Phillips Alaska, Chevron, Alberta Energy form exploration alliance

Joint venture work will be at proposed McCovey unit in Beaufort Sea, Grizzly Gomo prospect south of Kuparuk

Kristen Nelson

PNA News Editor

Phillips Alaska Inc. and Chevron U.S.A. Inc. said Aug. 3 that they have formed a new venture agreement for exploration and development on Alaska’s North Slope with Alberta Energy Co. Oil and Gas (USA) Inc. The two-part exploration alliance includes nearly 150,000 acres on Alaska’s North Slope and the Beaufort Sea.

The alliance provides for proportional ownership of seven leases containing approximately 28,504 acres offshore Prudhoe Bay in the proposed McCovey unit. Under the agreement, Alberta Energy will earn a 33.3 percent interest in the area leases through a farm-out agreement in the initial well. In addition, Phillips Alaska and Chevron will each hold a 33.3 percent interest in the proposed unit.

Phillips Alaska is the exploration and development operator. Phillips said the companies plan to file permits to drill the exploration prospect from an ice island this winter.

The second part of the alignment agreement includes approximately 114,262 acres in the Grizzly Gomo prospect area south of the Kuparuk oil field. Alberta Energy will earn a 20 percent interest in the area and Phillips Alaska and Chevron will each hold a 40 percent interest. Prospective exploration drilling could occur in this area in the 2001-02 winter season.

“We’re pleased to welcome another major player to the Alaska oil patch,” said Mike Richter, Phillips Alaska vice president of exploration and land. “Alberta Energy will greatly complement the Phillips Alaska exploration program.”

McCovey well planned for this winter

“If we get those permits, we’d drill that well this winter at McCovey,” he said. McCovey is 12 miles north of Prudhoe Bay, east of Northstar and north of Reindeer Island, Richter said, and the work would be done from an ice road and an ice pad. He said that Phillips has licensed the use of existing seismic data for the area.

The Grizzly Gomo prospect, Richter said, is south and west of Meltwater, and there is seismic covering part of that area. The companies plan to drill at Grizzly Gomo the following winter after the McCovey well. It is a multi-year program with AEC, he said.

New Alaska player

In addition to the McCovey and Grizzly Gomo prospects, Phillips and Chevron are also partners in other North Slope acreage.

Alberta Energy Co. Oil & Gas (USA) Inc. is a subsidiary of Alberta Energy Co. Ltd., one of North America’s largest independent oil and gas companies with an enterprise value of approximately C$12 billion. Alberta Energy ranks first in natural gas production in Canada and forecasts gas sales of 1.08 billion cubic feet per day and liquids sales of 125,000 barrels per day and is also a major gas storage developer and a pipeliner of conventional, synthetic and heavy oil in North America.

North American Arctic frontiers strategy

“We are Canada’s largest natural gas producer, clearly well positioned for the North American gas story as it continues to unfold.” The company is also, he said, a large liquids producer in western Canada and in Ecuador.

The company looks at platforms for growth, he said, where the company has significant production and reserves base, and right now those platforms are western Canada, the U.S. Rockies and Ecuador.

“Alaska and the far north are not yet a platform” for AEC, Kist said, but “ultimately it could develop that way if it develops into a platform for growth.” Kist said Alberta Energy does not plan to open an office in Alaska.

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In joining Phillips Alaska Inc. and Chevron U.S.A. Inc. to explore about 150,000 acres of Alaska’s North Slope and Beaufort Sea, AEC has also sharpened the focus on what a company spokesman calls its “North American Arctic frontiers strategy.”

Although Alaska is fresh territory, AEC has signaled its Arctic ambitions by joining most of Canada’s majors in the region.

AEC active in Canada’s Arctic

“We wanted to get into the Delta, so this was a good arrangement for both parties,” said AEC president Gwyn Morgan.

“We’re planning a pretty aggressive exploration program there. At this stage, it’s strictly a wildcat acreage, but, when you’re looking in the Delta, you’re looking at trillion-cubic-feet sized prospects.”

AEC also holds 400,000 acres in the Central Mackenzie Valley, in partnership with Renaissance Energy Inc. (soon to be taken over by Husky Oil), and plans up to five wells this year near the Norman Wells oilfield, which has produced about 30,000 barrels per day over 40 years.

Company created in 1973

When 50 percent of AEC’s equity was offered to Alberta residents in 1975, more than 50,000 snapped up shares. Even today, about half of the company’s shareholders own less than 30 shares.

The government ensured the small-time investors would not have to lose sleep. It fattened AEC’s portfolio by contributing major stakes in gas fields, utilities plants, pipelines, the oil sands and gas marketing, triggering some industry grumbling.

“My kid sister could run the Alberta Energy Co.,” said one senior executive.

But AEC has long since left its “prodigal son” beginnings far behind. Under the leadership of Morgan, it has built on its North American assets and is now embarking on a global adventure.

Valued at C$9 billion, AEC has reserves of 4.2 trillion cubic feet of gas, 719 million barrels of Syncrude Canada’s oil sands reserves, 280 million barrels of natural gas liquids and 10.6 million net acres of land. Now ranking first among Canada’s gas producers and fifth in North America, it has overall production of about 270,000 barrels of oil equivalent per day, including 965 million cubic feet of gas.

Growth drive launched in 1998

It paid C$482 million for Amber Energy Inc., a heavy oil producer with assets including 22 million barrels of oil and 200 billion cubic feet of gas concentrated in northern Alberta and a market value of C$1.6 billion at the peak of the heavy-oil market.

AEC then swooped on Pacalta Resources Ltd. for C$474 million to gain 5 billion barrels of reserves in Ecuador’s Oriente Basin, with the potential to yield 75,000 barrels per day if AEC and an international consortium of Italian, Spanish and U.S. companies can land a pipeline contract with the government. It is also being wooed by the Peruvian government to participate in a US$2.6 billion pipeline from the Amazon jungle to Lima.

Its greatest coup occurred earlier this year when it outbid several rivals to acquire privately owned McMurry Oil Co. of Denver for C$1.15 billion to gain 35 percent of the 3 trillion cubic foot Jonah gas field in southwest Wyoming, plus the 400 million cubic feet per day Green River pipeline.