October 24, 2002 --- Vol. 8, No. 110October 2002

New player: Pioneer Natural Resources acquires 70 percent interest in Armstrong's Kuparuk-Thetis leases, takes over operatorship

Dallas-based Pioneer Natural Resources Co. has signed an agreement with Armstrong Resources LLC giving it a 70 percent working interest in 10 state oil and gas leases on the North Slope, Pioneer said in a press release this morning.

Operatorship of the leases, which encompass approximately 14,000 acres between the Kuparuk River unit and Thetis Island, will be transferred from Armstrong to Pioneer Resources, Scott Sheffield, chairman and CEO of Pioneer, told PNA in an interview.

Active in the Gulf of Mexico, Texas, Kansas, western Canada, Argentina, South Africa, Gabon and Tunisia, Sheffield said his company has proven reserves of “671 million barrels of oil equivalent — about 50 percent oil and 50 percent gas” and is “approximately the 10th largest independent in the United States.”

Armstrong is in the process of getting permits to drill as many as three exploration wells on the Kuparuk-Thetis leases this winter, testing an area that is “prospective for oil in the same sands as the offsetting Kuparuk River unit eight to 10 miles to the southeast,” Pioneer said.

Pioneer’s wholly owned Canadian subsidiary, Pioneer Canada Ltd., will oversee the Alaska exploration operation, Scott Sheffield said. Ken Sheffield, president of Calgary-based Pioneer Canada (no relation to Scott Sheffield), will be the Alaska project manager. A petroleum engineer and 1982 graduate of Texas A&M, Ken Sheffield told PNA the company would utilize Pioneer’s expertise in both Calgary and Dallas.

“We have a lot of people familiar with Arctic drilling, mostly in Canada. … We drill in the range of 30 to 50 wells per year in Canada. They are winter access operations, very similar to Alaska, except being a little bit further south,” he said.

“That’s to help us get the project started. We’ll be using a lot of local folks on the North Slope as well,” Chris Cheatwood, Pioneer Resources executive vice president of worldwide exploration, told PNA in the same interview.

If Pioneer finds what it “expects to” when it drills the leases, the company will look at establishing an Alaska office, Ken Sheffield said.

Pioneer will honor the services agreement Armstrong entered into with Natchiq Technical Services, he said: “We intend to follow through on Armstrong’s agreement with Natchiq; there will be no lesser level of commitment. We’re stepping into their shoes.”

When asked if Stu Gustafson, vice president of operations for Armstrong, would still be involved in the project, Cheatwood said “absolutely.”

“We see this deal as a great opportunity and we look forward to working with our partner, Armstrong. They have considerable expertise in this area and we think the combination of Pioneer and Armstrong gives us the opportunity to develop a really successful project,” Ken Sheffield added.

The agreement between Denver-based Armstrong and Pioneer Resources is effective Nov. 1.

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