AEC investing $32M in Alaska in 2002

Company has North Slope acreage position of 1.3 million acres acquired through eight transactions including farm-ins, acreage swaps and lease sales

Kristen Nelson

PNA Editor-in-Chief

Alberta Energy Co. subsidiary AEC Oil & Gas (USA) Inc. came to Alaska in 1999 to look at the proposed disposition of part of the Alpine field when BP planned to purchase all of ARCO, AEC Vice President Guy James told the House Special Committee on Oil and Gas Feb. 21.

Since then, the company has acquired 1.3 million exploration acres and this year, James said, AEC will participate in two onshore exploration wells, shoot a full season 3-D seismic program in the Foothills and operate the McCovey offshore exploration well.

BP didn’t purchase ARCO’s Alaska assets, but on that visit AEC talked to ARCO (now Phillips Alaska Inc.) about possible involvement in “any significant quality oil prospects” that they might have in the future, and, James said, “about 60 days later we were in their offices evaluating technical on two opportunities that they put on the table for us.”

It was a beginning that has grown into an acreage position of 1.3 million acres.

In 2000 and 2001 the company spent $35 million, “primarily on seismic and land” and participated in one well south of Kuparuk which was unsuccessful, James said.

“And we plan to spend $32 million this year” on drilling and seismic programs, he said.

This year AEC is participating in Phillips-operated exploration wells at Grizzly and Heavenly, shooting 3-D seismic with Anadarko Petroleum Corp. over acreage the companies acquired in partnership in the Foothills and will operate the offshore McCovey exploration well later this year.

The company also plans to be more visible in Alaska, James said:

“We are in the process of attempting to acquire office space in Anchorage right now to open an office in Anchorage and we have just hired our first Alaska-based employee.”

Eight Alaska transactions

At the same time, March of 2000, AEC acquired a 20 percent interest in the Grizzly prospect, an interest that was increased to 30 percent in December.

James said AEC generally looks to have an interest of at least a third in prospects.

In July of 2000, AEC “engineered a swap with Anadarko whereby we gave up half of our interest in two large blocks in the Mackenzie Delta for one-third interest in their Foothills’ lands with the ASRC. This netted AEC approximately 1 million net acres south of the Umiat baseline,” James said.

At about the same time, AEC, Phillips and Chevron U.S.A. Inc. announced a joint venture at McCovey and Grizzly Gomo “whereby AEC would earn a 32.5 percent interest in roughly 70,000 acres by shooting a 30D in the first quarter of last year.”

Then in November, AEC picked up additional lands in the Canning area at the state lease sale.

“And we hope that this just as Grizzly and McCovey form part of this year’s drilling program, Canning will form part of next year’s program. At the same land sale with Anadarko our partner we picked up lands on a Foothills project that we call Kavik-Kemik or K-squared and we shot a 3D seismic program over this, this time last year.”

At the Foothills areawide sale in May, AEC and Anadarko “picked up five blocks, two of which we’re currently shooting a large 3D over.”

The last transaction was in December, James said, when AEC took a 12 percent interest from Phillips in Heavenly project — the third well in which AEC will participate this year.

AEC came to Alaska, James said, because fields like Prudhoe Bay and Kuparuk make the North Slope a giant petroleum province and the company “felt that the opportunity existed for us to get involved in some significant world-class opportunities.”

McCovey is the prospect AEC finds most intriguing, James said. Phillips was the operator and drilling was planned from an ice island in early 2001, but Phillips “was unable to obtain all of their permits in the required timeframe” and the decision was made to delay the project “and look at alternatives for drilling it in 2002.”

AEC took over as operator of McCovey at the end of October and expects to receive permits in April to drill the prospect from the SDC, a bottom-founded Arctic drilling platform. The SDC would be towed to the McCovey drilling location in August, James said, and the well would be spud by mid-November, “three and a half months prior to when it would have spud on the ice island.” Drilling and testing the initial well, and any delineation drilling and testing, would be done by the end of February and the operation would be suspended or abandoned in early March, “a full two and a half months before we would have done so under the ice island” plan, James said.

James said AEC has been working on the permitting process with state agencies, the U.S. Minerals Management Service, the North Slope Borough and Natives in the villages that may be affected by drilling of an offshore well.

He said AEC believes all parties are in agreement on the plan the company has proposed, “and we’re hopeful that we will receive our permits in April.”

Alaska’s gas potential is the other reason AEC came to the state, James said.

“We are at the beginning of the gas exploration cycle for Alaska,” he said.

AEC has had field parties over the last two summers in the Foothills and has looked at the few well penetrations in the area and believes that in the Foothills “there is significant opportunity to find large gas accumulations,” James said, and land available for lease.

The Alaska gas industry is “where Alberta was in the 1950s,” James said.

“We’ve had 50 years of sustainable gas growth in Alberta,” he said.

Alaska should have 50 years of gas, too: “In fact, when you factor in such things as possibly hydrates it could be much more than 50 years,” James said.

AEC would need, he said, “access to pipelines and facilities at fair prices” so that the company could “monetize our assets in reasonable time lines…”

Asked by Rep. Reggie Joule, D-Kotzebue, if there were access issues in Alberta, James said Alberta “tended to develop its gas reserves based around the pipeline access. The various pipeline companies would follow what’s going on and pipelines would be built into areas.”

But, he said, the cost of developing new pipelines to reserves in Alberta is nowhere near the cost of building a gas pipeline from the North Slope to the Lower 48.

Editor's note: Alberta Energy Co. Ltd. and PanCanadian Energy Corp. are merging to create a new company, EnCana Corp.