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THE EXPLORERS 2004: Armstrong Alaska: Where they lead
Kay Cashman Petroleum News
The story of Armstrong Alaska and its Denver-based affiliate Denver Oil & Gas on the North Slope includes two discoveries in two years on prospects developed by Armstrong, permitted by Armstrong, and then drilled by two strong operating partners attracted to Alaska by Armstrong — Kerr-McGee and Pioneer Natural Resources.
Pioneer followed Armstrong to Alaska in October 2002 and is 70 percent owner and operator of the North Slope Oooguruk unit where Pioneer drilled the discovery wells in the winter of 2002-2003.
Kerr-McGee announced its deal with Armstrong in early January 2004 and is the 70 percent owner and operator of the Nikaitchuq unit where Kerr-McGee drilled the discovery wells — and where Kerr-McGee is drilling appraisal wells in the upcoming drilling season, the winter of 2004-2005. Between the Oooguruk and Nikaitchuq units In the last half of 2004, Kerr-McGee and Armstrong crafted an agreement on yet another prospect, which Armstrong unitized as the Tuvaaq unit.
Kerr-McGee is drilling a well at Tuvaaq in the winter of 2004-2005.
The 14,561-acre Tuvaaq unit is in the near-shore waters of the Beaufort Sea between the Oooguruk and Nikaitchuq units, and north of the Milne Point and Kuparuk River units. It is the centerpiece of the 46,000 acre exploration play assembled by Armstrong.
In August 2004 both Pioneer and Kerr-McGee executives told analysts they were discussing partnering to develop the Oooguruk and Nikaitchuq unit discoveries.
Under terms of its agreement with Armstrong, Kerr-McGee could take over as operator of Tuvaaq and assume a 70 percent stake in the unit, Pioneer Vice President Susan Spratlen said in August 2004.
Pioneer also can participate in the middle unit, Spratlen said.
“There is acreage between our discovery and their discovery,” she said. “There is a shared position in the acreage and a plan to drill a prospect. So there might be an opportunity for a joint development, if there was a discovery and if (the parties) can agree to terms. Then we could consider some type of joint development.”
One option under consideration is to do away with the three exploration units and form a single operating unit developed as a stand-alone project, Spratlen said.
Armstrong submitted a five-year initial plan of exploration for Tuvaaq with the Alaska Division of Oil and Gas, which includes three wells.
The first well, to be drilled in the winter of 2004-2005, would test the Triassic/Jurassic; the second in the 2006-07 winter drilling season, would test the Cretaceous Kuparuk sand interval, Jurassic Nuiqsut sand continuity and limits of the Triassic Sag/Eileen/Ivishak accumulation within the Tuvaaq unit. The third well, planned for 2008-09, would test the Triassic Sag/Eileen/Ivishak intervals on the eastern side of the unit. Story changing: Armstrong to drill For the first time Armstrong, a small independent that began buying leases in northern Alaska in October 2001, will drill its own wells on the North Slope, serving as operator in the winter of 2004-05 at a prospect adjacent to the ConocoPhillips-operated Kuparuk River unit.
And, if that exploration is successful, the company hopes to be in production in 2005, Armstrong’s vice president of operations, Stu Gustafson, told Petroleum News July 13, 2004.
Armstrong has filed, and received approval on, a plan of operation with the division for up to three exploration wells just off the western edge of Kuparuk. Armstrong calls it the “Two Bits” prospect — it took the tract with a bid of 27 cents an acre higher than a competing bid from AVCG at an October 2003 state lease sale.
The wells will be drilled “from an existing gravel pad” that will be accessed by a three mile ice road from the Kuparuk River unit 2M pad, which is connected to the North Slope gravel road system.
Finding oil at Two Bits wouldn’t just be a win for Armstrong, Gustafson said. “If Two Bits works, there’s not enough drill rigs (on the North Slope).” Success at Two Bits, he said, would be better for the industry than discovery of a huge new field, because it would mean companies can make money from developing smaller fields than the 50 million barrel size that is the standard now.
Cracking the 50 million barrel nut The lure of cracking the 50 million barrel paradigm was what brought Armstrong Oil and Gas to Alaska where it founded Armstrong Alaska, Bill Armstrong, president of both companies, told the Resource Development Council of Alaska in November 2002.
Matt Furin, the Armstrong vice president in charge of geoscience, told Petroleum News July 13, 2004 that the company picked up the Two Bits tract looking “to extend the Kuparuk field … Cretaceous section … farther to the west.”
“With ideas that Stu (Gustafson) has, what we’re trying to do is significantly lower the reserves threshold for economic development around the North Slope fields.”
Until Two Bits, most of the targets Armstrong has gone after on the North Slope have been larger, Furin said, the traditional economic threshold of 50 million barrels.
What Armstrong is looking for at Two Bits is 15-30 million barrels.
The ultimate goal, Furin said, is to get that economic threshold for making money on the North Slope down to 10-20 million barrels, equivalent to what was done in the North Sea and the Gulf of Mexico, he said.
“Once we attack that it doesn’t have to be just huge independents” working on the North Slope, Furin said.
The process of moving from all majors to majors and independents took about seven years in the Gulf of Mexico, he said
If Armstrong finds the oil it expects to find at Two Bits, its will use its “production in a box” system, which the company first revealed in May 2004. (See latest news on this system in the On Deadline section.)
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