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THE EXPLORERS 2004: AVCG forms North Slope operating firm AVCG and Brooks Range Petroleum open Anchorage office; increase activity in Alaska Petroleum News
In 2004, Alaska Venture Capital Group LLC continued to expand its activity in Alaska by opening an Anchorage office and forming a new operating company, Brooks Range Petroleum Corp. The new company was tasked with working with other oil and gas companies to monetize, explore and develop AVCG’s 140,000 acres of oil and gas leases on Alaska’s North Slope.
The Kansas-based independent also added a lease to Armstrong Alaska’s Two Bits prospect, which is expected to be drilled in the winter of 2004-2005.
“Part of the reason for the new company was … to give us more of a name associated with the North Slope and part was for a corporate structure,” member manager John Jay “Bo” Darrah Jr. told Petroleum News in August 2004.
Formed in 1999 to acquire, explore and develop prospects on Alaska’s North Slope, AVCG’s founders are Darrah and Barton Armfield, two experienced oil men and longtime acquaintances. Darrah has 33 years experience managing a privately held oil company based in Wichita, Kansas; Armfield has extensive, and relatively recent, history on Alaska’s North Slope with Alaska Petroleum Contractors. The other six owners in AVCG are privately held, independent oil and gas companies actively exploring and operating in the Lower 48.
According to Darrah, AVCG has stayed on track with its plan to develop “North Slope leftovers” — i.e. smaller prospects near existing fields that hold in the range of 50 million barrels.
With three exceptions: “We have significant positions in two prospects that each exceed 100 million barrels and a third which has up to 90 million barrels of recoverable oil,” Darrah said in August 2004, referring to estimates based on 3-D seismic shot on approximately 40,000 acres of AVCG’s North Slope holdings.
Palm lease added to Two Bits The firm’s major blocks are Cronus, which includes joint acreage with ConocoPhillips; Gwydyr Bay, located near the mouth of the Sakonowyak River and separate from Pioneer Natural Resources’ prospect of the same name; and Itkillik River and Ocean Point.
AVCG also holds a four-section lease at Palm on the western edge of the Kuparuk River unit, which has a new producing Kuparuk sand well.
In an August 2004 deal with Armstrong Alaska, AVCG’s Palm lease was added to the Two Bits prospect, which Armstrong plans to drill in the winter of 2004-2005.
“Originally AVCG had bid on three adjoining tracts in this area but we were ‘touched out’ in the biding process on two of the leases, one by Bill (Armstrong) and one by ConocoPhillips,” Darrah said. “Joining or contributing acreage in order to cause wells to be drilled is very common and traditionally easily accomplished among independents.”
Remaining prospects are in various stages of evaluation. “We have positioned our prospects so that while looking for 50 to 100 million barrels of oil, we are assured that something less can be sanctioned, say in the 25 million barrel range,” Darrah said. “When you think about it, 25 million barrels is huge anywhere else on-shore in the Lower 48,” he added.
The Anchorage office AVCG opened a land and exploration office in Anchorage in January 2004, which is staffed mainly by Darrah and Edgar Dunne, also an AVCG manager. Darrah said Brooks Range is working closely with ASRC Energy Services, its primary field service provider and a subsidiary of the Native regional corporation for northern Alaska, Arctic Slope Regional Corp.
AVCG expects to increase its North Slope activity in 2005 through Brooks Range Petroleum and by working with other independents, Darrah said.
“Our goal for 2005 is to drill a minimum of one well and a maximum of three wells,” he said. “Our interest would range in size according to commitments from those funding partners.”
Alaska economical challenges The North Slope’s prolific oil reserves and its U.S. address which ensured a “stable government environment” is what brought AVCG to Alaska in 1999, Darrah said. The company quickly found that Alaska’s economic challenges greatly surpassed the region’s geological challenges.
“While we knew the pipeline tariff cost at the time, I would have to say we were pretty ignorant to how ‘open’ the slope was and is to small companies,” Darrah said.
Downstream costs for North Slope oil are “over the top,” when compared to other locations worldwide. In particular, traditional North Slope facility sharing agreements now in place, such as Ballot 255 at the ConocoPhillips-operated Kuparuk River unit, “do not represent arms length transaction between facility owner and satellite owner,” Darrah said. “This is because the two parties or assets are so closely cross-aligned to their percentage ownership in both centers that there is little if any net effect on their working interest. To date, there are no true third parties producing a satellite into one of the six existing North Slope facilities.”
Most troubling for an independent considering a North Slope project are the backout formulas, which treat a facility’s marginal barrels with the same value as the best barrels, he said.
“If some of the high cost of downstream operations could be lowered tomorrow, there would be more than a pitifully few exploration wells drilled year to year,” Darrah said. “One of our big hurdles has been convincing new companies to partner with us, given the high marketing cost.”
Companies that have given Alaska a look, thanks to AVCG, include St. Mary Land and Exploration, Devon Canada and Canadian Natural Resources, Darrah said. “I am proud to say that if any of these companies choose to do business on the North Slope, with or without us, that they will be doing so knowing all of the challenges, rewards and the full economic cost structure of doing business on the North Slope.”
—Patricia Liles contributed to this story
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