning bids in the two lease sales included Anadarko Petroleum, AVCG, Mark Anderson (affiliated with Summitt Oil & Gas of Beverly Hills, Calif.), and UltraStar Exploration (an affiliate of Winstar Petroleum).

Independent Pioneer Natural Resources bid in a 50/50 partnership with ConocoPhillips, the only major oil company bidding at the sales.

And Devon Energy Production, a subsidiary of Houston-based Devon Energy, bid in its first Alaska lease sale, picking up a block of Beaufort Sea leases.

Armstrong has highest bids in North Slope sale

Armstrong had the highest bids in the North Slope sale for three adjacent leases on the eastern edge of the Kuparuk River unit. The company bid $383.57 an acre for tract 974 ($981,939.20 estimated total bid for the tract), $379.73 an acre for tract 1099 ($972,108.80 estimated for the tract) and $373.87 an acre for tract 1098 ($957,107.20 estimated for the tract). The state finalizes title work after its sales, so only estimated acreage and estimated total bids are known at the time of the sale.

Armstrong, in partnership with Kerr-McGee, also had the highest bids in the Beaufort Sea sale. The Kerr-McGee 70 percent and Armstrong 30 percent partnership bid $303.17 an acre (an estimated $776,115.20 per tract) for tracts 367 and 368, on the southern edge of the Kerr-McGee operated Nikaitchuq unit in which Armstrong is a partner. On its own, Armstrong took a tract to the east of Nikaitchuq, paying $17.23 an acre.

The largest block Armstrong took was in the North Slope sale: 14 leases astride the Kuparuk River south of the Kuparuk River and Prudhoe Bay units, with bids ranging from $17.11 an acre in the southeast corner of the block to $43.69 an acre on the northwest. Armstrong took four leases on the southern edge of Kuparuk, losing a fifth to Mark Anderson, the only bid on which Armstrong was shut out. Armstrong’s bids on this block ranged from $17.59 an acre for the tract at the western end of the block to $69.07 an acre for the tract on the eastern edge. Anderson paid $20 an acre for a tract on the northern edge of this block.

On the western edge of Kuparuk Armstrong took one tract northwest of ConocoPhillips’ Placer prospect ($31.19 an acre) and six tracts northwest of Tarn, paying $181.17 an acre for three tracts closest to Kuparuk, $151.73 and $151.87 an acre for two tracts farther west and $11.07 an acre for a western outlier tract.

Fortuna dominates Beaufort Sea sale

Fortuna’s $3,453,312 in bids were all for Beaufort Sea tracts. The company took a block of 19 leases in Harrison Bay off the National Petroleum Reserve-Alaska, bidding $60.10, $50.10 and $40.10 for some acreage closer to NPR-A, ranging down to $15.10 an acre farther offshore.

Fortuna farmed into NPR-A acreage held by Total and was a partner in Total’s NPR-A exploration well in 2003. Fortuna was the largest bidder in the Bureau of Land Management’s June 2004 northwest NPR-A lease sale, with $26,480,300 in high bids and also making the highest bid, $13,745,000, for a tract near the Ikpikpuk River at the junction between the northwest and northeast NPR-A planning areas.

Kerr-McGee, bidding in partnership with Armstrong, spent $1,086,561.28 for its 70 percent share of the two leases it bid on with Armstrong in the Beaufort Sea sale.

Anadarko, bidding only in the North Slope sale, was apparent high bidder on $746,361.60 in leases on the east side.

AVCG took a block of leases in the vicinity of Nuiqsut adjacent to NPR-A for $478,080.

Mark Anderson bid $256,000 for four onshore leases. Pioneer bid $185,196.80 for one lease adjacent to its existing acreage position south of Prudhoe Bay, and was a 50-50 bidder with ConocoPhillips on two other leases in that general area.

Devon took a Beaufort Sea block of leases west of Northstar for $182,400. Arctic Falcon took three leases on the southwestern edge of the sale adjacent to NPR-A for $89,996.70. UltraStar took a Beaufort Sea lease for $48,332.80 in the vicinity of Gwydyr Bay, and ConocoPhillips’ share of its partnership bid with Pioneer was $33,984.

Beaufort sale tops last four sales combined

The Beaufort Sea sale, with 28 bids for 28 tracts, some 125,440 acres, exceeded the last four Beaufort Sea sales combined, Sean Parnell, deputy director of the Alaska Division of Oil and Gas, said before reading bids. The acreage total for the previous four Beaufort Sea areawide sales (2000 through 2003) was 121,392 acres, with sales ranging from a low of 19,226 acres in 2002 to a high of 39,995 acres in 2003. Total bids in the Oct. 27 sale, $5.28 million, almost match the sum of the four previous sales, $5.65 million.

Results for the North Slope areawide were more typical. In the Oct. 27 sale 68 bids were received for 64 tracts covering 240,690 acres. The state began to offer the entire North Slope in 1998, and North Slope areawide sales have ranged from 32,316 acres leased in 2002 to 652,355 acres leased in 2000, with the highest bid amount, $51.8 million, coming in the first North Slope areawide sale in 1998 when 518,689 acres were leased. Prior to the state’s areawide leasing program it took longer for companies to acquire acreage over a prospect. Once the areawide sales were scheduled annually, companies knew that acreage would be available for bid on a regular basis.

“With today’s sales, the state has surpassed $115 million in bonus bids since the program’s inception in 1998,” Commissioner of Natural Resources Tom Irwin said in a statement after the sale. Irwin said he was particularly pleased that 11 companies participated in the sale. “This participation is proof that the governor’s efforts to encourage oil and gas companies to enter the Alaska market is bringing results,” he said.

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Independents see opportunities in Alaska geology

H.S. “Hank” Radomski, Devon Canada senior landman, told Petroleum News after the sale that this is the first time Devon has bid in an Alaska lease sale. Devon’s acreage in the Cosmopolitan unit in Cook Inlet and on the North Slope at Point Thomson is the result of mergers, he said.

Devon Canada out of Calgary is “responsible for everything north of the Brooks Range,” Radomski said. “We’re quite active in Canada’s North. Geologically Alaska is not much different” and the Canadian group “saw some exploration opportunities in Alaska.” The leases just acquired are “near Sandpiper” and the prospect “is still in its infancy stage. It’s just a lead at this point. We’re still evaluating data,” and plan to acquire seismic that has already been shot over the leases.

“Hopefully, we’ll be able to work it into a prospect,” he said, but at least the company has a toehold in the Alaska Arctic now. The company is active in the Northwest Territories, Yukon Territory, the Canadian Beaufort, “and now Alaska.”

Sommer geoscience team credited

Kerr said Armstrong has found both big companies and the state willing to work with it cooperatively. “It’s a difficult place to come in and do business, but we have seen that spirit of cooperation (from the big companies) and it’s caused us to come up here and get more active, not less active.”

On the regulatory side, he said, things have to be done safely and appropriately, “but you still have to have that spirit of cooperation in order to be successful and get things done.”

Prospects not small

Kerr said he thinks the North Slope is “a great place for independents … and this is one of the greatest petroleum systems there is in the world, so I think that you will see more companies coming.”

There are “moderate sized companies that are looking to get up on the North Slope and they’re just a little nervous because they haven’t stuck their toe in the water yet, and I think in large part companies like Armstrong are a catalyst for them — Pioneer, Kerr-McGee as well — they want to see that first development get going, they want to see that first bit of production coming on,” Kerr said.

Production from an independent on the North Slope, he said, combined with the current high oil prices and the global need for oil, “will open the floodgates.”

As for this winter season, Armstrong plans to drill with Kerr-McGee at Nikaitchuq and Tuvaaq, and to drill its own prospect at Two Bits.