Repsol reduces Slope holdings, winter season deferred

  • A rig works on the North Slope for Repsol, which announced it would begin applying for necessary development permits this June but has decided to sell a large part of its stake in the project to Denver independent Armstrong Oil and Gas in an agreement released Oct. 13. The decision means this winter’s planned exploration program has been deferred although development work will continue. Photo/Courtesy/Repsol

Mixed feelings greeted an announcement Oct. 13 by Spanish major Repsol and Denver-based independent Armstrong Oil and Gas that the latter will be taking a larger share and most likely operating control of the companies’ proposed North Slope oil development.

That Repsol, a major oil and gas company based in Madrid, is shrinking its share of the project and turning over the keys to Armstrong, a company with an exploration, but not development, focus, is being viewed negatively.

Also, a three-rig drilling program the companies had planned for this winter has been deferred, the two firms announced in a press release.

However, that Armstrong is willing to put more money into the discovery, $800 million in cash and various commitments like drilling, is a sign of confidence by that company. Also, work on development permits for the project is continuing without interruption, said Repsol spokeswoman Jan Sieving.

In their joint statement, the companies released the first estimates of potential reserves for the project as well as a revised projection of production. The estimated flow rate is now 120,000 barrels per day instead of a 60,000 barrels per day estimate included in Repsol’s application for a U.S. Army Corps of Engineers permit earlier this year.

Armstrong said that its consulting firm, DeGolyer and MacNaughton, reported reserves of 497 million barrels of oil using a conservative “C-1” methodology, or one with a high degree of confidence, but also estimates of 1.438 billion barrels of resources and 3.75 billion barrels using “C-2” and “C-3” estimates, procedures that involve less degrees of confidence.

“These ‘contingent’ reserve classifications would be converted to proven, probable and possible where appropriate on the final investment decision to develop the project,” the press release stated.

Under the agreement Armstrong will increase its share of the initial development area from 30 percent to 45 percent with an option for an added 6 percent, which would give the company a 51 percent majority ownership.

The agreement will also allow Armstrong to increase its ownership in an exploration area, or unexplored leases outside the initial development, to 75 percent, leaving Repsol with 25 percent of about 750,000 acres of leases.

The two companies are doing development planning on a discovery in the Colville River delta between the producing Kuparuk River and Alpine fields.

While the winter three-rig drilling program could have employed up to 500 people, Sieving said that because the drilling is seasonal these are people who are not yet working, so there are no “layoffs.”

Sieving said the initial reserve estimates came from Armstrong and its consultant, and were not developed by Repsol. However, the 120,000 barrels per day production estimate is based on updated work, she said.

“The project is now considered to be larger, and potentially more valuable, than was seen before,” Sieving said.

On the permitting, Sieving said a decision has now been made that a federal environmental impact statement, or EIS, will be needed for the project, a process that could take two to three years, instead of a more streamlined environmental assessment that Repsol had hoped for earlier.

The U.S. Army Corps of Engineers is the lead agency on the permitting, she said.

“The permitting is continuing to move forward,” despite the pause in drilling, Sieving said.

The pending operational change has created uncertainties for Repsol’s office in Anchorage, however, for its employees based in Alaska.

“We are now working on the transition plan and that will determine the impacts. We anticipate that some of our employees will remain with the project while others will be offered positions elsewhere,” Sieving said.

Despite the negative aspects, Armstrong struck an upbeat note in its press release.

“Over the last four years the (joint) venture has drilled 16 wildcat and appraisal wells with a 100 percent track record of finding oil in multiple pay zones,” of each well, Armstrong said. “With each drilling campaign, the project has become more valuable, larger in scope and more capital intensive than the parties originally envisioned.”

The realignment is really to bring the project more into line with the strategic plans of both companies.

“For Repsol, the transaction aligns the Alaska project with the company’s new strategic plan to integrate its recently-acquired Talisman assets into its portfolio and realign legacy assets,” the press release said. “For Armstrong, the transaction concentrates the company’s activities on the North Slope and allows it to focus on its core strengths, which are the exploration and development of shallow conventional oil plays identified by advance 3D seismic stratigraphic techniques.”

While it is not considered an operating company Armstrong has a history of using its exploration expertise to identify prospects and to bring in larger companies to engage in development and production. The company did this initially on the North Slope with Pioneer Natural Resources on the small Oooguruk offshore field, which is now producing and owned by Caelus Energy, and with Eni Oil and Gas on the Nikaitchuq project, also offshore.

Armstrong’s initial work on the Colville Delta prospects also led to the entry of Repsol into Alaska, as a partner with Armstrong, in 2012.

11/24/2016 - 2:30pm