Repsol E&P USA Inc. was the first company to benefit from a new state law allowing for a one-time extension of oil and gas leases in jeopardy of expiring.
But the company didn’t get all it wanted.
Repsol had asked the state to extend the terms of five Alaska North Slope leases by three or four years.
The state’s oil and gas director, Bill Barron, ultimately gave the company extensions of only two years. In return, Repsol must drill at least one new well, post a $100,000 performance bond, and gather additional seismic data.
Repsol is a 70 percent working interest owner in the leases, with 70 & 148 LLC holding 22.5 percent and GMT Exploration Company LLC holding 7.5 percent.
The leases are in the vicinity of exploratory wells Repsol has drilled between the Oooguruk and Colville River units. Repsol has called its drilling results encouraging.
‘Just a little more time’
Repsol E&P USA is a subsidiary of Repsol S.A., an integrated global energy company based in Madrid, Spain.
The Alaska Legislature, in its 2013 session, passed House Bill 198 authorizing an extension of the primary term of a lease if deemed in the state’s best interests. Gov. Sean Parnell signed the bill into law on May 28.
The law is aimed at allowing companies to hang onto expiring leases, provided they can show they’ve already spent significantly on exploration and development. The law also allows the state to demand work commitments going forward.
Previously, operators had only three ways to hold a lease beyond term: produce from the lease, engage in active drilling, or commit the lease to an oil and gas unit. None of those options is easy.
Officials with the Alaska Department of Natural Resources said Repsol had spent more than $200 million since 2011 on exploration in the area of its leases, including the drilling of four exploration wells.
“There are times when a lessee, having invested significant funds and work in a shorter-term lease, needs just a little more time to bring the lease into production,” Barron said. “A one-time extension can buy the operator that extra time, but they have to show they’ve been diligently working to explore and develop the lease, they have to be willing to commit to completing additional work to prove up the lease, and they may have to be willing to post a performance bond.”
Work commitment
The new law increases the probability of bringing state leases into production, Barron said.
He actually made two Repsol decisions, one on a single lease and another on a group of four leases.
By letter dated July 24, Barron granted a two-year extension of lease ADL 391303, which was due to expire on July 31. Repsol had requested a four-year extension.
“In its application, Repsol proposed work commitments to drill wells, obtain seismic data, and sanction development,” the letter said.
In support of its application, Repsol provided DNR’s Division of Oil and Gas with cost data, financial information, and geological, geophysical and engineering data. Barron’s letter said this material would be held confidential.
In exchange for the two-year extension on ADL 391303, the letter said that by July 31, 2015, Repsol “shall obtain” additional 3-D seismic data.
Barron’s second decision letter, dated July 29, covered leases ADL 391013, ADL 391022, ADL 391320 and ADL 391322. These leases had original primary terms of either five or seven years, and were due to expire at the end of July or August.
Repsol requested an extension of three or four years on the leases, but Barron granted only two.
His letter noted that Repsol “has successfully drilled and evaluated four exploration wells (Qugruk 1, 2, 3A, and 6 boreholes) on other leases in the surrounding area. The data from those wells provide significant information on the prospects of the four leases Repsol seeks to extend here.”
In exchange for the extensions, Barron said the “minimum” work commitment included Repsol drilling one new well by July 31, 2015.
“The well must be drilled to a depth sufficient to evaluate the prospective reservoir targets underlying the leases,” the letter said.
Barron also gave Repsol 30 days to post a $100,000 performance bond, which the company will forfeit if the new well isn’t drilled by the deadline.
While the new law allows DNR to sharply raise the annual rental on extended leases, Barron said the rent on all five Repsol leases would remain at $3 per acre.
ASRC’s involvement
With regard to the group of four Repsol leases, Arctic Slope Regional Corp. owns the leases jointly with the state. ASRC is an Alaska Native corporation and a major North Slope landowner.
Like the state, ASRC decided to approve a one-time, two-year extension of the leases.
Teresa Imm, ASRC’s vice president for resource development, said in a July 29 letter that Repsol’s proposed work commitment was to “drill four wells within three years in the vicinity of the four leases.”
The letter added: “ASRC has expressed concern to Repsol over the number and timing of the wells proposed and their potential impact to the environment and surface lands owned by the Kuukpik Corporation.”
Repsol experienced spills at two of its drilling sites. In April, an estimated 91 barrels of mostly well stimulation fluids plus some diesel and crude oil spilled at Qugruk No. 6 due to a hose rupture during a well flowback operation. And in February 2012, a gas kick at Qugruk No. 2 drove about 1,000 barrels of drilling mud out of the well and onto the ice pad and adjacent tundra.
For the lease extensions, ASRC set the same condition as the state: Repsol must drill one new well by July 31, 2015.
ASRC further said: “Repsol shall conduct a full technical meeting with ASRC within 30 days of this approval to provide and submit its geological, geophysical and engineering data received by the State of Alaska as part of its application.”
—Wesley Loy
