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Real big targets
Oil Search, Armstrong line up 50/50 positions in Lagniappe leases to east
Kay Cashman Petroleum News
The latest State of Alaska lease administration report shows a 50% working interest in 39 oil and gas leases approved for transfer from Oil Search (Alaska) to Bill Armstrong’s Lagniappe Alaska. On 80,000 acres, the leases are adjacent to the 195,200-acre block that Lagniappe acquired in a state lease sale in November 2018.
The two companies have an Area of Mutual Interest, or AMI, agreement that allows each to acquire a 50% interest in any northern Alaska acreage the other acquires.
The deal between the two firms also automatically confers Oil Search with operatorship.
But the fact that the eastern North Slope leases are dubbed “Lagniappe” on an asset map in parent Oil Search Ltd.’s 2020 annual report (see in pdf or print versions of this story) lends credence to the rumor Armstrong will actually be the operator, as does the fact in January 2020 Armstrong said he was working to bring in a third partner to share the risk of exploring and developing the leases; a common practice on Alaska’s North Slope.
The 39 leases were acquired by Oil Search in the Dec. 11, 2019, North Slope areawide lease sale; the transfer of half the working interest was approved April 21, 2021, but will be retroactively effective to Dec. 1, 2020, per Alaska’s Division of Oil and Gas.
The royalty interest transferred from Oil Search to Lagniappe with each of the leases was 43.75%, with each company equally bearing the State of Alaska’s fixed royalty interest of 12.5%.
The primary term for the 39 leases was eight years, with the acreage initially approved for Oil Search on June 4, 2020, but effective on July 1, 2020.
Up to 306,000 acres But the search for a third partner for the now 306,000-acre eastern North Slope Lagniappe block appeared to have ground to a stop when the Covid pandemic struck.
Word on the street is that the partners will hold off for another year because of the lingering effects of the pandemic.
Here is the official word from Oil Search and Bill Armstrong:
On May 19, U.S. media and communications manager Amy Burnett said Oil Search and its partner Repsol were totally focused on their acreage to the west of Prudhoe Bay: “We are progressing plans, with our joint venture partner, to divest a share of our Alaska interest for the Pikka project, with the goal to divest 15% and hold 36% of the project over the long-term. We are actively pursuing opportunities to deliver this outcome.”
Armstrong, who was responsible for bringing both Repsol and Oil Search into the Pikka area, told Petroleum News in a text May 17: “As for looking for a potential partner, we are still discussing that. We have been delayed due to Covid, but hopefully we are in the final innings of the pandemic.”
Real big targets “We are really excited about our Lagniappe play,” Armstrong texted. “We are essentially taking our learnings from the Pikka/Horseshoe/Mitquq/Stirrup play in the west to east of Prudhoe Bay.”
The play concept “is very similar. Multiple zones, onshore, good gravity oil, reasonably close to infrastructure,” he said.
“The targeted objectives are slightly younger than what we have at Pikka et al but with better reservoir qualities - porosity and permeability - even though they are slightly deeper,” Armstrong said.
There have been very few wells drilled in the Lagniappe area, he continued, “and the few wells that have been drilled were not pursuing the zones that we are. Yet almost all wells had good oil and gas shows. We are using 3D seismic. We know what we are looking for due to our big success to the west.”
Armstrong said the Lagniappe partners “are pursuing stratigraphic traps, which are subtle, but now that we know what they look like, they are identifiable on 3D seismic. Real big targets.”
And all of the Lagniappe acreage is on state leases, he noted more than once.
Ain’t life grand “It is shocking how much running room there still is in Alaska,” Armstrong texted.
“Lagniappe is a fun word. It is a Cajun word that loosely translates into ‘a little something extra’ or ‘a good unexpected surprise.’ Apropos for the Nanushuk play on the North Slope.”
“Ain’t life grand!”
As for what Oil Search executives have said about the Lagniappe acreage in the past, the most information came from Peter Botten, then-Oil Search’s managing director, in a Jan. 24, 2019, company release.
Oil Search said it was paying Armstrong approximately $8 million for its 50% interest in the 195,200-acre Lagniappe block.
“We are delighted to be exercising our rights under the AMI,” which was entered into “to ensure that Oil Search could continue to work closely with Armstrong, which has extensive knowledge of the Alaskan North Slope with a proven and successful exploration lease acquisition strategy,” said Botten.
The Lagniappe acreage was identified in a regional study, conducted jointly by Armstrong and Oil Search in 2018, as being highly prospective for oil, Botten said.
“The leases … capture the entire prospective trend identified by the study, which contains two separate plays. One of the plays identified is analogous to the Pikka oil field, with similar potential materiality, while the other is also a proven and material play in the region,” he said, noting the leasehold has existing 2D and 3D seismic data and nearby wells and pipeline infrastructure.
The potential of the area is “very exciting and, as operator, we intend to explore it systematically,” starting with reprocessing existing seismic data and then the acquisition of a new 3D survey.
Less than a week later, Armstrong told Petroleum News: “We see some potential lookalikes to what we see at Pikka. Every well that has been drilled in the surrounding area has indications of hydrocarbons. So, what little well control there is, is very encouraging,” Armstrong said.
Well control refers to the availability of data from wells to provide information about the subsurface geology and hydrocarbon potential. In other words, the availability of factual subsurface data from wells provides a level of control over subsurface models built from surface mapping and seismic data.
“In the earlier wells they were all chasing another Prudhoe Bay,” Armstrong said.
In addition to the Nanushuk lookalikes, Armstrong sees “a whole other idea that has never been chased that we like but is nothing like the Nanushuk. Yet, it too is exciting and wild and wide open,” he said, not naming that play.
But for Covid “As you know the Nanushuk is without a doubt the hottest onshore play in the world,” Armstrong texted May 17; a statement that is backed up by various Wood Mackenzie reports and research.
“But for Covid, in normal times the industry would be going bonkers for the play. Oil, onshore, conventional, close to underused infrastructure,” he said.
“Since our multibillion-barrel discovery at Pikka and once we dialed in what it looks like on seismic, the industry - ConocoPhillips, Armstrong, Oil Search, Repsol, 88 Energy - has been on a tear. Pikka, Horseshoe, Putu, Mitquq, Stirrup, Willow, West Willow, Harpoon (rumored) Merlin (88’s new 2021 discovery).”
Each of these new fields “are at a minimum multi hundred million barrel discoveries. The only play on the planet that is even close to this would be the Deepwater play in Guyana/Suriname,” Armstrong said.
“It has been a long time since Alaska has had something this big to brag about.”
Regarding successful exploration, he said, ‘“in the time of anything and everything green is cool’ it is not what it used to be, but the world will need hydrocarbons as it transitions into whatever is next.”
Alaska, Armstrong said, “shouldn’t/can’t apologize for what it brings to the table. Lagniappe on state lands is a good thing.”
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