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THE INDEPENDENTS 2003: EnCana continues to add Alaska acreage Company’s Arctic Alaska land position jumps from 1.4 million acres to 2 million-plus Kay Cashman Petroleum News
Just three days after EnCana notified the U.S. Minerals Management Service it was plugging and abandoning its McCovey No. 1 exploration well in the Beaufort Sea, EnCana’s President and CEO Gwyn Morgan told analysts at a Feb. 5 energy summit that Alaska — along with the Gulf of Mexico, Australia and North Africa — was among his company’s “high-impact opportunities to be drilled.”
In a conference call with analysts later in February, Morgan pledged to continue exploration in Alaska.
Although the super independent has no plans to drill exploration wells in Alaska in the winter of 2003-2004, it has continued picking up acreage in the state’s Arctic region.
EnCana was the only bidder in the state of Alaska’s May 7 North Slope Foothills areawide sale where it bid $36,576 for a single tract. The Calgary-based company’s 5,760-acre tract is adjacent to a large Anadarko Petroleum-EnCana lease block south-southwest of Sagwon on the Dalton Highway and west of Anadarko's Dolly Varden prospect.
EnCana also bid in the Sept. 24 MMS Beaufort Sea sale. (See On Deadline section for sale results.)
Prior to the Sept. 24 sale EnCana officials said the company held roughly 675,000 net federal and state acres in Alaska — approximately 390,000 acres in the Brooks Range Foothills, 230,000 on state land on the North Slope, and 57,000 acres in the National Petroleum Reserve-Alaska.
Deal with ASRC The company also has a lease option to explore 3.1 million acres of Arctic Slope Regional Corp. land in the Brooks Range Foothills with partner Anadarko. EnCana’s position in that acreage is 33.33 percent or 1.333 million acres.
The North Slope acreage includes 6,000 net state acres near the former McCovey unit where EnCana drilled the McCovey No. 1 in federal waters to earn a 30 percent interest in the unit held by a 50-50 partnership of ConocoPhillips and ChevronTexaco.
The McCovey unit contained three federal and four state leases some 12.5 miles northeast of West Dock at Prudhoe Bay. The unit and its leases expired in the summer of 2003, an EnCana official told Petroleum News Oct. 6.
The 6,000 net acres were acquired in the Oct. 24, 2002, Beaufort Sea state areawide oil and gas lease sale.
The three McCovey partners — EnCana, ConocoPhillips and ChevronTexaco — formed a bidding group that took five leases adjacent to the McCovey unit on the south. The leases totaled 12,160 acres.
An EnCana and ChevronTexaco bidding group also took three tracts (7,680 acres) to the southwest of McCovey.
Holdings fit in with gas strategy EnCana’s largest leasehold in Alaska — its 390,000 acres in the Brooks Range Foothills and the net 1.333 million ASRC acres — is in one of Alaska’s most prospective areas for natural gas, which fits into the company’s strategy to become the top gas producer in North America.
Morgan told shareholders at the company’s annual meeting in April that EnCana “truly is a super-major,” ranking number three ahead of all other independents on the North American gas front and owning the continent’s largest independent gas storage network at a combined 145 billion cubic feet.
“We are investing a lot of capital in building our gas production because we think that North American gas markets have moved into a sustained period of tighter supply and stronger prices,” he said.
EnCana was targeting produced gas sales of more than 3 billion cubic feet per day in 2003, a gain of 200 million cubic feet per day from 2002, but still less than the continental gas output of its targeted rivals — majors BP and ExxonMobil.
For 2002, ExxonMobil averaged 3.6 bcf per day and BP logged 3.48 bcf.
“It is our assessment that EnCana is capable of average sales growth of 10 percent per share, excluding acquisitions, divestitures or major exploration successes,” Morgan said.
Phillips brings AEC to Alaska EnCana first added Alaska to its list of prospective frontier areas in August 2000 when the U.S. subsidiary of Alberta Energy Corp., predecessor to EnCana, entered into a joint venture agreement with Phillips Alaska (now ConocoPhillips Alaska) and Chevron U.S.A. (now ChevronTexaco U.S.A.). The alliance involved nearly 150,000 acres on Alaska’s North Slope and in the Beaufort Sea, including a one-third interest in 28,504 acres offshore Prudhoe Bay in the McCovey prospect and a 20 percent interest in 114,262 acres in the Grizzly Gomo prospect area south of the Kuparuk oil field (later increased to 30 percent).
Look for oil and gas AEC came to Alaska, AEC Vice President Guy James said in early 2002, for two reasons: the potential for “significant world-class” oil finds and Alaska’s gas potential.
The Alaska gas industry is “where Alberta was in the 1950s,” James said. Alberta had 50 years “of sustainable gas growth” and so should Alaska, he said.
In September 2000, an Alaska-Canada swap with Anadarko Petroleum brought AEC into a third Alaska play, this time in the gas-prone Brooks Range Foothills where AEC got 33.33 percent working interest in the ASRC acreage south of Prudhoe Bay (and the Umiat baseline) under lease option from Arctic Slope Regional Corp.
At the state’s Nov. 15, 2000, North Slope areawide lease sale AEC and partner Anadarko continued picking up gas-prone acreage, this time in the Kavik-Kemik area.
AEC merged with PanCanadian in April 2002 and became EnCana, effectively doubling its enterprise value to $30 billion. On June 3, 2002, EnCana won five of six leases at the U.S. Bureau of Land Management’s NPR-A lease sale.
That same month, the company opened an Anchorage office. By the end of October 2002, EnCana had amassed 1.4 million net exploration acres in Alaska — some federal, some state and some ASRC acreage.
Both it and oftentimes partner Anadarko were over the 500,000 net exploration acreage limit set by the state of Alaska for onshore state leases, so both companies began prioritizing their leases in areas where they had the most interest. Legislation passed the Alaska Legislature in 2003 raising the limit to 1 million acres — with a maximum of 500,000 acres onshore north of the Umiat Meridian — but neither company could count on that happening.
One group of leases Anadarko wanted to drop were those on Alaska’s eastern North Slope along the Canning River, which borders the Arctic National Wildlife Refuge.
The acreage included all leases in the Kavik prospect and what used to be the Kemik unit. Anadarko owned a two-thirds interest in the leases and EnCana held a one-third interest. EnCana agreed to the divestiture of acreage.
Still, total EnCana acreage had jumped from 1.4 million acres in 2002 to 2 million acres in early September 2003.
Alaska not yet core area But even though EnCana continues to refine and build its North Slope acreage position, Alaska is still not viewed as a core development area by the company.
“Time really is money to all of us and especially for an independent explorer. In order for us to be successful, we need a stable fiscal regime, a consistent and predictable regulatory process and reasonable access to land and infrastructure,” Jeff Rose, EnCana senior vice president, offshore and new ventures exploration, frontiers and Europe, said in 2002 — a position EnCana officials said in September has not changed.
Alaska has access to land, Rose said, but EnCana owns no processing facilities or pipelines in Alaska, so “our biggest challenge is getting our yet-to-be discovered Foothills gas to market.”
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