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Where they lead Armstrong to drill 2004-05 exploration wells on Kuparuk’s western edge Kristen Nelson Petroleum News Editor-in-Chief
Armstrong Alaska Inc. will explore adjacent to the Kuparuk River unit on Alaska’s North Slope this winter. And, if that exploration is successful, the company hopes to be in production next year.
The company has filed a plan of operation with the state of Alaska for up to three exploration wells just off the western edge of the Kuparuk River unit. Armstrong calls it the “Two Bits” prospect — it took the tract with a bid 27 cents an acre higher than a competing bid from AVCG at the state’s areawide North Slope lease sale last October.
Armstrong told the state the wells will be drilled during the 2004-05 winter season “from an existing gravel pad” which will be accessed by a three mile ice road from the Kuparuk River unit 2M pad, which is connected to the North Slope gravel road system.
The ice road will be built “to either the abandoned West Sak 18 gravel pad or an ice pad constructed adjacent to the gravel pad.”
Unlike the past two North Slope exploration seasons when Armstrong was a non-operating partner in drilling prospects it had developed, this time the company will be the operator at Two Bits, Stu Gustafson told Petroleum News July 13. Gustafson, Armstrong’s vice president of operations, said success at Two Bits would give Armstrong, which began buying leases in the state in October 2001, its first production in Alaska, and demonstrate that smaller accumulations can be economic to develop.
Finding oil at Two Bits wouldn’t just be a win for Armstrong, Gustafson said. “If Two Bits works, there’s not enough drill rigs (on the North Slope).” Success at Two Bits, he said, would be better for the industry than discovery of a huge new field, because it would mean companies can make money from developing smaller fields that the 50 million-barrel size that is the standard now. Paradigm cracking The lure of cracking the 50-million barrel paradigm was what brought Armstrong Oil and Gas to Alaska where it founded Armstrong Alaska, Bill Armstrong, president of both companies, told the Resource Development Council of Alaska in November 2002. At that time the company was preparing, with operating partner Pioneer Natural Resources, to drill its first North Slope wells on a prospect that Armstrong developed.
Armstrong told the council’s annual conference that the company came to Alaska because it believes the state’s agreement with the North Slope producers, the Charter for Development of the Alaskan North Slope, will make facilities access possible for independents, now that production is declining and there is room in those facilities for more oil.
Alaska looks like the Gulf of Mexico looked in the 1970s, when production was declining, the majors were looking for better opportunities elsewhere and the Gulf offshore was believed to be “too complicated and too expensive for independents,” he said.
Today the Gulf of Mexico is “home to dozens and dozens of highly competitive independents,” Armstrong said, as well as the majors, and is characterized by technical advancements, good profitable jobs and new ways of looking at the geology. “It’s a lot different than they thought 30 years prior,” he said.
Alaska is “arguably the best petroleum system in the entire world,” Armstrong said, but to find more fields, “you’ve got to drill wells. You can’t find new fields without drilling new wells.”
To date, Gustafson said, Armstrong and the operating partners it has brought into the state have had an 80 percent success rate with drilling. Kuparuk extension the target Matt Furin, the Armstrong vice president in charge of geoscience, told Petroleum News July 13 that the company picked up the Two Bits tract looking “to extend the Kuparuk field … Cretaceous section … farther to the west.”
“With ideas that Stu (Gustafson) has, what we’re trying to do is significantly lower the reserves threshold for economic development around the North Slope fields.”
Most of the things Armstrong has gone after on the North Slope, where it has partnered in the shallow waters of the Beaufort Sea with both Pioneer Natural Resources (2002-03 exploration wells) and Kerr-McGee (2003-04 exploration wells), have been larger, Furin said. Traditionally the economic threshold has been 50 million barrels on the North Slope.
What Armstrong is looking for west of Kuparuk is 15-30 million barrels.
The ultimate goal, Furin said, is to get that economic threshold for making money on the North Slope down to 10-20 million barrels.
It’s equivalent to what was done in the North Sea and the Gulf of Mexico, Furin said.
It is also part of Armstrong’s testing of North Slope paradigms of geology, of economic threshold and of the time it takes to get to the drilling stage.
The company’s tactic, he said, is “just attacking things one bite at a time… If you take them all at once they’re overwhelming.”
The Two Bits project is “just an extension” of what Armstrong as been doing on the North Slope, Furin said, and the most exciting thing about it is “the implication for lowering the commercial threshold. That’s what we’re trying to do. Once we attack that it doesn’t have to be just huge independents” working on the North Slope. The process of moving from all majors to majors and independents took about seven years in the Gulf of Mexico, he said, and noted that Jim Weeks of Winstar Petroleum “laid the groundwork on the North Slope … (and) hopefully we can start where he left off and carry it forward.”
He said the company has been talking with ConocoPhillips, and has “a great dialogue” going with them. “And we need them and others to work with us.” There is a gravel pad Gustafson said the existing gravel pad, inside the Kuparuk River unit just east of Two Bits, is the West Sak 18, a 75,000-cubic yard gravel pad built in 1980, and abandoned since 1981. “The useable area on the pad is approximately 300 feet by 450 feet,” the company told the state in its operations plan, and if the gravel pad is not available, the company said it would build an ice pad about that size adjacent to the gravel pad.
Gustafson said the company will be going out for service tenders for the exploration work, including the rig, in August.
The ice road and pad construction will begin as soon as the company has finalized certain agreements with ConocoPhillips, received its permits and approvals and weather conditions allow, with ice road and pad construction expected to begin as early as November or December.
“Drilling should begin during December on the first exploratory well,” the company said in its operation plan.
Gustafson said they will spray the ice road and use low-pressure footprint vehicles so that work can begin as soon as possible. Spraying is a more expensive way to go, he said, but it will allow them to start work sooner. “If we don’t have to build an ice pad,” he said, the company believes it can start drilling in December, and “have our first two wells done before anybody else starts building ice roads.”
The wells will be directionally drilled to the northwest to the Armstrong lease, and depending on results of drilling, wells may be either plugged and abandoned or “left in a condition to permit the well to be produced,” the company said.
Gustafson said the company is talking with ConocoPhillips about processing whatever oil is found through the Kuparuk facilities. “They have been very good to work with,” he said.
And, he said, if the wells are successful, the company plans to use the “production in a box” system he has proposed, fabricating metal boxes to go around the wellheads. No boxes have yet been fabricated.
“We’re still working on the box,” Gustafson said.
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