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A step closer to development Armstrong left ‘a lot of money on the table’ in recent lease sales, but worth it to advance development, says Kerr Kay Cashman Petroleum News
In a Nov. 19 interview, Armstrong Oil & Gas Vice President Ed Kerr told Petroleum News “in 10 or 15 years people will talk about Repsol the same way they talk about BP and ConocoPhillips today, in terms of … contributing to Alaska’s economy.”
Currently BP and ConocoPhillips are Alaska’s largest oil producers, while Repsol E&P USA, a subsidiary of Spanish mega-major Repsol and Armstrong’s primary partner on the North Slope, is the most active explorer in the area. Between the Kuparuk River and Colville River units, the area is called the billion-dollar fairway because of its prospective geology and proximity to infrastructure.
According to a top Repsol manager in Alaska it’s not a matter of “if” the companies will proceed with development of the region, but “when.” The companies are the largest leaseholders in the billion-dollar fairway.
The Nov. 19 interview with Kerr followed four northern Alaska oil and gas lease sales in Anchorage - three state and one federal - with Armstrong affiliate 70 & 148 the apparent high bidder on 179,832 of the 708,346 acres that garnered bids.
While the company picked up acreage south and east of Meltwater and from the Nikaitchuq unit area in the nearshore Beaufort Sea to large blocks south of Prudhoe Bay, where it competed with Oooguruk unit operator Caelus on a number of leases, what drew the most attention was its high bids on tracts in the billion-dollar fairway.
Armstrong’s bids on tracts 1037 and 1040 were $2,537.73 an acre, totaling some $6.5 million each for the tracts, the highest per-acre and tract bids in any of the sales. (See full story and map in last week’s edition of Petroleum News.)
Bids of $1,757.89 per acre for tracts 1041 and 1044, produced bids of $4.5 million per tract. A bid of $1,457.37 per acre for tract 1142 yielded a total bid of $3.73 million, and $1,007.73 per acre for tract 1139 produced a total bid of $2.58 million.
There was competitive bidding on a number of fairway tracts, but no per-acre bids in the range of those Armstrong’s affiliate put on the table. The company paid an average of $212.70 per acre.
Armstrong an operator? When asked whether Repsol would operate its newly acquired acreage, Kerr said “I think there is the opportunity for Repsol to operate some of these tracts - and an opportunity for us to,” which would be a first for Armstrong in northern Alaska.
“Those bids are a result of a couple things,” Kerr said, referring to the high dollar amount Armstrong tendered for those in the fairway: “The last three years of exploration and delineation drilling with Repsol.”
When the time comes, Kerr wants to be ready to advance development.
“We left a lot of money on the table but sometimes you need to, you’re better off doing that, so we can move everything ahead,” Kerr said.
But the company’s bids in the fairway and elsewhere in northern Alaska are also the result the recent oil tax change, Senate Bill 21, supported by Gov. Sean Parnell and passed into law in 2013, Kerr said. SB 21 was designed to improve the investment climate for oil in Alaska.
“What you are going to see as a result of SB 21 from Repsol and Armstrong is more jobs on North Slope, and more state … revenue from where they haven’t gotten it before, in addition to extending the life of TAPS (trans-Alaska pipeline system).”
Repsol, Kerr said, “has been a great partner for us - Repsol is going to be a piece of the future of Alaska.
Praise for Walker’s exploration incentives Gov.-elect Bill Walker also received praise from Kerr for his mention of the need for increased exploration incentives in a recent meeting with an oilfield services group.
“I commend that thought process by the governor-elect because it’s a way to get more wells drilled, along with SB 21 to take them to development. As long as SB 21 stays in place. Using us as an example, SB 21 has gotten us this far.”
More progress this winter Repsol plans to drill three exploration wells during this coming winter’s North Slope exploration season in order to assess previous discoveries it made between the Kuparuk River and Colville River units.
The company is permitting five potential well locations for the program, which would give it some flexibility as it gleans more data from previous drilling.
The program would involve three rigs drilling simultaneously.
Judging purely by drilling locations, Repsol is still analyzing the breadth of it and its partners’ leasehold.
The five proposed well locations cover the swath of land (fairway) where Repsol has been exploring for the past three winters and even stretches a bit farther to the south.
After cautiously advancing in the state for years through lease sales and joint ventures, Repsol made a big bet on Alaska in March 2011 by acquiring a 70 percent working interest in North Slope leases held by Armstrong affiliate 70 & 148 LLC and its fellow Denver-based independent GMT Exploration LLC for $768 million, $750 million if it earmarked for exploration.
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