Saturday, December 10, 2011

State sees North Slope lease sales as modest success

Tim Bradner
Alaska Journal of Commerce

Alaska officials called the state’s Dec. 7 onshore and offshore North Slope lease sale a modest success, but expressed disappointment that several companies they courted in months prior to the sale failed to bid.

The state of Alaska received $20.97 million in high bids for onshore and offshore leases sold Dec. 7 the annual area-wide sales on unleased acreage. A federal sale in the National Petroleum Reserve-Alaska drew only a handful of bids, netting $3.06 million from three companies bidding.

Bidding was mostly by companies currently on the North Slope who expanded their acreage positions, although two companies new to Alaska, both small independents, joined the bidding.

"Today’s lease sale was an important, positive step that attracted additional investment to the North Slope,” Gov. Sean Parnell said in a statement. “Reversing the declining flow of oil through TAPS (Trans-Alaska Pipeline System) and getting to 1 million barrels per day is critical to our economy and the nation's energy security.”

"One of our immediate goals for this lease sale was to increase the number and type of investors and companies investing in Alaska,” said Natural Resources Commissioner Dan Sullivan. “We are pleased that the sale was successful in this respect, but there is certainly an opportunity to do more in the future to attract additional investment.”

Sullivan said he had made personal calls on companies in home offices urging them to bid, and followed up with visits by teams of state geologists.

“We need to go back to them and find of what was wrong,” Sullivan said.

Sullivan said he was encouraged, however, that Repsol bid to expand its existing Slope holdings, with high bids on 25 state onshore leases and five state offshore leases, including 45,920 acres. Repsol now has a 70 percent interest in about 500,000 acres of onshore North Slope lands, which it is exploring this winter.

The onshore state sale, conducted first, brought in $14.094 million in high bids for 179 tracts, while the offshore sale, in state-owned submerged lands of the Beaufort Sea, brought in $6.874 million in high bids for 78 tracts sold, state Oil and Gas Director Bill Barron said following the lease sale.

Meanwhile, the federal government received $3.06 million in high bids in a National Petroleum Reserve-Alaska lease sale held hours after the state sale. There were 20 high bids submitted on 17 tracts by three bidders in the sale, according to Ted Murphy, Bureau of Land Management’s deputy director in Alaska.

BLM had initially announced the results at $3.6 million in high bids but then released a corrected amount. Bids were submitted on 141,739 acres out of about 3 million acres of NPR-A lands offered in the lease sale.

Although the bidding was modest, “we are seeing an increased interest in the North Slope also evidenced by results of the state lease sale. This is in sharp contrast to our last lease sale,” in which there were no bids, said Bud Cribley, the Alaska BLM director.

One surprise in the sale was the return of ConocoPhillips, a producer on the Slope, to bidding for state exploration acreage. ConocoPhillips acquired 35 onshore tracts, mostly in the Point Thomson area east of Prudhoe Bay, as well as one tract east of the Alpine oil field, near NPR-A west of Prudhoe.

ConocoPhillips has been absent from onshore exploration for some years, and has focused on its planned exploration of federal offshore leases in the Chukchi Sea.

Industry observers at the sale said that ConocoPhillips’ lease acquisitions in the Point Thomson area are likely related to a pending settlement of litigation between Point Thomson Unit leaseholders, which include ConocoPhillips, and the state of Alaska. A settlement agreement was reached in September between the state and ExxonMobil, the Point Thompson Unit operator, but has not been agreed to yet by other partners in the unit, which include BP, Chevron and ConocoPhillips.

Also in the sale, three small independent companies bid have apparently won their first North Slope leases. Woodstone Resources of Houston was high bidder on nine state onshore leases and two federal NPR-A leases. Royale Energy Inc. of San Diego was high bidder on 60 onshore leases.

Alaska-based NordAq Energy, a small independent active in the Cook Inlet Basin in southern Alaska, was high bidder in 11 state offshore leases north of the NPR-A.

Armstrong Oil and Gas, a Denver-based independent that has worked on the Slope for many years, was high bidder on 11 state onshore leases and 10 federal NPR-A leases.

Great Bear Petroleum, an Alaska independent, was high bidder on 32 onshore leases in an area where the company plans a shale oil exploration project this winter. One surprise of the sale is that Great Bear faced little competition in bidding for leases that were open within its proposed shale oil play except for unsuccessful bids by Royale Exploration on some of the tracts.

This may indicate that other companies do not share Great Bear’s hopes for developing production from shale source rocks in the area, industry sources at the sale said.

Shell acquired 18 state offshore leases near Harrison Bay, south of federal Outer Continental Shelf leases held by the company. Harrison Bay is one of Shell’s target areas for exploration in the Beaufort Sea.

High bids in the state sales, which included North Slope onshore and Beaufort Sea offshore sales held, came from Pioneer Natural Resources Alaska for $876 per acre for two offshore tracts and one onshore tract. Both parcels were small and adjacent to areas where Pioneer is now working.

Individual bidders acquired offshore state leases in Beaufort Sea tracts offshore the Arctic National Wildlife Refuge and offshore state lands in the Point Thomson and Prudhoe Bay field areas.

The bidding did indicate some success for the strategy of the state and the BLM in holding their sales on the same day, an effort to facilitate bids by companies on adjacent acreage along the Colville River boundary between the NPR-A and state lands.

Armstrong and Woodstone Resources both submitted high bids on state and NPR-A tracts along the Colville River, indicating interest in geologic plays extending across the border.

This article appears in the AJOC December 11 2011 issue of Alaska Journal of Commerce

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