Shell, St. Mary taking hard look at Alaska

Kay Cashman

Petroleum News publisher and managing editor

The number of serious inquiries from oil and gas companies coming into the Alaska Division of Oil and Gas has increased in the last seven months, division director Mark Myers told Petroleum News June 30.

“It started with the meetings Gov. (Frank) Murkowski hosted in Juneau late last year,” for key Alaska explorers and potential explorers, he said. The purpose of those meetings was to encourage more exploration in the state.

The governor is planning to make a visit to Houston in the fall where he plans “a major meeting” with oil and gas companies to stir up more interest in Alaska drilling opportunities, Myers said.

Two of the companies taking a serious look at oil and gas investment opportunities on Alaska’s North Slope are Shell, one of the world’s largest oil companies, and Denver-based independent St. Mary Land & Exploration Co.

A Petroleum News source says Shell and BP are once again talking about swapping assets outside Alaska for North Slope assets, which would give Shell a major production position in the state and Alaska another aggressive explorer. (This information has not been confirmed by either company.)

Why does such a deal make sense?

But if Shell and BP swap North Slope assets for, say, mature fields and infrastructure elsewhere, it would restart the depreciation clock for both companies.

If Shell would get all of BP’s Alaska assets, the deal would give Shell, among other things, 46.93 percent ownership in the trans-Alaska oil pipeline; the opportunity to take over BP-operated facilities on the North Slope (see map); a major chunk of the ConocoPhillips-operated Kuparuk field; the offshore Liberty prospect, which is likely BP’s last development project in Alaska; and BP’s stake in the KIC acreage within the 1004 area of the Arctic National Wildlife Refuge.

Finally, the deal would also give gas-hungry Shell a stake in the proposed North Slope natural gas pipeline.

In 1997, a Shell spokesman said the main reason the company was pulling out of Alaska after almost 35 years was because, “Shell has such a small position, land holdings, in Alaska. It’s not strategic to take a small position a zillion miles from Houston and develop it. You need a critical mass to make it strategic.” He explained that traditionally Shell moves into an oil and gas province in a big way or not at all.

So when Shell re-entered Alaska in 2002 with its paltry $2.4 million acquisition of 56,000 acres south of the Kuparuk River unit, Alaskans watched to see what the company would do next.

This June “a small delegation of three people” visited Anchorage “to attend the Alaska Oil and Gas Association’s annual lunch and meet with other stakeholders in the industry. Those Shell staff included two people from the company’s exploration department and one person from the land department,” Shell spokesman for EP Americas, Kelly op de Weegh, told Petroleum News July 1. She said, “even though Shell sold its last producing asset in 1998, Shell has remained an AOGA member.”

But those three people included two significant executives – Chandler Wilhelm, the Shell executive in charge of exploration development for new ventures in the Americas, and Gregg Nady, chief, Alaska exploration team.

The Shell group visited several state and federal offices, gathering information on the Bristol Bay basin, as well as the North Slope. Their interest in Bristol Bay, according to one Petroleum News source, was the possibility of exporting liquefied natural gas from the region.

One source said the Shell executives had “really done their homework,” asked “very intelligent, informed questions.”

John Goll, who heads up the U.S. Minerals Management Service in Alaska, acknowledged the Shell officials had visited him and were briefed on MMS’ five year lease sale plan. The plan includes the Chukchi Sea, an area Shell has explored in the past and one that Shell has said it would return to if it could be assured of consistently high oil prices, in the $30 range, and a reasonable tariff for oil pumped down the trans-Alaska oil pipeline.

MMS estimates the Chukchi holds more than 15.5 billion barrels of technically recoverable oil and more than 60 trillion cubic feet of gas.

Shell’s official word on Alaska hasn’t changed. According to op de Weegh, Shell has “no plans to open an Anchorage office.”

She said “Shell is committed to growing globally through exploration, and we believe North America continues to hold promising opportunities. We review and rank all such opportunities on a global basis. Alaska, because of its large resource potential, is one such area that we are investigating. However, the state is also a very high cost area to operate. At this time, we do not have any other details to announce.”

St. Mary Land & Exploration Co.

St. Mary has secured the services of North Slope exploration guru Michael Richter, formerly ARCO Alaska and Phillips Alaska’s vice president of exploration and land.

But St. Mary is not ready to comment on its interest in Alaska.

Doug York, St. Mary’s executive vice president and chief operating officer, told Petroleum News June 29 that, “Given where we are in our evaluation of potential investment opportunities in Alaska, it would be inappropriate to comment at this time.” (See story and sidebar on St. Mary on page 9 if this issue).

Editor’s note: Part 2 of this article will appear in the July 11 edition of Petroleum News.