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A good match Part one in a series: Pioneer Natural Resources acquires 70 percent interest in Armstrong’s Kuparuk-Thetis leases, takes over operatorship Kay Cashman PNA Publisher
One of the country’s largest independents has joined the growing list of junior oil and gas companies doing business in Alaska. 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 will also take over operatorship of the leases, which encompass approximately 14,000 acres between the Kuparuk River unit and Thetis Island, Scott D. Sheffield, chairman and CEO of Pioneer, told PNA in a recent interview.
The agreement is effective Nov. 1.
Tenth largest independent 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.”
The company has a reserve-to-production ratio of 16 years, he said, noting it is one of the longest RP ratios in the industry. (See story on page 6.)
Pioneer operates 70 percent of its oil and gas properties, making it a perfect match for Denver-based Armstrong, which focuses on finding oil.
After the state’s Oct. 24, 2001, Beaufort Sea areawide lease sale at which Armstrong paid $4.2 million for the 10 Kuparuk-Thetis leases, Ed Kerr, the independent’s vice president land, told PNA that when a prospect reaches production Armstrong has historically brought in another company to operate. El Paso Production and Anadarko Production Corp. have both operated for Armstrong, which has oil and gas properties from Michigan to California.
“The best place in the world to look for a big oil accumulation is next to another big oil accumulation,” he said, referring to the Kuparuk River field, the second largest oil field in North America. Discovered in 1969, Kuparuk is estimated to hold 2.5 billion barrels of recoverable oil.
Pioneer Canada to oversee Alaska exploration Armstrong is in the process of getting permits to drill as many as three exploration wells on what Pioneer refers to as the “Northwest Kuparuk prospect” 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 in an Oct. 24 press release. (See related permitting story this page.)
Pioneer’s wholly owned Canadian subsidiary, Pioneer Canada Ltd., will oversee the Alaska exploration operation, Scott Sheffield said. The Alaska subsidiary will be Pioneer Natural Resources Alaska Inc.
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. We work in areas that are non-accessible in the summer months and have to wait until the ground is frozen to gain operational access,” he said.
“We’ll be using a lot of local folks on the North Slope as well,” Chris Cheatwood, executive vice president of worldwide exploration for Pioneer Natural Resources, 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, Sheffield said.
Ken Sheffield has been with the company for 20 years, starting with its predecessor, MESA Petroleum. His background includes reservoir and production engineering. He has also worked in a drilling and completion group.
Sheffield’s geographic experience has been in onshore basins in the United States, the Gulf Coast, the Gulf of Mexico and for the last four years in the Western Canada Sedimentary basin.
Relationship with Natchiq Sheffield said Pioneer will honor the services agreement Armstrong entered into with Natchiq Technical Services: “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 and former head of Exxon’s Alaska exploration department, 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,” Sheffield added.
He said Armstrong “has carried the permitting process up to this point and will be the lead party in transferring all that over to Pioneer, making sure there is consistency” in the process.
Winter drilling complete by end of March “No wells have been drilled on the acreage covered by Pioneer’s leases to date, but wells drilled just outside the perimeter of the acreage have encountered the primary target, the Kuparuk ‘C’ sands, and were oil-bearing,” Pioneer said in its release.
The proposed exploration wells are offshore in approximately five to 10 feet of water.
“Drilling plans call for grounded sea ice pad locations that will be accessed via ice roads from Oliktok Point dock. No tundra travel is planned. All sea ice operations are expected to be completed by the end of March,” Pioneer said.
If Pioneer is successful in getting its permits to drill, it will be the first independent to operate on the North Slope that is not partnered in some way on the slope with the three major ANS producers, BP, ExxonMobil and ConocoPhillips Alaska.
Alaska, Mackenzie Delta on radar screen Canada’s Mackenzie Delta and Alaska’s North Slope have both been on Pioneer’s “radar screen,” Scott Sheffield said.
Presently, Pioneer Canada’s assets are all centered in British Columbia “on the B.C., Alberta border,” but Sheffield said the company is keeping a close eye on the Mackenzie Delta.
“We were looking at Alaska on a scoping basis probably about a year ago. … We had intentions of getting up there in the next couple of years. Armstrong helped accelerate our entry into Alaska,” Cheatwood said.
The changes on the North Slope, he said, also got his company’s attention, referring to BP Exploration (Alaska) Inc.’s decision to effectively discontinue frontier exploration in Alaska.
The other incentive, Cheatwood said, was the “state’s pushing for ways to get independents up there to explore for smaller opportunities,” an effort largely spearheaded by the Alaska Division of Oil and Gas.
Four core areas In the third quarter Pioneer’s production averaged 116,441 BOE. Scott Sheffield said the company’s goal is to grow production to 165,000 BOE per day in 2003 and 185,000 to 190,000 BOE in 2004.
The bulk of this growth, he said, would come from four core development projects — Canyon Express, Falcon and Devils Tower in deepwater Gulf of Mexico and the Sable natural gas project offshore South Africa.
Sheffield said his company is hoping to make Alaska a new key production area: “We’re not going to Alaska for just this one prospect. We’re hoping, over time, to develop it into a core area.
“Eighty-three percent of our reserves are in North America. We’re moving internationally like a lot of companies are. Alaska helps us maintain our high percentage in North America,” which, he said, is something the company wants to do.
For more information, visit Pioneer’s website at www.pioneernrc.com.
Editor’s note: Part two of this story will be about Pioneer’s history and operations outside Alaska.
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