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Vol. 19, No. 29 Week of July 20, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Explorers 2014: Royale is studying seismic and planning exploration

Royale and partner Rampart have competed a seismic program and secured a $50 million credit facility

Eric Lidji

For Petroleum News

Royale Energy Inc. recently completed its first seismic acquisition in Alaska and the results will determine exploration drilling in the near future, according to the company.

“We are pleased with the progress of this important step in the development of (Royale’s) Alaska property, and look forward to analyzing the data to select drilling locations for the coming winter season,” Co-CEO Stephen Hosmer said in a statement in March.

Royale is partnering on the program with Denver-based Rampart Energy Inc., which recently committed $50 million to upcoming exploration activities on the acreage.

“The preliminary results available to date are showing excellent data quality and clearly highlight the key interpretable intervals such as the Brookian and HRZ packages, and near top Kingak Formation. We look forward to reporting on interim processing deliverables, and our early interpretation, in due course,” Rampart CEO Torey Marshall said in an April 2014 statement, adding that the partners plan to drill two wells next year.

A recent arrival

The San Diego-based Royale arrived in Alaska in December 2011, when it spent some $2.7 million in high bids on nearly 100,000 acres of North Slope leases thought to be prospective for source rock development. The leases were in three blocks: in the Franklin Bluffs region, south of Prudhoe Bay, and south of Nuiqsut along the Colville River.

The small company also holds interests in Sacramento basin and San Joaquin basin of California, as well as in Utah and Texas, and produces some 15 million cubic feet of natural gas per day from its wells. After testing the waters with the Monterey shale of California, the company wanted to take another stab at unconventional resources.

“I believe in the oil shale opportunities here (in Alaska), so we decided to give it a shot and I’m happy that it looks like we have succeeded,” Royale Vice President for Exploration and Production Mohamed Abdel-Rahman told Petroleum News in late 2011.

Abdel-Rahman arrived in Alaska in the early 1980s, while working for Sohio. He started as a geologist focusing on the southern half of the state and became the district geologist for the entire state as the company was drilling the Mukluk well in Harrison Bay, in 1983.

The $1 billion well was the most expensive dry hole in history. Sohio picked Abdel-Rahman to lead a post-mortem investigation. “At the time it was not fashionable to talk about biomarkers - organic compounds that are characteristic of the organisms from which the oil is generated - but we did biomarkers work in Mukluk and compared it to all the other oils that had been discovered on the North Slope. We found an astounding match of the Mukluk oil and Kuparuk oil,” Abdel-Rahman told Petroleum News in early 2012, adding, “In my view there is no doubt that the Mukluk oil went to Kuparuk.”

The work convinced Abdel-Rahman about the nature and location of the North Slope source rocks, which would have “charged” Prudhoe Bay, Kuparuk and other big fields.

While Royale claims to have been interested in Alaska source rock potential for some time, the company said it wanted to get more “internal infrastructure” in place before bidding on acreage. But after Great Bear Petroleum LLC took some 500,000 acres of source rock prospective acreage in an October 2010 lease sale, Royale decided it had better make its move. “We were caught by surprise when Great Bear Petroleum took that much acreage. It forced us to move quickly,” Hosmer told Petroleum News in early 2012.

Even though Royale came in second, it believes it got a good land position. “Everything we picked is optimum for oil generation - in all three shales,” Abdel-Rahman said.

The central North Slope is home to three stacked shales: the Triassic-age Shublik formation, the Jurassic-age Kingak shale and the Cretaceous-age Hue, or HRZ, shale.

Of those, Royale told Petroleum News that it was most excited about the Shublik, which the company believes in similar to the booming Bakken formation of North Dakota.

The company has said it also intends to pursue conventional oil targets on its acreage.

Building a joint venture

Royale’s exploration efforts since its initial lease acquisition have been measured.

By early 2012, Royale said it wanted to find a joint venture partner to help it drill as many as six wells the following winter - two wells on each of its three lease blocks.

In early 2013, Australia-based Rampart Energy Ltd. agreed to spend $43 million on exploration in return for a large stake in the Royale land position on the North Slope.

Under the deal, Rampart could earn a 10 percent working interest in the western block of leases by paying Royale $3.4 million in two chunks by deadlines in June and December 2013. Rampart could earn an additional 20 percent interest by acquiring 3-D seismic over both the western and central Blocks by March 31, 2014, and could earn another 45 percent interest (for a total working interest of 75 percent) by drilling, testing and completing two wells, including horizontal sections into target formations, by March 31, 2015. The deal also allowed Rampart to earn a 75 percent working interest in the Central Block by completing a 3-D seismic survey and paying an additional $1.7 million by June 30, 2014.

Rampart has met the first targets, paying Royale $3.4 million last year and hiring SAE Exploration to conduct a 3-D seismic survey over 120 square miles of the North Slope.

The processing is expected to take between six and 12 weeks, according to Royale, and will determine where the company drills, should it return to the region next winter.

A preliminary interpretation of the seismic “identified a large conventional target, covering an area of up to 20,000 acres,” according to Royale, but Rampart suggested some source rock potential, too. “The preliminary results available to date are showing excellent data quality and clearly highlight the key interpretable intervals such as the Brookian and HRZ packages, and near top Kingak Formation,” Rampart’s Marshall said in a statement, referring to the Brookian formation that is producing at various places across the North Slope and also to two of the three source rock formations present in the region.

Rampart has repeatedly praised the exploration tax credits available under the Alaska’s Clear and Equitable Share fiscal regime. Portions of the production tax code were replaced earlier this year, but the segments relating to exploration credits remained largely in place. Rampart used its ACES credits to secure its $50 million credit facility from an affiliate of the New York-based lending firm Melody Capital Partners LP.



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