Independent drillers like North Slope prospects

Posted: Friday, November 22, 2002

ANCHORAGE (AP) -- Exploring for oil on North Slope traditionally has been the work of giant oil companies. But independents are now getting into the game as the big firms pull back.

Smaller players such as Bill Armstrong and Ken Sheffield often appear when a major oil province like the North Slope begins to peter out, prompting the globe-trotting giants to hunt elsewhere.

''It's the changing of the guard,'' said Ken Boyd, a former director of the state Division of Oil and Gas, who now works as an industry consultant.

It's natural that the Slope, whose 1 million barrels per day of production is only about half its peak in the late 1980s, would attract smaller players, Boyd said. It happened in the mature Gulf of Mexico, where independents have revitalized the industry, he said.

And some majors are cutting back in the wake of lean earnings. Executives of ConocoPhillips, one of the North Slope's big three producers, announced Friday that the company would cut capital spending by 25 percent compared to the total that predecessors Conoco and Phillips had been spending.

This winter, the smaller companies headed by Armstrong and Sheffield will drill three exploratory wells in shallow water just northwest of the Kuparuk field.

It's risky.

Armstrong Oil & Gas Inc. of Denver, spent $4.2 million last year to lease 14,000 acres. Pioneer Natural Resources Canada Inc. of Calgary, has committed $15 million to drill the wells.

If their hopes pan out, the partners think their prospect will yield 300 million barrels of recoverable crude oil. That's no Prudhoe Bay, but it's a big deal for companies the size of Armstrong and Pioneer.

Sheffield and Armstrong were among several independents who shared their ambitious plans to develop oil and gas reserves on the North Slope and in Cook Inlet. These small players could be instrumental someday in reversing the downward curve in Alaska oil production, said Carl Portman of the Resource Development Council, sponsor of Thursday's conference in Anchorage.

Armstrong, whose company has partnered on oil deals all over the West, said buying leases on the North Slope was a bold step.

''It was intimidating, the stories we heard when we came up here,'' he said. The word was that major oil companies that control roads, pipelines and other vital support structures wouldn't cooperate with the independents and that getting environmental clearance and permits was tough.

Yet the prospect northwest of Kuparuk was tantalizing, Armstrong said.

ConocoPhillips operates Kuparuk, the second-largest oil field in North America. And some years ago, Arco, the predecessor to ConocoPhillips, drilled some wells in the same general vicinity, said Rick Mott, the company's vice president for exploration and land.

''We just happen to have a different geological interpretation,'' he said. But Mott is the first to wish Armstrong and Sheffield the best. In fact, ConocoPhillips sold Armstrong a bunch of seismic data and will help the Armstrong-Pioneer team any way it can, Mott said.

Helping independents succeed is good for everybody, he said. If the little guys find oil, they can run it into existing processing plants and pipelines and share the cost of those facilities. And maintaining a vibrant oil industry means maintaining a healthy crop of support businesses the oil companies depend on, Mott said.

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