Officials see positive in new flow rate estimate

  • A pair of workers are seen at Repsol’s Colville Delta prospect in 2013. The company announced it was selling a piece of the project to Armstrong Oil and Gas, a Denver-based independent, and reducing its ownership stake to 55 percent. Armstrong also has a future option to become the majority owner by acquiring another 6 percent. The companies announced they are deferring this winter’s work, but there was encouraging news in the field size the companies have discovered. Photo/Courtesy/Repsol

State officials are cautious about Repsol’s agreement to relinquish part of a promising North Slope oil discovery to its minority partner, independent Armstrong Oil and Gas, but are still upbeat about the scale of potential reserves announced by the two companies Oct. 13.

It was the first public release of potential reserves, and welcome news to Alaskan officials.

“Repsol/Armstrong’s announcement about potential volumes reinforces that Alaska is a great place to explore, a stable sovereign with enormous resource potential with ample room for development growth,” said state Oil and Gas Division Director Corri Feige in a statement.

In its reserve estimates Armstrong cited a report by consultant, DeGolyer and MacNaughton, that recoverable resources in discoveries by the two companies in the Colville River delta on the Slope could range from 497 million barrels of oil to 3.75 billion barrels.

In the press release issued by the companies Oct. 13 potential production of 120,000 barrels per day was cited, which is up from earlier estimates of 60,000 barrels per day.

Under the agreement, Armstrong now has 45 percent of the proposed development, up from 30 percent, and has an option to acquire an addition 6 percent, which would bring its ownership to 51 percent.

The option must be exercised by Dec.1, 2016, Repsol spokeswoman Jan Sieving said.

While the reserve figures are promising, the fact that a major company, Repsol, appears to be stepping back from its aggressive North Slope exploration program and potentially turning over operatorship of a multi-billion dollar development project to an independent is raising eyebrows in Alaska.

Armstrong will pay Repsol $800 million for its expanded ownership in cash and other commitments, and has also acquired a larger share in a group of unexplored leases.

But the overall project cost could be several billion dollars, according to sources, and funding half of that as well as dealing with complex regulatory issue could be a big bite for Armstrong, which is privately-held.

Armstrong, based in Denver, would offer no comment on its financial capability.

Meanwhile, a three-well exploration program planned for this winter to further delineate the discovery has been canceled, according Sieving.

However, the companies are still proceeding with permit applications for development as well as preparations for a federal environmental impact statement, or EIS, which will be led by the U.S. Army Corps of Engineers.

Sieving said the original application to the Corps would be updated to reflect the higher production estimates.

“The EIS process allows for updates at its proceeds. We plan to update the application to 120,000 barrels per day in accordance with Army Corps of Engineers recommendation and guidance,” she said in a statement.

“Repsol is currently working with the corps to define the EIS scope of work and select the third party independent contractor. From there, the timeline and the start of the scoping period will be determined. The corps sets the EIS schedule.”

Becoming operator of the project may be a big bite for Armstrong but the company does have a long record of successful exploration drilling on the North Slope, and has made discoveries that led to the development of the Oooguruk and Nikaitchuq fields by companies Armstrong brought in as partners, Pioneer Natural Resources at Oooguruk (the field is now owned by Caelus Energy, a Dallas-based independent) and Eni Oil and Gas, at Nikaitchuk.

“It’s important to remember that Repsol would still own 49 percent if Armstrong does exercise the option to take the added 6 percent,” said Dudley Platt, oil and gas liaison to the North Slope Borough, the regional municipal government.

Platt said independent companies are already operating fields and developing new projects on the Slope, citing Hilcorp’s acquisition of former BP fields and its plan to develop Liberty, an offshore project.

Also, independent Caelus is working on Nuna, a new project near the Oooguruk field, and Brooks Range Petroleum is working to develop Mustang, a small field, he said.

Regulatory issues may present real challenges for Armstrong and Repsol. The project area in the Colville Delta is in ecologically sensitive river delta wetlands, which means that federal, state and local agencies will closely scrutinize development plans, along with environmental groups.

Impact mitigation, which is already a contentious issue for ConocoPhillips in its proposed Greater Moose’s Tooth-1 development in the National Petroleum Reserve-Alaska, which is not too far away, will also become a factor.

Platt said the North Slope Borough’s code mandates mitigation for impacts from oil and gas development.

“The borough is very aware of the transition (from Repsol to Armstrong) and we will be monitoring this very closely, Platt said. “Everyone knows the area is sensitive and we know it will require mitigation.”

Still, North Slope Mayor Charlotte Brower’s planning department has excellent relationships with Repsol and has routinely engaged with the company, he said.

“We are hopeful that Armstrong will retain experienced people Repsol has employed,” Platt said.

Scientists working with the borough’s wildlife department are well regarded and will be working with Repsol and state and federal agencies through the EIS process, he said.

On the reserve estimates, sources familiar with the North Slope said it is likely that the oil Repsol and Armstrong have found is a combination of conventional “light” oil as well as viscous oil or resources trapped in tight rock that could be expensive to exploit.

The two companies have not released information on the quality of the crude oil they have encountered or possible natural gas present.

11/24/2016 - 2:42pm