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Vol. 25, No.07 Week of February 16, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Shift to conventional

At NAPE Conoco seeks partner for North Slope; Hilcorp for Lower Cook Inlet

Kay Cashman

Petroleum News

More than 11,000 oil and gas professionals and 700 exhibitors packed the George R. Brown Convention Center at the NAPE Summit in Houston in early February, including at least seven Alaska exhibitors, six of whom were touting their oil and gas prospects in the state.

The Alaska Department of Natural Resources’ Division of Oil and Gas had a booth with an all-star cast - DNR Commissioner Corri Feige, DNR Deputy Commissioner Sara Longan, Division Director Tom Stokes, Division Deputy Director Jason Black, resource evaluation chief Kevin Frank, and other support personnel such as a commercial analysis expert and geoscientists.

“We’ve seen a shale mania craze at the last several NAPEs, but now we are seeing a shift. Companies are looking for ways to balance their portfolios … to get conventionals back in the mix… and Alaska has an abundance of those - shallow, and onshore,” Feige said. (See related interview with her in this issue.)

ConocoPhillips, Hilcorp look for partners

The companies pushing for partners in their prospects at NAPE included Alaskan Crude, ConocoPhillips, Hilcorp Energy, Malamute Energy and XCD Energy.

Long-time Alaska lease speculators Dan Donkel and Sam Cade also had a booth touting their eastern North Slope prospects that adjoin the ANWR 1002 area.

While ConocoPhillips was reportedly looking for a North Slope exploration and development farm-in partner to take a 15% interest in some of its prospects, companies such as Malamute with the untapped Umiat oil field south of ConocoPhillips giant Willow discovery, were open to farm-ins or outright purchases.

Hilcorp was reportedly looking for partners for Lower Cook Inlet exploration. On hand at its booth were four geoscientists and landmen knowledgeable about those opportunities: Kevin Tabler, Jim Shine, Dave Boothman and Steve Dietz.

Alaskan Crude: fee simple mineral interests

Jim White, who owns both Alaskan Crude and Wolfpack Land Co., had information at his booth about several thousand acres of onshore land for lease near Kenai, Alaska, in the Cook Inlet basin.

Wolfpack is offering the fee simple mineral interest land at $3,000 per acre, with a 25% overriding royalty.

“These fee mineral rights have significant known hydrocarbons on or very near them,” the company said in an advertisement, adding seismic data is available and that the prospect is road accessible, winter and summer, with easy access to oilfield suppliers.

In an interview about NAPE, White was quick to point out how unusual it was for an individual to own fee simple mineral interest land in Alaska.

“Ninety-eight percent of Texas is owned by Texans. Alaska is just the opposite,” he said, except for land owned by Native regional and village corporations.

“In Texas, you make a deal with individual farmers, not the state or federal government. All those farmers get a 25% royalty on the oil and gas produced from their land. … Sixty years after statehood not a single Alaskan or an Alaskan-owned company has an oil and gas field in the state.”

While White was pleased with the traffic his booth and prospects attracted, this year’s NAPE confirmed his observation that the oil and gas prospect market “has changed a lot over the last five years. Today people are increasingly strapped for cash.”

Armstrong on oil rally

Bill Armstrong attended NAPE and made the rounds of the booths marketing Alaska prospects. Credited with starting the revival of North Slope exploration by finding oil reservoirs such as the Nanushuk that had been missed or ignored by previous explorers, he said “NAPE … is a great place to get together annually with everyone in the business. This year was ‘busy’ but the energy level at the conference was at an all-time low. Low oil prices, even lower gas prices, has everyone hunkered down. I think we may be in for a bit of a slow slog. … Oil prices have been down since 2014. I think they may be down for another 18-24 months. But who knows?”

Regarding the Lower 48 oil industry having “gone all in for unconventional/shale oil,” Armstrong said “that game is financially challenged even with good oil prices. So, this could be a scary time for lots of payers. But here is a fact: The world is consuming way more oil than the industry is finding, an untenable situation. Things are setting up for a significant and long-term rally in oil. Gas? Hmmm, not so much” as there’s “way too much supply worldwide.”

Donkel, Cade next to ANWR

Donkel and Cade hold two primary groups of leases, one north of ExxonMobil’s Point Thomson producing unit and another east of Point Thomson, commonly known as the Stinson prospect, which is north and offshore the ANWR 1002 area and surrounds the Stinson No. 1 oil discovery well drilled by ARCO in 1989.

The well is on a lease held by Andrew Bachner and Keith Forsgren.

“I think Dan is looking to sell the Point Thomson and Stinson leases for $20-$25 million with a work commitment of 3D seismic around Stinson and north of Flaxman Island and north of Challenge Island and over Tracts 79 and 80, and to drill two wells - one near Stinson and one on Tract 79 or Tract 80. … As always, the deal is negotiable to some degree,” Bill Van Dyke told Petroleum News Feb. 11. A petroleum engineer, and a former director of Alaska’s Division of Oil and Ga, Van Dyke represented Donkel and Cade at NAPE.

Donkel said he is also asking for an overrising royalty of one-quarter of 1% and that Cade wants three-quarters of 1%.

Former BP Prudhoe Bay geophysicist Monte Mabry, another one of several experts staffing the Donkel booth, said in an email that the “proposed E. Pt. Thompson 3D seismic survey would be acquired using an ultra-high density data system optimized to define stratigraphic traps. The survey area would extend over leases offshore the Point Thompson field and also encompass additional near shore leases which directly adjoin the high potential ANWR 1002 area. The survey area, as planned, is approximately 350 sq. miles.”

Very pleased with the turnout at NAPE this year, Donkel said the same leases he is offering “sold for $150 million back in the 90s.”

Bachner and Forsgren are asking $1.75 million for the Stinson well lease, “retaining a 3.33 ORRI, but we are always open to consider any reasonable offer,” Bachner said.

Malamute, lots of ‘good conversations’

Malamute President Leonard Sojka said the folks at the Minnesota independent’s booth “had a lot of good conversations with potentially interested parties” at the conference.

“The traffic through Malamute’s NAPE booth was very steady on Thursday, as is typical. We also thought that the traffic was more diverse, in the sense of interest from investors not already in Alaska,” he noted.

The company was touting its Umiat unit on the southeastern edge of the National Petroleum Reserve-Alaska, which not only contains a very shallow Nanushuk oil field, but possibly a deeper oil target in the northernmost of its two leases.

Malamute’s focus since acquiring Umiat in 2016 has been to de-risk technical challenges in producing the shallow field, which Ryder Scott estimated contains 2P reserves of nearly 99 million barrels of oil equivalent.

Malamute conducted a multidisciplinary reservoir workshop and extensive tests on Umiat oil and those tests, Sojka said, “confirmed that both the gasoline and the diesel fractions are low in total sulfur and have less than detectable readings for dibenzyl disulfide. That makes the Umiat oil a good candidate for producing ultra-low sulfur fuels for sale” to the North Slope market.

The company has conducted a total of three technical studies with the University of Alaska Anchorage, the first two of which are complete, with the preliminary results of the third revealed at NAPE.

A former owner of the northernmost lease said seismic suggests the oil in the permafrost at Umiat seeped from the deeper reservoir to the north.

XCD’S 1.6 billion barrels

XCD Energy launched its farm-out campaign for North Slope Project Peregrine at NAPE, keeping its pitch “as broad as possible to attract as many players - large and small - as possible,” said XCD managing director Dougal Ferguson, meaning the company will be offering both a full option to access all three onshore prospects with a mean unrisked recoverable prospective resource of 1.6 billion barrels of oil, as well as a low-cost alternative that would drill only the shallow Nanushuk play in the Merlin and Harrier prospects, which contain approximately two-thirds of Peregrine’s total oil.

“NAPE went a lot better than I expected - with numerous ‘large’ companies visiting our booth to see what we had on offer. I think some of the big guys might have felt they have missed the boat a little, particularly on the Nanushuk play,” Ferguson said Feb. 10.

“I didn’t hear anything that was negative about Alaska from anyone, in fact, quite the opposite. I think everyone has gotten over the tax credit issue and are looking toward the developments in the area.”

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