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BP/Conoco swap, Kuparuk assets?
Armstrong asked how to get to Alaska
Kay Cashman Petroleum News
News of a possible asset swap between BP and ConocoPhillips that might include Alaska assets (unconfirmed by either company) has been popping up in the press with Prudhoe Bay at the forefront, but they’re not coming from writers with long memories.
In 1999, the two companies proposed a company-wide merger that would have given BP control of 74 percent of Alaska’s North Slope oil production and 72 percent of the 800-mile trans-Alaska pipeline - a plan that was squashed in the face of federal and state monopoly laws.
But there is a different type of monopoly that could be created without resulting in ConocoPhillips gaining a legal monopoly on current North Slope oil production, and that is control of the prolific western North Slope, starting with the Greater Kuparuk River area, west to the recent huge Nanushuk oil discoveries at Pikka by Armstrong and Repsol, south and 100 miles-plus farther west to related Nanushuk discoveries by ConocoPhillips on both state and federal land and into the National Petroleum Reserve-Alaska, where there are many more Nanushuk pockets of oil. The western North Slope may very well hold another Prudhoe Bay.
In addition to recently buying Anadarko out of its western North Slope percentage of ConocoPhillips-operated assets, the company is rumored to be in the process of trying to buy controlling interest in the Oooguruk unit from Caelus (unconfirmed by either company).
What’s more, if ConocoPhillips is looking to swap North Sea assets for BP’s 39 percent ownership in the Greater Kuparuk Area and BP’s 38 percent ownership in the Kuparuk Pipeline, which carries all western North Slope oil to the trans-Alaska oil pipeline, the company would have a convincing argument for concerned state of Alaska officials because ConocoPhillips has shown itself to be very willing to make investments in Alaska. Taking BP out of the equation might increase those investments and therefore production, which would be good for all concerned.
But then ConocoPhillips would be close to controlling most of the western North Slope with the area’s incredible, newly discovered oil reserves.
Still, a win-win could come out of approval of a Kuparuk asset swap between ConocoPhillips and BP: State and federal officials - joined at the table by Oil Search (new operator of the Pikka and Horseshoe Nanushuk discoveries), Armstrong, Eni (owner and operator of the Nikaitchuq oil field), and other major developers/producers and soon-to-be producers on the western North Slope - could design an agreement that guaranteed ConocoPhillips received and offered a fair deal to other area developers and producers for access to key items such as facilities, pipelines, roads, water and gravel.
As far as trading for Prudhoe Bay assets, unless something has changed, a chunk of Prudhoe Bay’s daily oil sales of about 260,000 bpd still goes to the Prudhoe Bay Royalty Trust, an independent entity traded on the New York Stock Exchange.
Created in 1989, the trust holds an overriding royalty interest that entitles it to a royalty on 16.4 percent of the first 90,000 barrels of the average daily net production of crude oil and condensate per quarter from BP’s working interest in the field. Not the best scenario for a company looking to acquire BP’s interest and operatorship of Prudhoe Bay because the obligation would accompany such a sale.
- KAY CASHMAN
Bill Armstrong asked repeatedly after lecture: How do I get to Alaska? On May 21, Alaska Division of Oil and Gas geologist Paul Decker gave a technical presentation as part of the “Awakening Sleeping Giants” series at the American Association of Petroleum Geologists’ annual convention in Salt Lake City on the Nanushuk formation discoveries confirming world-class exploration potential in a newly proven stratigraphic play on Alaska North Slope.
An hour later the man who made the first such discovery, Bill Armstrong, spoke to a packed room.
Armstrong, owner and founder of Armstrong Oil & Gas and Armstrong Energy, was this year’s Michel T. Halbouty Lecture speaker.
“It was perfect, following Paul’s technical presentation about the Nanushuk formation discoveries because I could concentrate on the human side of the story,” Armstrong said.
Following the lecture, “dozens and dozens of people stood in line to talk to me. They all asked basically the same thing: ‘How do I get to Alaska?’” Armstrong said.
After attending AAPG’s annual Super Basins’ conference in Houston at the end of March, Armstrong decided to revise his speech for the upcoming Halbouty lecture.
“Lots of people came up to me at the Super Basins’ conference,” he said, possibly because David Houseknecht, supervisory research geologist for USGS, gave a speech about Alaska’s North Slope and Armstrong’s Nanushuk discovery at Pikka and ConocoPhillips at Willow. “They wanted to know if I was the guy who had made the first Nanushuk discovery. Most of them said the same thing with several variations - ‘There’s no way a field like that was hiding in plain sight.’”
So Armstrong re-told his entire story of coming to Alaska from Denver in October 2001 and winning his first leases in the state’s Beaufort Sea areawide lease sale, ending with the giant discoveries at Pikka and Horseshoe and bringing in his latest partner, explorer and developer Oil Search.
Armstrong’s story brought it home, made it real to listeners.
Editor’s note: In the introduction of Bill Armstrong in Salt Lake City, attendees were reminded that in 1982 Michel T. Halbouty authored the AAPG Memoir “The Deliberate Search for the Subtle Trap,” noting that 35 years later a new chapter could be added to the memoir describing the search and discovery of the Pikka field on the North Slope of Alaska.
- KAY CASHMAN
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