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Explorers 2011: Armstrong does it again on North Slope A new producer of gas on the southern Kenai Peninsula, the Denver independent aims to repeat previous successes in the northern part of the state by bringing in Repsol as a partner Eric Lidji For Petroleum News
Denver-based Armstrong Oil and Gas is behind some of the most important exploration and development projects in Alaska over the past decade.
Through its drilling in the first half of the decade, the independent helped prove up the two newest Beaufort Sea near-shore oil fields: the Oooguruk unit operated by Pioneer Natural Resources Alaska and the Nikaitchuq unit operated by the Italian oil major Eni Petroleum. The developments were the first two producing fields in northern Alaska that were not operated by BP or ConocoPhillips.
In 2007, Armstrong expanded its focus to Southcentral Alaska’s Cook Inlet basin, where it put a small gas field into production earlier this year.
This year Armstrong snagged its biggest deal yet: Spanish mega-major Repsol as a partner in 494,211 acres on and near-shore the North Slope. The companies have talked about a minimum of 12 separate developments.
This winter Armstrong is helping oversee a 15-well, five-pad exploration project on the acreage it shares with Repsol and a smaller partner, GMT Exploration. It will be the largest winter exploration program by an operator in northern Alaska.
Operator with smaller investors Armstrong prefers to operate without debt. In northern Alaska, where the investment and potential payoff is big, the small independent brought in partners with deep pockets.
Its Oooguruk and Nikaitchuq deals likely gave Armstrong the money to acquire the North Fork field leases in the southern Kenai Peninsula, where it brought in small partners to help shoulder the risk, but retained the role of operator.
North Fork is one of the many prospects discovered during the early days of Cook Inlet exploration, but left undeveloped because natural gas didn’t command as much as oil and because smaller fields didn’t interest companies that could go after North Slope giants.
Standard Oil Co. of California discovered the accumulation in 1965, but didn’t pursue development. The field lay fallow until the 1990s, when a series of independents attempted to bring the field online. Although none of those efforts proved successful, they did lay the groundwork for establishing potential supply contracts in the region.
Armstrong drilled the North Fork 34-26 well in the summer of 2009 and discovered enough natural gas to justify additional drilling and negotiating a supply contract with Enstar Natural Gas Co. Armstrong drilled the NFU No. 14-25 and NFU No. 32-35 in the summer of 2010 to delineate the reservoir and test the oil potential of the leases.
Alongside four smaller partners — GMT Exploration Co., Dale Resources Alaska, Nerd Gas Co. and Jonah Gas Co. — Armstrong formed a small midstream outfit called Anchor Point Energy LLC to connect the field to the grid. The company built the 7.4-mile North Fork Pipeline from the unit to Anchor Point, where it connects to the new Anchor Point Pipeline that Enstar built to extend the terminus of the Kenai Kachemak Pipeline.
Producing at North Fork Following some regulatory maneuvering, Armstrong finally brought the field online in April 2011, giving Enstar up to 1.2 billion cubic feet a year and 10 bcf altogether.
The North Fork unit improves the economics of other prospects in the region, including the Nikolaevsk unit, the West Eagle prospect, the Cosmopolitan prospect and the acreage Apache Corp. recently acquired in the region. The nearby city of Homer is anxious to get connected to the natural gas system enjoyed by the rest of the Southcentral region and hopes the North Fork area will provide supply. And by building a dual pipeline to Anchor Point, Armstrong opens the door to oil development from North Fork in the future.
“It is our opinion that the Cook Inlet is a vastly underexplored province and with good science there’s a tremendous amount of gas yet to be found in the area,” Ed Kerr, vice president for land and business for Armstrong, told Alaska lawmakers in June 2009.
Working with Repsol While Armstrong worked to bring North Fork online, it also gradually re-established a presence on the North Slope through its new subsidiary, 70 & 148 LLC. Named, in a karmic nod, after the coordinates of the Prudhoe Bay unit, the company currently holds nearly 150,000 net acres across the central North Slope, both onshore and offshore.
Alongside partner GMT, 70 & 148 brought another big name to Alaska, this time Repsol.
Through a deal announced in March 2011, Repsol picked up a 70 percent stake in on and offshore leases from north of the Colville unit to Oooguruk, and then south between existing units and veering east around the south end of the Kuparuk unit, including the White Hills prospect.
Of the $768 million Armstrong and GMT received in the deal, $750 million will be spent on exploration and development.
With “more than a dozen ideas outside of existing producing units” on its project list, according to Kerr, Armstrong could be busy in northern Alaska for quite a while.
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