Wildcat!

Armstrong to ‘test new idea’ on North Slope this winter; bullish on oil price

KAY CASHMAN

Petroleum News

It might be a painfully slow climb to 2020 and its higher oil prices, but Bill Armstrong and his company Armstrong Energy are still betting on Alaska for more dream fields - fields that could make Alaska’s oil industry great again.

Armstrong is drilling a true wildcat well on the North Slope this winter, approximately 20 miles from the southern boundary of the Armstrong-operated Pikka unit, which is expected to go into production in 2021.

“The world has been living off of the conventional oil fields found in the 1950s, ’60s, and ’70s. The world consumes around 97 million barrels of oil per day. Ninety-three million barrels a day of that consumption comes from conventional oil fields and only 4 million barrels from the newly popular headline-grabbing tight oil fields, most of which is uncommercial even at high oil prices according to the EIA,” Armstrong told Petroleum News in an Aug. 19 interview in the company’s downtown Anchorage office.

“By 2020, production from those fields will not be enough to match demand,” even if you include all of the technically recoverable tight oil, the founder, president and CEO of the Armstrong companies said. “By the end of this decade, there is no way supply will keep up with demand. What that translates into for oil prices is anyone’s guess, but I think it means $70 to $80 per barrel at a minimum” he said, which is in line with estimates from conservative experts.

The U.S. Army Corps of Engineers is currently conducting an environmental impact statement, or EIS, on Armstrong’s new discoveries, discoveries that have many North Slope insiders talking. The new discoveries are tapping the Cretaceous Nanushuk formation and several other shallow conventional oil sands. The Nanushuk discovery represents a new play concept never before seen on the North Slope.

“We believe we have proven an oil pool that covers more than 25,000 acres, at a shallow depth of only 4,100 feet, with an oil column of 650-plus feet, up to 225 feet of net pay and an average porosity of 22 percent. Individual wells should be in excess of 10 million barrels each,” Armstrong said, noting, “to put it in perspective, this is 25 times larger than the average Bakken well,” referring to the lower 48 North Dakota tight oil play that has received a great deal of media attention.

When asked whether the company plans to do any medium-to-large fracs in those wells, Armstrong said, “No, we’ll only do small fracs. This is an old school conventional oil field.”

Nanushuk discovery could point to further North Slope opportunities

In a talk at the Alaska Geological Society’s annual technical conference on April 22, Houseknecht, an established expert on Arctic Alaska petroleum systems, presented compelling evidence for looking into this new play possibility.

Essentially, while rocks of middle Cretaceous age, including the Nanushuk formation along the Beaufort Sea coast west of the central North Slope, have tended to play second fiddle to plays involving some of the older rocks of the region, the new discovery has revealed the possibility of major undiscovered oil resources along a fairway extending perhaps 100 miles west from Armstrong’s recent discovery, Houseknecht suggested. (See full article in the May 8 edition of Petroleum News.)

Armstrong is “working with key organizations such as Kuukpik Corp., the Native Village of Nuiqsut and directly with community members to ensure that the resources are explored in a safe and responsible manner and to protect the subsistence resources and lifestyle that are so important to the people of the region. We have an obligation to the residents of the North Slope to be good stewards of the land,” Armstrong said.

One wildcat, one appraisal well

Two rigs will drill the appraisal and wildcat wells the company has planned for the winter of 2016-17.

The appraisal well, Armstrong said, would be right outside the Pikka unit.

The wildcat will “test a new idea” gleaned from their proprietary Horseshoe 3-D seismic program, shot and processed this past winter, he added.

In October, Mark Myers referred to Armstrong’s discovery as “amazing.” Myers, who was commissioner of the Alaska Department of Natural Resources at the time, had access confidential drilling results from the company’s multi-year exploration drilling program.

In a Feb. 14 email to Petroleum News Myers said the proven contingent oil reserve number (497 million barrels) makes the discovery the largest since the Alpine field, the probable contingent reserve number (1.4 billion barrels) the largest since the Kuparuk field, and the possible contingent number (3.7 billion barrels), the largest since Prudhoe, with one caveat: The discovery is “multiple different reservoirs, not just one major reservoir as in the case of the original Kuparuk and Alpine discoveries.”

Armstrong and its long-time partner GMT Exploration Co. LLC and Repsol E&P USA Inc. are looking at first tapping the Nanushuk formation and Alpine sands, and then producing three or four other oil bearing horizons in the Pikka unit.

Plans are to initially produce 120,000 barrels of oil a day from three pads, but Myers said a peak production rate as high as 250,000 barrels per day is conceivable under the possible contingent reserve.

According to the Alaska Department of Revenue, North Slope crude oil production averaged 459,327 barrels per day in July, down 6.53 percent from a June average of 491,419 bpd, a drop driven primarily by scheduled maintenance.

“Worldwide demand for oil has risen on average 1.2 million barrels a day per year. Couple that with an annual decline rate of around 5 percent from existing fields and the world has to find almost 6 million barrels of new oil per day each and every year just to stay even with demand. This all bodes really well for the 2020s,” in terms of price, Armstrong said, taking his numbers from Energy Information Administration, or EIA.

Of the top 10 oil fields in the U.S. by size, two are in Alaska - Prudhoe Bay and Kuparuk. The largest of all is Prudhoe Bay, with Kuparuk coming in fifth.

Of the top 50 giant fields in the U.S., seven are in Alaska, with ConocoPhillips’ Alpine coming in third among the Alaska fields.

“And we believe there is a lot more oil to be found here. Our recent discoveries prove that,” Armstrong said.

Alaska, he said, has a lot going for it: “If you were an oil man and you had to describe your dream oil field, what would it look like?” he asked, listing:

• It would be in the United States.

• It would be onshore.

• It would be an oil field vs. a gas field as oil is in a worldwide market and not a local market.

• It would have a lot of oil in a small amount of space (resource concentration).

• It would be big in size

• Individual wells would have great porosity, great permeability and thick pay zones which would translate into big individual wells which would make for robust economics.

Armstrong’s new Pikka discovery has all of this in spades, he said.

“The mean, or average, field size in Alaska is 590 million barrels of oil, with mean well sizes of 5 million barrels of oil. The state is relatively unexplored because most of the fields are in hard to detect subtle stratigraphic traps, but these traps can now be seen with new high-effort 3D seismic,” Armstrong said.

The decision to develop the Pikka unit followed four seasons of an ambitious exploration program involving 16 wells with Repsol as the operator. The partners focused primarily within the lightly explored so-called “billion-dollar” fairway between the ConocoPhillips-operated Kuparuk River and Colville River (Alpine) units.

In October, Armstrong and GMT announced they had restructured their deal with Repsol and acquired majority control and operatorship of the Alaska project. The group currently has a land position in excess of 820,000 acres.

Pikka will be a much needed shot in the arm for oil flowing down TAPS.

“Dream oil fields are still out there to be found, especially in Alaska,” Armstrong said.