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THE INDEPENDENTS

THE INDEPENDENTS

Door is open, state’s oil chief tells independentsBy MARK MYERS

he highlight of my professional careerhas to have been those times spent asan exploration geologist on a remotely

located exploration rig,which is just drillinginto the objective. It is at that moment (usu-ally in the middle of a sleepless night) thatyou get to find out if all the analysis,effortand risk will pay off.

I have been fortunate enough to havebeen there to see the first signs of a drillingbreak and show on the gas chromatographblossom into a commercial discovery.

It is with thatsense of excitementthat we at the AlaskaDepartment of Natural Resources look for-ward to the role that independents havebegun playing in Alaska.We believe thatyour entrepreneurial spirit and your willing-ness to explore will result in a very mutual-ly beneficial relationship.

You increase competition at our leasesales,bring new technology and conceptsto exploration and development and pro-vide for increased revenue and high qualityjobs to Alaska.

We at DNR recognize that you havesome critical needs that affect your abilityto operate efficiently in Alaska and will doour best to assist you.

We recognize that our existing regulato-ry structure was designed for working withfewer large producers — not a substantialnumber of independents.For example,because you don’t have extensive in-statepresence,you need increased access to data

and infrastructure in order to suc-cessfully explore and develop.

DNR recognizes the need toimprove the efficiency of thestate permitting process, for allexplorers and producers.We areworking to improve in many ofthese areas.

For example, this year the statereceived a significant grant fromthe U.S.Department of Energy inorder to make our well log datadownloadable over the web at no

charge to you.The same grant is being used

to develop an electronic permit-ting system for the Division of

Governmental Coordination.The state Geological and Geophysical

Survey, the United States Geological Surveyand the Division of Oil and Gas are work-ing cooperatively to provide baseline basinanalysis data in the North Slope Foothillsand along the National Petroleum Reserve-Alaska/state lands border.

We are working on ways to lengthenthe North Slope winter exploration season.

Our areawide lease sales, explorationlicensing and shallow gas leasing programsprovide a good gateway to acquire a solidland position within the state.

DNR has actively pursued the inclusionof access provisions in the federal energylegislation.

Finally, through the use of project coor-dinators we are trying to provide accelerat-ed and better coordinated permitting.

We recognize that these efforts are only

a start.Both our leasing and per-mitting activities still needimprovement.

In spite of Herculean effortsby our lease sales and leaseadministration staff, it takes ustoo long to issue leases andlicenses.We must strive harder tobe quicker,better coordinatedand more consistent in our per-mitting process.We need to findnew ways to extend the winterdrilling season on the NorthSlope and encourage the maxi-

mum use of new technology to minimizeenvironmental impact of development insensitive areas.

Moreover, the state needs to do all itcan to facilitate or encourage producersand explorers in their efforts to reachcommercial arrangements that provideaccess to the excess capacity in NorthSlope facilities at a reasonable profit to thefacility owner.

With the current decline in productionfrom our largest North Slope fields and thedecrease in exploration spending by thecurrent producers, the state clearly needsto have a steady pipeline of new discover-ies if it is to achieve its goal of increasingstatewide production.This can only hap-pen if more exploration wells are drilledeach year and discoveries are followed byaccelerated commercialization.

The independents are the key ingredi-ent to this goal.

We welcome you and wish you goodhunting! ◆

G U E S T E D I T O R I A L

T

Mark Myers is director ofthe Alaska Departmentof Natural Resources’Division of Oil and Gas

THE INDEPENDENTS

THE INDEPENDENTSNovember 2002

The Independents is a specialannual supplement to

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THE INDEPENDENTS NOVEMBER 2002

CONTENTS

Armed with a reputation for finding oil and attracting solid partners to operatetheir fields,Armstrong Resources LLC broadened its focus from the Lower 48states to Alaska when it won 10 tracts in the state’s Oct.24,2001,Beaufort Seaareawide oil and gas lease sale.—Armstrong Resources LLC,page 28

THE SDC WAS TOWED BY TWO CROWLEY ICE BREAKERS 600 MILES FROM PORT CLARENCE TO McCOVEY IN JULY 2002, PAGE 26

18 Alaska Venture Capital Group LLC (AVCG)

19 Anadarko Petroleum Corp.

32 Andex Resources LLC

28 Armstrong Resources LLC

45 Aurora Gas LLC

35 Cassandra Energy Corp.

25 EnCana Oil & Gas (USA) Inc.

63 Evergreen Resources (Alaska) Corp.

56 Forest Oil Corp.

53 Northstar Energy Group Inc.

17 Pelican Hill Oil & Gas Inc.

30 Pioneer Natural Resources Alaska Inc.

66 Unocal Alaska

15 Winstar & UltraStar

50 XTO Energy Inc.

THE INDEPENDENTS

ANADARKO’S ALTAMURA RIG

JUD

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13 Charter forDevelopmentof the NorthSlope

5 Guest Editorial,Mark Myers

8 Guest Editorial,Kevin Meyers

39 Statewide

40 North Slope

42 Cook Inlet

71 Arctic Falcon Exploration

73 Burlington Resources Inc.

75 Danco

74 Escopeta Oil and Gas Corp.& BBI Inc.

72 Lapp Resources

69 Prodigy Oil and Gas LLC

70 Trading Bay Energy Corp.

THE INDEPENDENTS

Kay Cashman PUBLISHERDan Wilcox CHIEF EXECUTIVE OFFICERKristen Nelson EDITOR-IN-CHIEFSteve Sutherlin MANAGING EDITORKaren Aho CONTRIBUTING WRITERWadeen Hepworth ASSISTANT TO THE PUBLISHERMary Craig CHIEF FINANCIAL OFFICERSusan Crane ACCOUNT EXECUTIVESteven Merritt PRODUCTION DIRECTORTom Kearney ADVERTISING DESIGN MANAGERTim Kikta CIRCULATION REPRESENTATIVEDee Cashman CIRCULATION REPRESENTATIVEHeather Yates ADMINISTRATIVE ASSISTANT

Cover photo © Judy Patrick, Cover design by Salt + Light Creative

THE INDEPENDENTS NOVEMBER 2002

CONTENTS

"If this was anyplace else ‘in the Lower 48‘ this would have been done

a long time ago. .. but it’s on the wrong side

of the Cook Inlet in Alaska."

—Scott Pfoff,president,Aurora Gas LLC,page 48

OTHER PLAYERS

COOK INLET MAP, PAGE 42

MAPS

OTHER

GOV. TONYKNOWLES

MARKMEYERS

BREAKING NEWS

UNOCAL GRAYLING PLATFORM

9 On Deadline

XTO AND MORE IN ON DEADLINE

THE INDEPENDENTS

AOGA president welcomes independents, new governorBy KEVIN MEYERS

il and Gas development in Alaska issubstantially different today than itwas just eight years ago.We’ve seen

the advent of roadless development andsmaller footprints on the environment.More and more of our production comesfrom smaller satellite fields.These satellitefields benefit from existing infrastructure,but are economically challenged by theirrelatively small size and the high cost ofdoing business on the North Slope.As wemove beyond existing fields,explorationand development are chal-lenged by the distancefrom infrastructure.Significant environmentalhurdles continue to challenge offshore pro-duction in the Beaufort Sea and Cook Inlet.

Perhaps most importantly,our twolargest fields are more than 20 years old.Despite all the new developments and sub-stantial investment by the industry,NorthSlope production has declined by almost 40percent.

The Alaska oil and gas industry alsolooks far different today than it did eightyears ago.Mergers and acquisitions havechanged the face of our industry and broad-ened the portfolios of the state’s largest pro-ducers. In this short time,we’ve witnessedthe departure of some long-term playersand the entry of new ones.Many of thesenew players are independents.

Taxation not the answerIt’s encouraging to see new players

attracted to our state.More oil and gas com-panies should resultin more business forAlaska-based contrac-tors and more jobs.With exploration suc-cess, these companieswill contribute newrevenues to the stateof Alaska and providenew production.

However,all play-ers,new and old,will carefully weigh Alaska

competitive issues, includ-ing permitting and the fiscalgap — before making addi-

tional investments here.Alaska investmentsmust compete on a global basis.

The one thing that hasn’t changed overthe last eight years is that oil and gas stillaccount for nearly 80 percent of the state’sunrestricted general revenue.As the statestruggles with solving the fiscal gap, it willbe tempting to target the industry with fur-ther taxation.That would be a mistake withserious ramifications on Alaska’s competi-tiveness.

Pro-investment climate is answerThe new governor and Legislature must

encourage oil and gas investment,not dis-courage it.The state must promote accessto land;provide an efficient and effectiveregulatory and permitting system; fosterquality leadership in state government;andmost importantly provide a stable fiscal and

tax policy.Alaska must foster a pro-invest-ment climate if we are going to attract thenew investments we need to maintain andhopefully grow our production.

Over the past decade, the state has insti-tuted areawide lease sales and was influen-tial in getting the federal government torenew leasing in the National PetroleumReserve-Alaska.Alaska has also maintained astable tax policy for the oil and gas industry.The result has been substantial investmentsin enhanced oil recovery to offset the pro-duction declines in Prudhoe Bay andKuparuk. It’s also resulted in the discoveryand development of smaller oil fields acrossthe North Slope.Finally, it’s brought aboutnew investments in the Cook Inlet oil andgas fields for the first time in nearly 20years.

Alaska industry at crossroadsThe Alaska oil and gas industry is truly at

a crossroads.What we do as Alaskans in thenext few years will dictate the future of oiland gas development in this state for thenext decade. It will determine whether thefuture is one of new discoveries,new jobsand new state revenues,or a future of man-aging a mature oil province,which will con-tinue to decline.

On behalf of the Alaska Oil and GasAssociation, I want to congratulateGovernor-Elect Murkowski. I appreciate thenew governor’s commitment to takingsteps that will encourage new oil and gasproduction and make Alaska more competi-

Kevin Meyers, presidentof the Alaska Oil & GasAssociation andConocoPhillips Alaska

G U E S T E D I T O R I A L

O

see EDITORIAL page 9

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THE INDEPENDENTS

tive.The members of the Alaska

Oil and Gas Association arecommitted to working with thestate of Alaska to promote

responsible and environmental-ly sound development.We lookforward to working with thenew governor and Legislatureso that we can meet these chal-lenges and Alaska can continueto prosper from a healthy oiland gas industry.◆

continued from page 8

EDITORIAL

New player Pioneer Natural Resources tospend $15 million in Alaska in 2003

Pioneer Natural Resources Co. told Petroleum News Alaska inearly November 2002 that it expects its Alaska capital budgetwill be $15 million in 2003, up from $3 million in 2002.

One of the country’s largest independents, Pioneer officiallyentered Alaska in October 2002 when it signed an agreementwith Armstrong Resources LLC for a 70 percent working interest

in 10 state oil and gas leases onthe North Slope. (See story onpage 30.) The Dallas-based com-

pany formed Pioneer Natural Resources Alaska Inc. to do busi-ness in Alaska.

Pioneer plans to drill as many as three exploration wells inthe winter of 2002-2003 on its Northwest Kuparuk prospect,which lies in the shallow waters of theBeaufort Sea between Thetis Island and theKuparuk River unit.

“Independents have had success in manyother basins that were previously dominat-ed by the majors, and we see the opportu-nities in Alaska to be similar; an opportunityfor smaller, more agile, aggressive compa-nies,” Scott D. Sheffield, Pioneer’s chairman,president and CEO, told PNA. “How manybasins have had a second, third or fourthexploration and development lives after themajors wind down growth investment in an established basin?— almost every basin.”

If exploratory drilling is successful, Sheffield said Pioneer isexpecting first production from its Northwest Kuparuk prospectin 2005 or 2006.

—Kay Cashman

O N D E A D L I N E

SCOTT D. SHEFFIELD

THE INDEPENDENTS

Kenai officials endorse Katalla projectOn Nov. 6, 2002, the Kenai City Council passed a resolution

urging the U.S. Forest Service to approve Cassandra EnergyCorp.’s plan of operations for an exploratory drilling programat Katalla, site of Alaska’s first commercial oil production.

(See related story on page 35.)Although the public comment period for the environmental

assessment has ended, Bill Stevens, president of Cassandra,asked the council to pass a resolution that would show theForest Service that the city of Kenai supports the project.

Fifty-six miles southeast of Cordova on Prince WilliamSound, Stevens told the council that Kenai stands to benefitfrom the Katalla project because his operations will be basedin Kenai.

Stevens, who is the safety and health program coordinatorfor Inlet Drilling Alaska Inc. in Kenai, said he plans to use InletRig CC1 for exploration drilling that would start with two or

three wells and, if they hadcommercial oil shows, couldresult in as many as 12 wells

for a total investment of approximately $20 million.Exploratory drilling could result in $2.5 to $3.5 million in

wages paid to Kenai residents, Stevens told the council.Stevens told city officials he began the permitting process

25 months ago.—Kay Cashman

Waiting for the ice to thicken at McCoveyNov. 25, 2002, is EnCana Oil & Gas (USA) Inc.’s target date to

spud its first well at the Beaufort Sea McCovey prospect, SteveHarding told Petroleum News Alaska Nov. 12. (See story onpage 25.) Harding is EnCana’svice president,Alaska/Mackenzie Delta, off-shore and new ventures explo-ration.

But Nov. 25 is only a tentative date because when EnCana

O N D E A D L I N E

O N D E A D L I N E

see SDC page 12

THE INDEPENDENTS

Micallef, Buck formnew independentNew firm to work in Cook Inlet; U.S.Petroleum picking up lease near Beluga

By KRISTEN NELSON Petroleum News Alaska

regory Micallef and WarrenBuck are working on thebusiness plan for a new

company — working name Buck& Micallef Energy & Development— to drill Buck’s Cook Inlet stateoil and gas leases,Micallef toldPetroleum News Alaska Nov.13,2002.

Buck has five state oil andgas leases in the Cook InletBasin.Micallef said he’s been aconsultant on the leases, andhas an overriding interest in allof them.The new companywill be headquartered in SantaFe,New Mexico.

U.S.Petroleum Corp.ofVancouver,British Columbia, isin the process of acquiring oneof the leases,520 acres on thenortheast boundary of theBeluga River gas field.

U.S.Petroleum saidOct.16 that ithad an agreement to buy 100percent working interest in thelease from Buck, and said Sept.19 that it had commissioned areport on the Buck lease fromErik Opstad.U.S.Petroleumsaid that Opstad, a state ofAlaska certified professionalgeologist, said the 520-acrelease had potential reserves of29.03 billion cubic feet of gasand 4.375 million barrels of oil.

Micallef said this lease hasan existing well on it and is thebest of the Buck prospects,although there are discussionswith other companies aboutother leases.

Picking up where dad left off

Buck’s father,Christian,whodied some five years ago,was

an oilman and one of DanDonkel’s backers,Micallef said:“Warren Buck is now picking

up where hisdad left off.”

Micallef toldPNA that he has been involvedin the Alaska oil business sincethe early 1980s, acquiring stateoil and gas lease acreage at sale40 in September of 1983 and(as Micallef Energy &Development) partnering withFar North Oil & Gas to dosome work at Sterling andNinilchik.Micallef said he didan infrared study of the entireCook Inlet in the mid 1980s, ata time when he had an interestin some 25,000 acres, a drillingrig and a gas sales contract tosupply Anchorage.

In the mid-1980s Micallefsaid,he drilled a couple ofdozen wells in the Lower 48 inColorado,Kansas and

G

O N D E A D L I N E

Micallef making movie aboutAlaska

The story of oil and gasdevelopment in Alaska isintriguing, Greg Micallefsaid.

“It’s still the tip of theice berg in Alaska… 20years we’ve been toutingAlaska as the Saudi Arabiaof the U.S… (there havebeen) big discoveries andthere are a lot more outthere to be made…”

Micallef said he is cur-rently involved in makinga feature film for televisionabout the independent oiland gas companies doingbusiness in Alaska, startingwith the 1960s to the pre-sent day.

see MICALLEF page 12

THE INDEPENDENTS

Kentucky,but got out of thebusiness when oil prices fell.

Lots of interest in Alaska

There is now a lot of inter-est in Alaskaamong inde-pendents inthe Lower 48,Micallef said,and he hopesto get a groupof indepen-dents involvedin the state.

Right now,he told PNA,he and Buck areworking on a business plan,negotiating to bring a drillingrig to Alaska, and waiting for

the deal with U.S.Petroleum toclose.

Micallef said the closing isexpected in about 10 days and,once that happens,U.S.Petroleum will initiate permit-ting.

U.S.Petroleum is a publiccompany, tradingon the U.S.over-the-counter mar-ket under thesymbol USPT. InOctober 2002the companysaid a gas wellhad been com-pleted on anOklahoma prop-

erty and the remainder of thatacreage farmed out with U.S.Petroleum retaining an overrid-ing royalty interest.◆


MICALLEF

starts drilling will be determined by ice thickness and location,he said”“It could be a week ormore in either direction.”

The prospect will be drilled bythe SDC — i.e. steel drilling cais-son — a bottom-founded Arcticdrilling platform, managed byFairweather E&P Services ofAnchorage.

ConocoPhillips Alaska Inc. andChevron U.S.A. Inc. are also work-

ing interest owners in the McCoveyunit, which includes three federaland four state of Alaska and is locat-

ed five miles northeast of Reindeer Island, 12 miles due east ofthe Northstar field and 12.5 miles northeast of West Dock atPrudhoe Bay.

—Kay Cashman


SDC

The SDC — i.e. steel drillingcaisson — a bottom-foundedArctic drilling platform, managedby Fairweather E&P Services.

Buck has five state oil and gasleases in the Cook Inlet Basin.

Micallef said he’s been aconsultant on the leases, andhas an overriding interest in

all of them. The new companywill be headquartered in Santa

Fe, New Mexico.

THE INDEPENDENTS

Charter opens North Slope to independentsBy STEVE SUTHERLIN Petroleum News Alaska

laska’s North Slope is aharsh place for indepen-dent petroleum compa-

nies to operate, but it wasmade a bit friendlier by TheCharter for Development ofthe Alaska North Slope, signedDec. 2, 1999, by ARCO, BP andthe state. Phillips PetroleumCo. later signed the charterwhen it bought the assets of

ARCO Alaska.The charter compels

ConocoPhillips Alaska Inc. andBP to provide facility andpipeline access on the NorthSlope subject to “reasonablecommercial terms,”accordingto Jim Weeks, president andCEO of Winstar Petroleum LLC,which expects to be the firstAlaska owned independentproducing oil on the NorthSlope. (See story on page 15)

“If we didn’t have the char-ter, we wouldn’t have any-

thing,”he told Petroleum NewsAlaska in a Nov. 8, 2002, inter-view.

Winstar needs access toKuparuk processing facilitiesoperated by ConocoPhillips todevelop its 1,280-acre OliktokPoint lease offshore one-halfmile northeast of OliktokPoint, abutting the northernboundary of Kuparuk.

Winstar plans a well fromexisting onshore pad 3-R, to bedrilled by ConocoPhillips,operator of the pad, which isowned by the Kuparuk Riverunit owners, ConocoPhillips,BP, Unocal, ChevronTexaco.and ExxonMobil.

ConocoPhillips agreedmore than one year ago to bethe operator of the well,Weekssaid, which solves a major envi-ronmental issue.“If we were abig enough independent wecould drill a well ourselves, butthe drill site we’re trying to getaccess to is only 250 feet from

the coastline.”Drilling at the location

requires access to the localspill response group,AlaskaClean Seas. Membership in theco-op costs $500,000.That fig-ure is workable for a project ofOliktok’s size,Weeks said, buthe said the deal breaker is arequirement of ACS that mem-bers must have $100 millionworth of insurance and a $200million net worth.

Access to seismicThe charter contains a pro-

vision that has already fur-thered Winstar’s efforts dramat-ically,Weeks said.

BP and ConocoPhillips “areobligated to sell us their pro-prietary seismic and well infor-mation that they have the legalright to sell,”he said, addingthat some seismic can’t be soldbecause other firms have aninterest in it.

Winstar bought 3-D seismicfrom ARCO that covers thesouthern part of the Oliktoklease, and seismic from BP that

Jim Weeks

Jim Weeks, CEO and president of indepen-dent Winstar Petroleum LLC, is testing thestrength of the charter and the majors’intentions to abide by it in his negotiationswith ConocoPhillips Alaska Inc.

A

see CHARTER page 14

covers the eastern part.Weeks said Winstar hopes to

test another provision that’sgood for independents.“There’s a provision wherethey buy our oil at pump sta-tion one, so we don’t have topay TAPS tariffs, we don’t haveto worry about marine trans-portation, and there’s a pre-agreed formula in the charterthat ConocoPhillips and BPhave agreed to buy up to 5,000

barrels a day of oil from small-er independents.”

Binding arbitration The charter requires the

companies to submit to bind-ing arbitration if they areunable to determine “reason-able commercial terms,”Weekssaid.“But reasonable is a sub-jective adjective.

“It’s been a very slow, one-sided process, this negotiation.”ConocoPhillips has beenextremely cautious and riskadverse in drafting the

enabling agreement, he said.One reason is that Winstar is alimited liability company.ConocoPhillips is concernedthat if an LLC has a major costoverrun or an incident and itwalks, ConocoPhillips wouldbe left holding the bag.

Weeks said Winstar andConocoPhillips are still aparton the level of liability insur-ance Winstar should carry forthe project.“We’re willing tobuy real insurance to cover theworst case we can dream up,”he said.“They want twice whatwe think is necessary.”

Another reasonConocoPhillips is moving slow-ly is that negotiations withWinstar likely will set a prece-dent for future access agree-ments with other indepen-dents.

“We’re the poster child,”Weeks said.“Owners havenegotiated arrangementsamong themselves to allow theKuparuk satellites and Prudhoesatellites to produce, but that’slike taking money from onepocket to the other; they’re allbig guys, they’ve got the bal-ance sheet they need, and allthis risk from having an inci-dent and walking is hugelydiminished.”

Back-out is hang-upWeeks has concerns about a

back-out provision in the pro-posed agreement designed tocompensate facility owners fortheir own production dis-placed by production from asatellite field due to capacityconstraints. If new oil comes inthe owner has to shut in someold oil to make room because

of limited gas compression topressure the gas and re-inject itback into the reservoir, or limit-ed water processing capacity.

The back out fluctuatesover time, and ConocoPhillipsis the only one with the abilityto calculate it, using modelsdeveloped over the years,Weeks said.

“I‘m willing to take that;they’ve done a good job withtheir models, they’re honestpeople … so I give them athousand barrels a day and thisgoes on every month for thelife of our production,”he said.“But … when we’re depletedand plugged and abandonedand gone, they never give usthe barrels back, ever.They sayon a present value discountedbasis it’s neutral.”

Weeks has a problem withthe principle. He said it worksfor the owners’ satellitesbecause they own the unit.Theimpact to them isn’t as bad asimpact to an outside company.

One final complicationThe charter only obligates

ConocoPhillips and BP.Weeksis convinced that Winstaraccess will require 100 percentof the Kuparuk facility ownersto say yes.

“We need the approvals ofUnocal, ChevronTexaco, andExxonMobil,”Weeks said.“I’vehad informal conversationswith them,”he said.“I wrote allof them a letter a year and ahalf ago and the response I gotwas: deal with Phillips, they’rethe operator of the Kuparukunit, and when they structure adeal with you they will bring itto us.”◆

THE INDEPENDENTS

Gov. Tony Knowles

The Charter for Development of the AlaskaNorth Slope, the establishment of areawideoil and gas lease sales, and the explorationlicense program are considered three ofoutgoing Alaska Gov. Tony Knowles’ mostsignificant oil and gas related accomplish-ments.


CHARTER

THE INDEPENDENTS

Winstar aims to be first Alaska-owned independent principals include Weeks, Winther, Lindsey

By KAY CASHMANPetroleum News Alaska

instar Petroleum LLC expects tobe the first Alaskan-owned indepen-dent producer on Alaska’s North

Slope.Established in 1997 as PetersburgEnergy LLC, the company was founded byPetersburg fisherman John Winther andSeward businessman Dale Lindsey.Otherprincipals include Bart Eaton,Skip Reierson,Jerry Kennedy,Rick Winther,Dale Wintherand Mark Hickey.

In late 2000,Winstar opened offices inAnchorage.At the same time,Wintherannounced the appointment of James “Jim”D.Weeks to the position of president andCEO of the fledgling firm,which acquiredthe bulk of its 12,000 acres on the NorthSlope in state of Alaska oil and gas leasesales held in 1997 and 1998.

Acreage at Thetis Island

Winstar has leases near AnadarkoPetroleum Corp.’s Thetis Island lease (held

by a well Exxon drilled in 1993),BPExploration (Alaska) Inc.’s Liberty prospect,and BP’s Badami oil field.

But the company has focused most of itsattention on a 1,280-acre offshore lease one-half mile northeast of Oliktok Point whereits efforts to get a well drilled represent thefirst test of the 1999 North Slope charteragreement,which was signed by PhillipsPetroleum Co.and theoretically obligatesConocoPhillips Alaska Inc. to provide facilityand pipeline access on the North Slope sub-ject to “reasonable commercial terms,”says

Weeks.Lease ADL 388584,which used to be

part of BP’s Milne Point unit, is adjacent tothe northern boundary of theConocoPhillips-operated Kuparuk Riverunit.The unit’s facilities and pipelines willbe needed to drill and develop Winstar’sOliktok Point prospect. (See related articleon page 13.)

Gaining access

Winstar has been negotiating withConocoPhillips for almost two years and ithas still not been able to get what its own-ers consider reasonable commercial terms.

Drilling dates have been set, and thenrescheduled, several times.On Oct.9,2002,Weeks told Petroleum News Alaska thatWinstar had again postponed its first quar-ter 2003 spud date to second quarter 2003.

But Weeks remains optimistic.He thinksthe management of ConocoPhillips willeventually agree to contractual terms that

W

see WINSTAR page 16

“The North Slope’s first Alaskan ownedindependent producer.”

■ CEO: Jim Weeks■ Headquarters: Anchorage, Alaska■ Main telephone: (907) 258-2969■ Main Email:[email protected]■ Founded: 1997

THE INDEPENDENTS

will be a win-win for theKuparuk River unit owners,Winstar and the state of Alaska.

Reducing the risk

Weeks said his company istaking advantage of the delay indrilling plans to try to reducethe “risk of the process”for itspartners by employing technol-ogy that can give Winstar a bet-ter idea of where the hydrocar-bons are.

The well the company hasplanned would be a 7,500 footstep-out from Kuparuk pad 3-R,Weeks said.

“We want to do all we can tomake sure we’re successfulwith the first well; that we drillin the best possible place onthe lease,”he said.

“We bought some long 2-Dseismic lines from WesternGecoshot by ARCO over the south-ern part of our lease and we’re

having WesternGeco utilize its

AVO — amplitude versus offset

— technology on it,which can

help locate hydrocarbons,”

Weeks said.

Deal with Chroma

Winstar and its sister compa-

ny UltraStar Exploration LLC

have also struck a deal with a

subsidiary of Chroma Energy

Inc.of Houston to use Chroma’s

proprietary pattern recognition

and pattern enabled visualiza-

tion software for further evalua-

tion of the companies’explo-

ration prospects.

Weeks said Chroma has a

success rate of more than 75

percent in finding oil and gas.

Winstar’s 2002 capital bud-

get is $100,000,but anticipated

2003 spending is $6 million for

the Oliktok Point well and

analysis of 53 square miles of 3-

D seismic covering Badami and

Liberty.◆


WINSTAR Winther, Weeks, Lindsey formUltraStar Exploration

The three primary principals in Winstar Petroleum LLC —Jim Weeks, Dale Lindsey and John Winther — launched anoth-er Alaska-based independent oil and gas company, UltraStarLLC, in the summer of 2002.

UltraStar is working seven leases (11,085 acres) thatWeeks, its president and chief executive officer, won in areaw-ide lease sales held by the state of Alaska in October 2001.

Weeks was high bidder on four leases in the Beaufort Seasale, paying a total of $371,770.Two of the tracts are in FoggyIsland Bay southeast of BP Exploration (Alaska) Inc.’s Libertyprospect and two are between Gwydyr Bay and Prudhoe Baynear Point McIntyre.

The other three leases were from the North Slope onshoresale and are located southwestof BP’s Badami unit.Weekspaid $42,624 for those tracts.They are contiguous to, andsouth and southeast of, three leases Winstar obtained in a1998 areawide sale.

Weeks told Petroleum News Alaska in November 2002 thatUltraStar’s two most promising prospects are Point McIntyreand Liberty.

Winstar and UltraStar have acquired licenses for 3-D seis-mic data covering a large portion of their leases in the vicinityof Badami and Liberty,Weeks said.

THE INDEPENDENTS

By KRISTEN NELSON Petroleum News • Alaska

l Gross,president ofPelican Hill Oil & GasInc., acquired oil and gas

leases on the west side of CookInlet in 2001 with one goal inmind: to produce hydrocarbons.

Gross told Petroleum NewsAlaska in November 2001 thathe came to Alaska to findacreage with more oil and gaspotential than in Kansas,wherehe has operated for almost 25years and drilled more than 200wells.

The company acquired itsfirst Alaska oil and gas leases inSeptember 2001,when the SanClemente,Calif.-based companywas high bidder on five AlaskaMental Health Trust Land OfficeCook Inlet oil and gas tracts.The 25,187 acres are on thewest side: three tracts are northof Tyonek,west of the BelugaRiver gas field; two are west ofTyonek,one at Granite Pointnear the Nicolai Creek gas fieldand the other to the north.

By the time the leases hadbeen issued,Gross was plan-ning seismic for early 2002.

“I don’t buy leases just toown them as a lease positionasset,”Gross told PNA,“… I buythem for a reason: that’s toshoot them and then to go drillthem.”

The company shot 3-D seis-

mic in the winter of 2002 and isnow planning to drill.

Gross told PNA in 2001 thathe looked at Alaska a few yearsago,but walked away.

“A year ago, I looked at it alot harder,”he said.

He connected with localgeological consultant ArlenEhm,started making trips toAlaska,and in September 2001,bid $258,359 for the five MentalHealth Trust Land tracts.

In July 2002,Pelican Hillpicked up two additionalMental Health Trust Land tracts,some 11,297 acres north ofTyonek,based on payment ofthe first year’s rent ($11,298)and a work plan for the tracts.

The company nowhas 58,277 total netoil and gas leaseacres,a combinationof 21,543 acres ofstate oil and gas leas-es that Pelican hasjust farmed in to andthe trust leases.

Drilling the goal

Pelican shot 3-Dseismic over its leasesin the winter of 2002and is planning todrill, looking for gasin shallow to moder-ate depth reservoirson the west side ofCook Inlet.

The company isspending some $2million in Alaska in 2002 andplans to spend some $6 millionto $10 million in 2003 on 3-Dseismic surveys and four to sixwells,with another four wellsanticipated for 2004 and possi-bly more 3-D seismic.

Gross told PNA in 2001 thathe is considering bringing in arig, if one isn’t available.

The leases Pelican Hill hasare reasonably close to infra-structure,Gross told PNA:“And

that’s the key to theCook Inlet and any-where,whether youdrill in Kansas,Oklahoma,Texas —the infrastructure’sgot to be there.”

Gross told PNA heis also interested inother areas of CookInlet.“We have hadthe luxury of using allthe informationacquired by Arlen(Ehm) to pick theselocations that wewent after withMental Health.We arealso exploring the dif-ferent areas of CookInlet.”

He noted thatchanges in the industry, such asmergers of larger companies,sometimes create opportunitiesfor independents, as larger com-panies abandon fields.

“It’s happened in Kansaswhere I drill,where a lot of themajors pulled out of there five,six years ago.

"And we got the leftoversand it's made us very success-ful," Gross said.◆

Pelican Hill to drill on west side of inlet in 2003Company working in Tyonek area; looking at four to six wells, possibly more 3-D seismic

A “Pelican Hill is committed tofinding reserves in Alaskawhile lowering the cost ofoperations.”

■ President: Allen J. Gross■ Headquarters: SanClemente, Calif.■ Main telephone: (949)498-2101■ Main email:[email protected]■ Alaska office: Anchorage■ Alaska office contact:Arlen Ehm■ Alaska telephone:(907) 333-8880■ Alaska email:[email protected]■ Founded: 1980

AL GROSS

ARLEN EHM

AVCG targets North Slope leftoversBy KAREN AHO

PNA Contributing Writer

laska Venture CapitalGroup LLC was formed inmid-1999 by two experi-

enced oil men and longtimeacquaintances, John Jay “Bo”Darrah Jr. and Barton Armfield.

Darrah has 30 years ofexperience managing a private-ly held oil company based inWichita, Kansas;Armfield hasextensive, and recent, historyon Alaska’s North Slope withAlaska Petroleum Contractors.The other owners in AVCG areprivately held, independent oiland gas companies activelyexploring and operating in theLower 48.

AVCG contracted withAlfred “Fred” James, a Wichita-based geologist and indepen-

dent explorationist with a solidknowledge of North Slopegeology.

Currently AVCG owns orcontrols 130,000 acres of leas-es on the North Slope, includ-ing five prospect blocks:Cronus, East Cirque, ItkillikRiver, Ocean Point and the

prospect it is working first —the Sakonowyak River explo-ration unit.

Charter a plus for access

“Huge companies such asExxon or BP survive by findingthe Prudhoes and Kuparuks.We independents, we’re look-ing for smaller fields.There areno more Prudhoe Bays,” Jamestold Petroleum News Alaska inJanuary 2002.

But nonetheless, he said theNorth Slope has a great deal ofpromise for oil explorers:“There are probably a wholelot of Alpines, Fiords and Tarns;together they may hold moreoil than Prudhoe.”

BP partner at Sakonowyak

AVCG spurred activity atthe Sakonowyak Riverprospect, a joint venturebetween AVCG (38 percent)and BP (62 percent).The11,520-acre BP-operated unitcontains five state leases, off-shore and onshore, at themouth of the SakonowyakRiver in Gwydyr Bay. It abutsthe western border of BP’sNorthstar unit and is threemiles north of the Prudhoe Bayunit boundary.

AVCG will fund the pro-

gram and BP will retain a work-

ing interest in the prospect

after the test well is drilled.The

first well was supposed to be

drilled in the winter of 2002

but has been rescheduled by

BP for the winter of 2003,

Armfield said.A second explo-

ration well is to be completed

by May 1, 2004.

The Sak River No. 1’s sur-

face location will be onshore

outside the unit on a lease

owned by BP and

ConocoPhillips.The bottom-

hole location will be offshore

in a unit lease owned by AVCG.

The well has a primary tar-

get in the Kuparuk C 1 sand at

a total vertical depth of 8,500

feet and a measured depth of

12,500 feet. Estimated recover-

able reserves in the core area

are expected to range between

41 million and 62 million bar-

rels of oil equivalent with a

geological chance factor of 51

percent,Armfield said. In addi-

tion to the primary C 1 target,

additional sections within the

Kuparuk sands present an

upside potential in excess of

300 million barrels of oil equiv-

alent, he said. ◆

THE INDEPENDENTS

A ■ CEO:John Jay (Bo) Darrah Jr.■ Headquarters: Wichita,Kansas■ Main email:[email protected]■ Capital budget for Alaska,2002: $2 million■ Capital budget for Alaska,2003: $2-7 million

THE INDEPENDENTS

Anadarko’s goal: To be North Slope operatorCompany's mobile drilling platform designed to reduce exploration costs

By STEVE SUTHERLINPetroleum News • Alaska

n the early 1990s Anadarko PetroleumCorp.came to Alaska because it believedthe North Slope held opportunity for

major new finds. Its mission was to becomean operator with a significant North Slopeacreage position. It has.Anadarko operatedon Alaska’s North Slope for the first time in2001 when it drilled at Altamura in theNational Petroleum Reserve-Alaska,and ithas a major acreage position in Alaska,withaccess to more than 4.6 million acres.

“Years ago,more than a decade ago,(Anadarko) concluded that Alaska was aplace that still held the potential for giantfields to be found,”said Bill Sullivan,Anadarko vice president.Other companieswere exiting or avoiding the state,butAnadarko wanted in.

“We were a little bit contrarian in thetiming,and we made a serious and longterm effort,”Sullivan said.“We are comfort-able doing that.When we believe in our

technical homework,we will commit.”To reduce risk,Anadarko made its first

forays into exploration with experiencedpartners as operators, first in 1993 at theThetis Island prospect in the Beaufort Sea,five miles offshore.Thetis Island had oilshows but has yet to be delineated as acommercial field.Anadarko took over fromExxon as operator there in 1997. (See relat-

ed stories in pages 28 and 30.)

The Anadarko stamp Anadarko didn’t rush into Alaska to ape

the status quo: it wanted to put its ownstamp on the art of drilling in the Arctic.And the company didn’t want to be a pas-sive investor; it wanted its ideas to be used.

“You don’t just pop into a place likeAlaska and buy acreage and then go be anoperator,”said Mark Hanley,Anadarko’sAlaska public affairs manager.“The goal was

I “Anadarko defines the new class ofsuper-independents.”

■ CEO: John Seitz■ Executive in charge of Alaska opera-tions: J. Anothiny Meyer■ Stock exchange: NYSE, ticker APC■ Headquarters: Houston, Texas■ Main telephone: (713) 935-9048■ Alaska office telephone:(907) 273-6300■ Web site: www.anadarko.com■ Founded: 1959

see ANADARKO page 20

MARK HANLEY JOHN SEITZ

THE INDEPENDENTS

to partner with somebody —number one — who we couldlearn from,but also that wecould give ideas to and theywould listen.”

Anadarko part-nered with ARCOAlaska Inc. (nowConocoPhillips AlaskaInc.) and Union TexasPetroleum (latermerged into ARCO).

In 1994 the ARCO-operated partnershipmade a discovery thatwould give Anadarkoits first productionfrom Alaska: the 365 million bar-rel Alpine field on the westernNorth Slope.Alpine wasdeclared commercial in 1996and is now producing at a rateof more than 100,000 barrelsper day.

“ARCO was a good partner;they were an aggressive explor-er in Alaska,which was whatwe were looking for,”Hanleysaid.“They were willing to lookat some of our ideas and theyhad the same approach we did.”

Success with ARCO led to aforay into NPR-A with ARCOand its successor Phillips Alaska(now ConocoPhillips Alaska).

In the meantime,becauseAnadarko wanted to control itsown acreage and be an opera-tor, it embarked on an acquisi-tion program of its own on theNorth Slope. In June 1998 itacquired 20 tracts in state oil

and gas lease sale 87,as well assix tracts in partnership withFina Inc. In August 1998,Anadarko and the Arctic SlopeRegional Corp. signed an exclu-sive exploration agreement forup to 3.3 million acres in theFoothills region of the North

Slope.Anadarko said it is

focusing its frontierexploration efforts onthe North Slope, tar-geting both oil andnatural gas reserves.

A revolutionary designIn the 2002-03

winter seasonAnadarko will test a

mobile drilling platformdesigned to be moved toremote locations in sections —by rolligon or helicopter.Anadarko will use its prototypeplatform to drill and core a shal-low gas hydrate well on theNorth Slope as part of aresearch project partly fundedby the U.S.Department ofEnergy. If the test is successful,the platform idea might revolu-tionize exploration drilling inthe Arctic and other sensitiveonshore areas.

The concept is simple, saidKeith Millheim,Ph.D., the com-pany’s Houston-based managerof operations technology:“You’re putting an offshore plat-form into the context ofonshore.”

Anadarko’s holdings on theNorth Slope present a challenge


ANADARKO


KEITH MILLHEIM

because many of the prospec-tive areas are a significant dis-tance from existing infrastruc-ture.The high cost and longtimeframe of today’s state-of-the-art Arctic frontier explorationtechniques such as the use ofice roads put many of theprospects out of reach.

By eliminating the need forice roads and ice pads,andextending the number ofdrilling days, the Arctic platformis expected to deliver signifi-cantly lower costs over alter-nate methods.Anadarko hopesthe platform will allow it to drillmore than one well at aprospect during the drilling sea-son,and if a discovery provescommercial, the platform couldalso replace gravel pads for pro-

duction facilities.

Lower impact on environment The platform promises a

lower impact on the environ-ment than gravel pads.

What remains when anArctic platform is moved,Millheim said, is 20-inch diame-ter holes,down to 15 to 20 feet.You fill the holes and you plantthe 20-inch diameter surface.

The time savings from usingthe platform might eclipse thedirect cost savings.Anadarkohopes the technology will allowit to discover and delineate aprospect more rapidly, reducingthe time the company’s capitalis tied up in a project before itbecomes a producing asset.

“The challenge in Alaska is tofind prospects big enough,reduce the cost, and reduce the

THE INDEPENDENTS


ANADARKO


JUD

Y PA

TRIC

K

JUD

Y PA

TRIC

K

In the first quarter of 2002 Anadarko spud its first Anadarko-operated well onAlaska's North Slope in the National Petroleum Reserve-Alaska at the Altamuraprospect. Above, crews attach a 30 foot wind wall to Nabors Alaska Drilling Rig14 E. The ramp in the upper left contains all power from the SCR unit.

Derry Thompson, Anadarko's drilling manager, and Walter Quigley, Lynx Enterprises'environmental compliance technician, on site at Altamura No. 1.

cycle time of getting them todevelopment,”Hanley said.“We’ve got to reduce the timefrom when we make our firstinvestment to the time — if it’ssuccessful in exploration — webring it on line.”

If a company can make thesame investment with payoff inhalf the time,Hanley said, invest-ment in Alaska would be morecompetitive with other areasworldwide.

“Frankly,as an explorationcompany,we like to either con-firm or condemn as quickly aspossible because then we’llmove on to the next prospect,”he said.

Platform sections are 12.5feet wide and 50 feet long, fabri-cated from aluminum.They willbe trucked to Alaska in lateDecember or early January.Thesections are called bucketsbecause they are designed tocatch runoff from the platform

deck.“It’s like the offshore plat-

form,where your goal is zerodischarge — any rainwater, any-thing that flows off the deckflows into these buckets.”Hanley said.“They’re all inter-linked, sealed across the top,and there’s a lip around the sideso if anything spills it’s all cap-tured.”

The company is conductingtests in November on the hol-low steel piling that will sus-pend the platforms above thetundra. Internal coils will circu-late cold fluid to help freeze thelegs in place for bearing,or cir-culate a warm mixture to expe-dite thawing for removal.Helicalauger-like flanges on the legswill assist in weight bearing,allowing the use of shorter pil-ing in shallower holes.

This winter: testing innovations Anadarko won’t spud a new

exploration well this winter,butinnovations it is testing now areexpected to lead to more

drilling and more production onits part, and on the part of com-panies that adopt the new tech-nology.

“We had talked about oneexploration well with the bigrig we had committed,and thefact that we’re not going to drillthat this year (doesn’t say) we’renot keen on Alaska,”Hanley said.“We’ve had other concepts anda whole bunch of things thatcame together that made peo-ple say let’s step back,evaluate.”

More wells for the samemoney increase the odds offinding something,he said.

“No matter how good youare,odds are you will have todrill several wells before hittinga winner,”Hanley said.“If youneed to do five wells and thefirst three are too expensive,and you can’t afford to go on orpeople sour to the idea,youmight not hit anything.

Opening the FoothillsWith prospects in the North

Slope Foothills 80 miles southof existing roads, terrain and dis-tance challenged Anadarko tofind new ways of access.

Ice roads work fine on theflat coastal areas of the NorthSlope,but the terrain in theFoothills presents a dauntingchallenge,Hanley said.On steepgrades,water won’t stay inplace long enough to freeze.

There are fewer lakes as youmove towards the mountains, sothere’s less water,Bill Fowler,Anadarko’s Houston-based envi-ronmental supervisor toldPetroleum News Alaska.Anadarko has determined,hesaid, that a 6 percent grade isthe limit for using ice.

Distance is a factor as well.As a general rule, it takes a dayto build a mile of ice road,Hanley said. If road buildingconsumes 70 days of the shortwinter drilling season,outerprospects become impossibleusing current techniques.

“Our folks challenged thetechnology guys,how are wegoing to reduce our costs,canwe get a 50 percent reductionin our exploration well costs,and can we figure out a waythat we can drill more wells?”he said.

The North in North AmericaAlaska is the northern chunk

of Anadarko’s North Americaholdings,which touch mostknown promising plays of oiland gas on the continent.Alongwith the North Slope andFoothills regions of Alaska,Anadarko is actively exploringin the deepwater Gulf ofMexico, in the deep basin andoverthrust plays of the WesternStates, in Western Canada and in

THE INDEPENDENTS



ANADARKO

the tight-gas plays of East Texasand North Louisiana.Up to 90percent of Anadarko’s produc-tion and 75 percent of total oiland gas reserves lie in theUnited States and Canada.Alaskaaccounted for one of the 35operated and 15 non-operatedrigs Anadarko had active inNorth America as of Oct 28.

The company has hadnotable success in Algeria’sSahara Desert and is venturinginto new regions, such asTunisia,West Africa,offshoresouthern Australia,Georgia andthe Faroe Islands.

Cook Inlet yearsIn September 1996 Anadarko

entered a strategic alliance tooperate the majority of ARCO’sCook Inlet exploratory acreage.In December, the companiesboosted their Cook Inlet hold-ings with a 39,000-acre score inState Lease Sale 85A.

In early 1998 Anadarko led agroup of companies in shootingthe first Kenai Peninsula region-al 3D seismic program.Thecompany’s first Cook Inlet wellat the Moquawkie prospect onthe west side of Cook Inlet wasspudded June 27.Anadarko waslooking for oil but found gas. IfAnadarko had found oil,Hanleysaid, it would have operatedproduction,but because thefind was gas,ARCO planned tooperate production because ithad gas infrastructure at the

nearby Beluga field.In October 2002,Anadarko

announced it had agreed to sellits entire Cook Inlet oil and gaslease holdings to Aurora GasLLC, including Anadarko’s 50percent at Moquawkie andapproximately 40,000 acres onthe Kenai Peninsula.The divest-ment of Cook Inlet assets willallow Anadarko to re-deploy itscapital to the North Slope, thecompany said.

Coming togetherHanley said the future

looks busy for Anadarko inAlaska.

“We’re at the comingtogether phase,” he said.We’vegot the exploration data, we’velooked over the information,we’ve got a huge acreage posi-tion, we’ve got multiple playsthat we’re working — devel-oping prospects — looking atthe seismic data that’s alreadybeen processed”

“We may shoot a seismicprogram this winter,” he said.He said the company was inthe process of prioritizing itstop prospects for oil and gas.

The viability of gasprospects, Hanley said,depends on access to markets.

“Gas depends on what wethink is the likelihood of a gasline,” he said,“We can’t spenda ton of money with no wayto get to market.”

Anadarko encourages othercompanies to join the explo-ration effort on the NorthSlope, because it believes thediversity of thinking benefits

its own efforts, and benefitsthe state.

“We’ve tried to bring somenew ideas to the table, thinkoutside of the box a little bit,”Hanley said.“We don’t havethe only ideas, but havingmore companies up here, par-ticularly when you have thesehuge areas like the Foothills —

millions and millions of acresthat are unexplored — it’sfrontier exploration, it’s costly,it’s risky, and frankly it’s niceto spread the risk around.”

Companies learn from eachother, and success breeds suc-cess, he said.“If people make afind out there, it attracts oth-ers.” ◆

THE INDEPENDENTS


ANADARKO

THE INDEPENDENTS

EnCana to drill offshore McCovey prospectWorld’s largest independent accumulates 1.4 million exploration acres in Alaska

By KAY CASHMANPetroleum News • Alaska

nCana Oil & Gas (USA) Inc. is sched-uled to begin drilling at the BeaufortSea McCovey prospect in mid to late

November 2002. It will be the first time thesubsidiary of EnCana Corp., the world’slargest independent oil company,will oper-ate in Alaska.

Phillips snares AEC Calgary-based EnCana first added Alaska

to its list of prospective frontier areas inAugust 2000 when the U.S. subsidiary ofAlberta Energy Corp.,predecessor toEnCana,entered into a joint venture agree-ment with Phillips Alaska Inc. (nowConocoPhillips Alaska Inc.) and ChevronU.S.A. Inc. (now ChevronTexaco U.S.A.Inc.).The alliance involved nearly 150,000acres on Alaska’s North Slope and theBeaufort Sea, including a one-third interestin 28,504 acres offshore Prudhoe Bay in theMcCovey prospect and a 20 percent inter-est in 114,262 acres in the Grizzly Gomo

prospect area south of the Kuparuk oil field(later increased to 30 percent).

AEC first looked at Alaska acreage in1999 when it came to look at the proposeddisposition of part of the Alpine field when

BP planned to purchase all of ARCO,AEC(now EnCana) Vice President Guy Jamessaid in early 2002.

BP didn’t purchase the assets of ARCOAlaska Inc.,but on that visit AEC talked toARCO Alaska (now ConocoPhillips AlaskaInc.) and, James said,“about 60 days laterwe were in their offices evaluating techni-cal on two opportunities that they put onthe table for us.”

AEC came to Alaska, James said, for tworeasons: the potential for “significant world-class”oil finds and Alaska’s gas potential.

The Alaska gas industry is “where Albertawas in the 1950s,”James said.Alberta had 50years “of sustainable gas growth”and soshould Alaska,he said.

Anadarko, AEC swap acresIn September 2000,an Alaska-Canada

swap with Anadarko Petroleum Corp.brought AEC into a third Alaska play, thistime in the gas-prone Brooks RangeFoothills where AEC got 33.33 percent

E “EnCana is driven to be the industry’s best-in-class benchmark in production cost, per-share growth and value creation for share-holders.”

■ CEO: Gwyn Morgan■ Executives in charge of Alaska in Calgary:Jeff A. Rose, senior VP, offshore & new ven-tures exploration, frontiers and EuropeSteve Harding, VP Alaska/MackenzieDelta, offshore and new ventures explo-ration■ Parent company: EnCana Corp. ■ Headquarters: Calgary, Alberta■ Main telephone: (403) 645-2000■ Alaska office: Anchorage■ Local manager: Tom Homza■ Main telephone: (907) 777-3700

see ENCANA page 27

THE INDEPENDENTS

McCovey possibly legacy quality,says Guy James

McCovey is the prospect EnCana finds most intriguing,Alberta Energy Corp. (now EnCana Corp.) Vice President GuyJames said in early 2002.

“We believe (McCovey) is potentially a legacy qualityasset, that means it could be a cornerstone, if it was success-ful,of our development of oil and gas in Alaska,”he said.

The McCovey unit includes three federal and four state ofAlaska leases in the Beaufort Sea about five miles northeast ofReindeer Island,12 miles due east of the Northstar field and12.5 miles northeast of West Dock at Prudhoe Bay.

When AEC farmed into the prospect,Phillips Alaska Inc.was the operator and drilling was planned from an ice islandin early 2001.But Phillips “was unable to obtain all of theirpermits in the required timeframe”and the decision wasmade to delay the project and look at alternatives for drilling,James said.

AEC took over as operator of McCovey at the end of

The SDC, built for the Arctic by Canadian Marine Ltd. in 1982 using an oldtanker as a shell, was towed by two Crowley ice breakers 600 miles from PortClarence to McCovey in July 2002. The journey took 12 days. The SDC was lastused on ARCO Alaska's Cabot project in the Beaufort Sea in 1991.

CO

URT

ESY

OF

ENC

ANA

see McCOVEY page 27

working interest in 3.1 millionacres south of Prudhoe Bay(and the Umiat baseline) underlease option from Arctic SlopeRegional Corp.

At the state’s Nov.15,2000,North Slope areawide lease saleAEC and partner Anadarko con-tinued picking up gas-proneacreage, this time in the Kavik-Kemik area.

In 2000 and 2001,AEC spent$35 million “primarily on seis-mic and land”and participatedin one well south of Kuparukwhich was unsuccessful, Jamessaid.

In 2001,AEC also contractedfor consulting services withKen Boyd,after he retired asdirector of the state Division ofOil and Gas.

In the winter of 2001-2002AEC participated in Phillips-operated exploration wells atGrizzly and Heavenly, shooting3-D seismic with Anadarko overacreage the companies acquiredin partnership in the Foothills.

AEC told Petroleum NewsAlaska early in 2002 that itwould invest $32 million inAlaska in 2002.

Buys acreage in NPR-AAEC merged with

PanCanadian in April 2002 and

became EnCana,effectively dou-bling its enterprise value to $30billion.

On June 3,2002,EnCanawon five of six leases at the U.S.Bureau of Land Management’sNational Petroleum Reserve-Alaska lease sale.

That same month, the com-pany opened an Anchorageoffice.

Most recently, at the Oct.24,2002, state Beaufort Sea area-wide lease sale,EnCana and itsMcCovey partners,ChevronTexaco andConocoPhillips,were high bid-ders on 12,160 acres adjacentto McCovey on the south.EnCana,bidding with Chevron,also took 7,680 acres southwestof McCovey.

By the end of October 2002,EnCana held more than 1.4 mil-lion net oil and gas acres inAlaska’s Arctic,Steve Harding,EnCana vice president,Alaska/Mackenzie Delta,off-shore and new ventures explo-ration, told PNA.

Alaska not core area -- yetBut unlike the deepwater

Gulf of Mexico and the U.K.North Sea,Alaska is still notviewed as a core developmentarea by EnCana. Jeff Rose,EnCana senior vice president,offshore and new venturesexploration, frontiers andEurope, said July 15,2002, that

EnCana just had what is proba-bly the largest discovery in theU.K.North Sea in the last 15years at its Buzzard field andwould like to make similar dis-coveries in Alaska.

“But it takes more thanexploration success,” he said.“Time really is money to all ofus and especially for an inde-pendent explorer. In order forus to be successful, we need astable fiscal regime, a consis-tent and predictable regulato-ry process and reasonableaccess to land and infrastruc-ture.”

Alaska has access to land,hesaid, but EnCana owns no pro-cessing facilities or pipelines inAlaska, so “our biggest chal-lenge is getting our yet-to-bediscovered Foothills gas tomarket.”

He asked for “the continu-ing support of the Alaska gov-ernment in streamlining thepermitting and regulatoryprocess — (and) support toremove the uncertainty sur-rounding pipeline access.”◆

THE INDEPENDENTS

October 2001 and electedto drill the prospect in lateNovember 2002 from theSDC (steel drilling caisson),a bottom-founded Arcticdrilling platform,managedby Fairweather E&PServices of Anchorage.AECsaid in its exploration planthat a single well,with ameasured depth of 14,400feet and a true verticaldepth of 13,000 feet,wouldbe drilled from a surfacelocation in federal OCSlease block Y-1577 to a bot-tomhole location to thenorthwest in OCS leaseblock Y-1578.

If commercial quantitiesof oil are found, the bottom-founded SDC could,withmodification,be used forthe development platform,AEC said.


ENCANAcontinued from page 26

McCOVEY

THE INDEPENDENTS

Armstrong: Finding oil, good partnersGenerates drilling plan for North Slope prospect, brings in Pioneer


rmed with a reputationfor finding oil and attract-ing solid partners to oper-ate their fields,Armstrong

Resources LLC broadened itsfocus from the Lower 48 statesto Alaska when it won 10 tractsin the state’s Oct.24,2001,Beaufort Sea areawide oil andgas lease sale.The leases encom-pass14,000 acres between theConocoPhillips Alaska Inc.- oper-ated Kuparuk River unit andThetis Island.

Headed by geologist WilliamD.“Bill”Armstrong and heavilydriven by science, Armstrongidentifies prospects and thenbrings in experienced operatorsto drill and produce them.

“We are an oil and gas com-pany that’s heavily driven byscience,”Ed Kerr, Armstrong’s

vice president land,told Petroleum NewsAlaska shortly afterthe Oct.24 sale.

“Armstrong hasmade its reputationexploring for largeimpact resources inpreviously consideredmature basins.Wehave established thedeepest production inseveral geologic provinces inthe Lower 48,”company presi-dent Bill Armstrong told PNA inJuly 2002.He founded the com-pany in 1984 and remains themajor owner.

Armstrong has propertiesfrom Michigan to California,Kerr said, including multipleplays in the Rockies and inCalifornia where a well drilledfor Armstrong set a record forthe state’s deepest gas produc-tion.

In the Lower 48,major independentsEl Paso Productionand AnadarkoProduction Corp.have both operatedfor Armstrong.

Phenomenal petroleumsystem

What attractedArmstrong to Alaska

was “a phenomenal petroleumsystem and great opportunitiesgeologically,”Bill Armstrong said,as well as the North SlopeCharter Agreement. (See relatedstory on page 17.

The 10 tracts Armstrongacquired in the 2001 BeaufortSea sale are in Harrison Baywest of Oliktok Point.

The company bid more than$4.3 million, taking 10 of 12leases on which it bid for a totalof some $4.2 million (Anadarko

took the two leases Armstronglost).Armstrong also had thehighest bid per acre at the sale,$316.39,and the highest bidper tract ,$809,958.40,both ontract 378.

Exxon Corp.worked thisarea in the early 1990s,unitizingleases previously held by

■ CEO: William “Bill” D.Armstrong■ Executive in charge ofAlaska: Bill Armstrong ■ Headquarters: Denver, Colo. ■ Main telephone:(303) 623-1821■ Founded: 1984

ASTU GUSTAFSON

see ARMSTRONG page 29

THE INDEPENDENTS

Amerada Hess Corp.In its proposal for a Thetis

Island unit Exxon told the statethe unit would “encompassesseveral prospective horizonsthroughout the proposed area.”

Exxon drilled from ThetisIsland and said it planned totest “several objectives from theCretaceous through Triassic-Ivishak.”In February 1995 thestate certified Exxon’s well, the8,460-foot vertical explorationwell,Thetis Island No.1,drilledin 1994,as capable of produc-ing in paying quantities.

Target multiple horizons Armstrong’s three proposed

wells will target “multiple hori-zons down to and through theJurassic … (and) have a highchance of encountering oilbearing sands,”Stu Gustafson,vice president of operations forArmstrong, told PNA in a July2002 interview.

Gustafson was with Exxon’sAlaska exploration group from1979 until the company closedits Alaska exploration office in1995.He went to work forArmstrong prior to the 2001Beaufort Sea lease sale.

The Thetis Island unit wasterminated in May 1995. InAugust 1996,Exxon assigned itsinterest in the lease containingthe well to Anadarko,which stillholds the lease.

Three wells in shallow waterOn July 19,2002,Armstrong

filed permits to drill three wellson three separate ice pads thiswinter.The pads would be con-structed in the shallow watersof the Beaufort Sea.Near shoreand offshore ice roads wouldbe used to connect the opera-tions with existing gravel roadsin the Oliktok Point area.

“Our plan is to begin build-ing ice roads as early as Dec.1,weather permitting,”Gustafsonsaid in July.

“We have designed our pro-gram to complete operationson all three wells before theend of March.Off the ice in

March … 60 days beforebreakup starts … is the driveron this issue,”he said.

The project’s main ice roadconstruction would begin atthe Oliktok Point dock,headingsouthwest along the shore forapproximately three miles andthen turn due west three milesto drill site 3 Natchiq,continu-ing northwest two miles to drillsite 1 Ivik and finally straightnorth to site 2 Ooguruk.

Jacob Adams names wellsJacob Adams,president of

Arctic Slope Regional Corp.,selected names for the threewells.ASRC is the regionalNative corporation of the ArcticSlope of Alaska. Ivik means wal-rus in Inupiaq;Ooguruk meansbearded seal; and Natchiq,means seal.All are sea mammalsthat are eaten by the Native res-idents of the North Slope andwhich contain oil — albeit theedible kind.

Armstrong brings in PioneerTrue to its reputation of

hooking up with solid andexperienced operators,Armstrong brought PioneerNatural Resources Co. to Alaskaas a partner in the Kuparuk-Thetis leases.

Dallas-based Pioneer signedan agreement with ArmstrongResources,effective Nov.1,2002,giving Pioneer a 70 per-cent working interest in,andoperatorship of, the 10 leases.

Pioneer refers to the tractsas the Northwest Kuparukprospect. (See story on Pioneeron page 30.)

“Even though Pioneer didn’thave operations in Alaska, theywere a natural fit for us.Theyhave a great track record as anexploration company and as astrong operator. They recog-nized the same strengths inAlaska as we did:great petrole-um system,multiple oil zones,reasonable depths,nearby infra-structure and facilities.”Armstrong told PNA in earlyNovember.

When asked if Armstrongwould continue to put togetherprospects in Alaska, Armstrongreplied, “absolutely.”◆


ARMSTRONG


n late October 2002 one ofthe country’s largest inde-pendents joined the grow-

ing list of junior oil and gascompanies doing business inAlaska.

Pioneer Natural ResourcesCo. said Oct. 24 that it hassigned an agreement withArmstrong Resources LLC giv-ing it a 70 percent workinginterest in 10 state oil and gasleases on the North Slope.TheDallas-based company formedPioneer Natural ResourcesAlaska Inc. to do business inAlaska.

Pioneer also took over oper-atorship of the leases, whichencompass approximately14,000 acres between theKuparuk River unit and Thetis

Island, Scott Sheffield, chairmanand CEO of Pioneer, told PNA.

Discovered in 1969, nearbyKuparuk is the second largestoil field in North America andis estimated to hold 2.5 billionbarrels of recoverable oil.

Tenth largest independent Active in the Gulf of

Mexico,Texas, Kansas, westernCanada,Argentina, South Africa,Gabon and Tunisia, Sheffieldsaid his company has provenreserves of “671 million bar-rels of oil equivalent — about50 percent oil and 50 percentgas”and is “approximately the10th largest independent inthe United States,”with anenterprise value of $4.5 billion.

Sheffield said Pioneer has areserve-to-production ratio of16 years, noting it is one of thelongest RP ratios in the indus-

try. Pioneer operates 70 per-cent of its oil and gas proper-ties, making it a perfect matchfor Denver-based Armstrong,which focuses on finding oil.(See story on page 28.)

Canada office oversees AlaskaAt the time of Pioneer’s

buy-in, Armstrong was in theprocess of getting permits todrill as many as three explo-ration wells this winter on the10 leases, which encompasswhat Pioneer refers to as the“Northwest Kuparukprospect.”

Pioneer said Oct. 24, 2002, itwill test an area that is“prospective for oil in thesame sands as the offsettingKuparuk River unit eight to 10miles to the southeast.”

Pioneer’s wholly ownedCanadian subsidiary, PioneerNatural Resources Canada Inc.,will oversee the Alaska explo-ration operation, Scott Sheffieldsaid.

Ken Sheffield, president ofthe Calgary-based Pioneer sub-sidiary and no relation to ScottSheffield, will be the Alaska

project manager.Sheffield told Petroleum

News Alaska the companywould utilize Pioneer’s exper-tise in both Calgary and Dallasto drill the Northwest Kuparukprospect.

“We have a lot of peoplefamiliar with Arctic drilling,mostly in Canada. … We drill inthe range of 30 to 50 wells peryear in Canada.They are winteraccess operations, very similarto Alaska,”he said.

“We’ll be using a lot of localfolks on the North Slope aswell,”Chris Cheatwood, execu-tive vice president of world-wide exploration for PioneerNatural Resources in Dallas,told PNA in the same inter-view. Sheffield added thatArmstrong’s agreement to usethe services of Anchorage-based Natchiq Technical wouldbe honored.

Kuparuk ballot gives accessSheffield said Pioneer will

work closely with Armstrongon the Northwest Kuparukprospect.

“They have considerableexpertise in this area and wethink the combination ofPioneer and Armstrong givesus the opportunity to developa really successful project,”headded.

Armstrong secured accessto some North Slope infrastruc-ture via the Greater KuparukArea Ballot No. 260A itreceived from Phillips AlaskaInc. (now ConocoPhillipsAlaska Inc.) this past summer.(See related article in PNA’sJuly 28, 2002, edition.)

The ballot gives Armstrongaccess to Kuparuk’s roads,mobile and non-mobile equip-ment, waste management infra-structure, camp services, emer-gency services and more, but

THE INDEPENDENTS

Pioneer buys into North Slope prospect Dallas-based independent to drill up to three wells on North Slope this winter

I“A top-tierU.S. indepen-dent explo-ration andproductioncompany”

■ CEO: ScottD. Sheffield■ Executives in charge of Alaska:Dennis Fagerstone, executiveVP of international operationsKen Sheffield, president,Pioneer Natural ResourcesCanadaChris Cheatwood, executiveVP of worldwide exploration■ Headquarters: Irving, Texas■ Main telephone:(972) 444-9001 ■ Web site:www.pioneernrc.com■ Stock exchange:NYSE, ticker PXD

see PIONEER page 31

does not give the companyaccess to spill equipment, pro-duction facilities and pipelines.

Up until now ballot agree-ments have been mainly usedamong owners of unitized oilfields on the North Slope togive developers of satellitefields — which have the sameoperator as a unit but often adifferent mix of ownershippercentages and some non-unitowners — access to some of aunit’s equipment, services andfacilities at agreed upon pricesand conditions.

Ballot agreements can be amajor help to oil and gas com-panies which do not own apiece of the producing unitsbut want to drill their ownnearby North Slope prospectsand access unit infrastructureand shared services.

Off ice by end of March“No wells have been drilled

on the acreage covered byPioneer’s leases to date, butwells drilled just outside theperimeter of the acreage haveencountered the primary tar-get, the Kuparuk ‘C’ sands, andwere oil-bearing,”Pioneer said.

The proposed explorationwells are offshore in approxi-mately five to 10 feet of water.

“Drilling plans call forgrounded sea ice pad locationsthat will be accessed via iceroads from Oliktok Point dock.No tundra travel is planned.Allsea ice operations are expect-

ed to be completed by the endof March,”Pioneer said.

If Pioneer is successful ingetting its permits to drill, itwill be the first independent tooperate on the North Slopethat is not partnered in someway on the slope with thethree major ANS producers, BP,ExxonMobil andConocoPhillips Alaska.

Alaska, Mackenzie on radarCanada’s Mackenzie Delta

and Alaska’s North Slope haveboth been on Pioneer’s “radarscreen,”Scott Sheffield said.

Presently, Pioneer’sCanadian assets are all cen-tered in British Columbia “onthe B.C.,Alberta border,”butSheffield said the company iskeeping a close eye on theMackenzie Delta.

“We were looking at Alaskaon a scoping basis probablyabout a year ago. … We hadintentions of getting up therein the next couple of years.Armstrong helped accelerateour entry into Alaska,”Cheatwood said.

The changes on the NorthSlope, he said, also got his com-pany’s attention, referring toBP Exploration (Alaska) Inc.’sdecision to effectively discon-tinue frontier exploration inAlaska.

The other incentive,Cheatwood said, was the“state’s pushing for ways to getindependents up there toexplore for smaller opportuni-ties,”an effort largely spear-headed by the Alaska Divisionof Oil and Gas.◆

THE INDEPENDENTS


PIONEER Chris J. CheatwoodExecutive vice president, worldwide exploration,Pioneer Natural Resources Co. Cheatwoodjoined Pioneer in August 1997 and was promot-ed vice president of domestic exploration in July1998 and senior vice president, exploration, inDecember 2000. Before joining Pioneer, hespent 10 years with Exxon where his focusincluded exploration in the deepwater Gulf ofMexico. Cheatwood has a bachelor of sciencedegree in geology from the University ofOklahoma and a master of science degree ingeology from the University of Tulsa. He was elected executive vice pres-ident of Pioneer in January 2002.

Scott D. SheffieldPioneer Natural Resources Co. chairman, presi-dent and CEO, is the son of a former ARCOinternational executive. He began his career asa reservoir engineer with Amoco Production Co.in the mid-1970s. In 1979, Sheffield becamethe fifth employee of Parker & ParsleyPetroleum Co., where he was the sole staffengineer. He was named CEO of Parker &Parsley in 1984, then a $32 million company,and was elected chairman of the board in 1991.Parker & Parsley had grown to a $1.5 billioncompany by 1997 when it merged with Mesa Inc. to become Pioneer. InSeptember 1996 Sheffield was named a director of Evergreen ResourcesInc., operator of the Pioneer unit in Alaska’s Matanuska-Susitna Borough(see story on page 50). Sheffield lives in Irving, Texas, with his wifeKimberley and enjoys snow skiing, fly-fishing and traveling.

Kenneth H. Sheffield Jr.President, Pioneer Natural Resources CanadaInc. is a petroleum engineer and 1982 graduateof Texas A&M. Sheffield’s background includesreservoir and production engineering. He hasalso worked in a drilling and completion group.In 1997, when Mesa Inc. merged with Parker &Parsley Petroleum Co. to become PioneerNatural Resources Co., Sheffield was vice presi-dent of acquisitions and development. After themerger he was appointed vice president andgeneral manager, Gulf Coast division, forPioneer. In 1999 he became vice president and general manager,Canada, and this year he was appointed president of Pioneer’s Canadiansubsidiary.

By KAY CASHMAN& STEVE SUTHERLIN

Petroleum News • Alaska

ndex Resources LLC,which has multipleprospects in the Gulf of

Mexico, South Louisiana,South Texas and Wyoming, isstaking its future on Alaska.

“Alaska is absolutely wherewe’re putting our future. It’sthe biggest growth area wesee,”Andex executive vicepresident Jim Dodson, incharge of Alaska operationsfrom his Denver office, toldPNA recently.

And gas is what the com-pany is looking for in Alaska.

Currently Andex’s hunt forgas is currently directed atone part of the state, theNenana sedimentary basin inInterior Alaska where the

company expects tofind enough naturalgas to meet theenergy needs ofFairbanks and otherrail belt locations.

Andex has ananticipated capitalbudget for Alaska of$6.5 million in2003, up from $1.25million in 2002.

BP brought Andex to AlaskaHeadquartered in Houston,

Texas,Andex first came toAlaska to participate in BPExploration (Alaska) Inc.’sWest Gwydyr exploration pro-ject south of BP’s Northstarunit on the North Slope.Thatwell, the West Gwydyr No.1,was drilled, then plugged andabandoned in the winter of2000, but Andex stayed in

Alaska.Since that time

the company hasbecome a 25 percentinvestor in NetricityLLC, an Alaska com-pany formed to builda $1 billion serverfarm located on theNorth Slope to takeadvantage of cheap

and abundant gas.Andex also bought into

BP’s eastern North SlopeSlugger unit where an explo-ration well was planned forthis coming winter. But Andexpulled out of the deal earlierthis year for an undisclosedreason.

Dodson said the companyis also interested in otherundeveloped basins in thestate, particularly Yukon Flatsand the Susitna Basin. But cur-rently Andex is focusing all itsresources on 520,942 acreson the Nenana basin. (Seemap on page 39.)

“As far as E&P, Nenana isour whole focus going for-ward,” Dodson said.

As much as 1 TCF recoverableThe Alaska Department of

Natural Resources’ Division ofOil and Gas gave notice Aug.22 that it was issuing Andexan oil and gas explorationlicense for 482,942 acres inthe basin, which is thought tohold between 250 billioncubic feet to 1 trillion cubicfeet of recoverable naturalgas.

The division said Nenana

THE INDEPENDENTS

Nenana whole banana for Andex in Alaska Alaska is its future; gas its target: Andex will spend $6.5 million in Alaska in 2003

A “Innovative, aggressiveIndependent with projectsacross North America.”

■ CEO: Neil McBean■ Executives in charge ofAlaska properties/opera-tions:James B. Dodson, executivevice president Tom L. Dodds, vice presi-dent, land & operations■ Headquarters: Houston,Texas■ Main telephone: (713)650-3330■ Sister companies/affili-ates: Netricity, L.L.C.■ Founded: 1998■ First Production: No com-mercial found to date.

see ANDEX page 33

JIM DODSON

basin is thought to be gas-prone because of “the signifi-cant volume of coal.”

In addition to its stateacreage,Andex has cut a dealwith Doyon Ltd., the areaNative regional corporation,to explore and develop oiland gas resources on 38,000acres that Doyon owns withinthe license area.

Strong local supportThe division wrapped up

the public comment periodon the company’s explorationlicense in June, finding stronglocal support for the project.

The state received eightresolutions in favor of granti-ng Andex its license from,among others, the TananaChiefs Council, Minto VillageCouncil, North SlopeBorough, the cities of Nenanaand Fairbanks, and theFairbanks Builders andConstruction Trade Council.

Doyon also submitted apetition in favor of thelicense.

The state heard testimonyfrom parties that wanted toblock development in theMinto Flats Game Refuge,locking Andex out of the areathe north of the Tanana River,

about one-third of the landproposed for exploration. Inthe end, the Minto Flats landwas included.

Seismic delayedAndex initially had Nenana

basin seismic work scheduledthe winter of 2002-2003, but arequest for reconsideration ofthe exploration license wassent to Commissioner PatPourchot by the NorthernAlaska Environmental Centeron Sept. 11.

Pourchot responded onSept. 23, giving the center andthe NAEC 30 days to file alawsuit opposing the commis-sioner’s decision.

A lawsuit was not filed, butAndex, a state official toldPNA, was forced to rescheduleits seismic work until the fol-lowing year.

Price per acre: $1 Effective Oct. 1, the license

is $1 per acre and has a pri-mary term of seven years.Only lands with state ownedmineral estate are included.

There is no annual rentalfee.

Upon completion ofrequired work all or a portionof the license area can be con-verted into oil and gas leaseswith a primary term of sevenyears. Upon conversion to oiland gas leases, annual rental is$3 per acre, plus a fixed royal-ty of 12.5 percent.

Tax credit key According to Andex and

Doyon officials, a state gasexploration incentive programhas been instrumental in mak-ing exploration of the Nenanabasin economic to pursue.

The program allows thecommissioner of the AlaskaDepartment of NaturalResources to approve creditsagainst royalties and taxes forexploration data, if the infor-mation gained would be bene-

ficial to the state.

A $24 million projectDodson told the house oil

and gas committee in Januarythe company expects tospend $24 million on theNenana project before thepipeline is built, including$500,000 for the explorationlicense, and $6 million eachfor three wells. Seismic for theproject is anticipated to bepredominately two-dimension-al, although some 3-D wouldalso be shot, putting total seis-mic costs at about $6 million.

The division said theNenana basin is a northeasttrending elongate alluvialbasin of some 8,500 squaremiles and said “the prospec-tive sedimentary section,thought to be time-equivalentto the productive KenaiGroup in the Cook Inlet, con-sists of sands, gravels, con-glomerates, shales and coals.”

Two relatively shallow

THE INDEPENDENTS


ANDEX

see ANDEX page 34

“Alaska is absolutely where we’re putting our future. It’s thebiggest growth area we see.”

-Jim Dodson, Andex ResourcesLLCexecutive vice president

THE INDEPENDENTS

exploration wells have beendrilled in the basin — theUnocal Nenana No. 1, drilledin 1962 to 3,062 feet and theARCO Totek Hills No. 1, drilledin 1984 to 3,590 feet. Bothwere plugged and abandoned.

“No one has ever drilled to12,000 or 14,000 feet in thebasin, so “we don’t know par-ticularly what kind of seal rockwe may have in the basin,”Dodson told PNA in August2001.

North Slope data center stalledNetricity’s server farm pro-

ject is currently stalled becauseno agreement to purchase gashas come out of negotiationswith North Slope gas owners.

“Hopefully somebody willcome along and sell us somegas,”Dodson said told PNA inJuly.

Mike Caskey, vice presidentof Fidelity Exploration andProduction Co., a 75 percentowner of Netricity, told PNA inOctober that Netricity is look-ing at alternative locations for adata center both within andoutside of Alaska.

Alaska: so far, so good Dodson said that so far

Alaska is slightly better to work

in than other provinces wherethe company has operations.“But we haven’t tried to permita well yet, that answer is yet tocome,”he added.

What are benefits of doingbusiness in Alaska?

“It is still possible to assem-ble large, contiguous acreagepositions with Tcf sized naturalgas reserve potential in a statethat welcomes independentcompanies involved in oil andgas exploration,”he replied.

What are the challenges ofdoing business in Alaska?

“Extreme weather and newtypes of environmental chal-lenges,”Dodson said.

No web siteAndex has a web address,

but hasn’t maintained a website. Dodson said Andex isn’t

looking for investors, so it hasno incentive to maintain amajor presence on the web orin the press.

Andex’s major ownersinclude billionaire financierand philanthropist GeorgeSoros.◆

Editor’s note:The state’sexploration incentive pro-gram is for both oil and gasand for exploration as well asdevelopment activity.The EICis 25 percent on private landand 50 percent on state land.There is a $5 million maxi-mum incentive per project.Asof Oct. 28, Andex had notapplied for the program.Thecommissioner of the AlaskaDepartment of NaturalResources has to approvetheir request.The program isdiscretionary, not automatic.


ANDEX

THE INDEPENDENTS

Cassandra to explore shut-in Katalla field


assandra Energy Corp.hopes to drilltwo or three exploratory wells nearthe former town of Katalla, the site ofAlaska’s first commercial oil produc-

tion. But permitting delays have moved theAnchorage-based independent’s drillingschedule back from the original target dateof August 2001 to the spring of 2003 orlater,depending on the final issuance of per-mits and approval of a revised environmen-tal assessment from the U.S.Forest Service.

The story began in July 2000 whenCassandra entered into a lease-option for oiland gas rights on 10,134 acres fromChugach Alaska Corp., an Alaska Nativeregional corporation.The surface rights arecontrolled by the Chugach National Forest.The acreage is 56 miles southeast ofCordova and adjacent to the Katalla oil fieldwhich was shut in following a refinery firein 1933.

1982 agreement A Sept.17,1982, settlement agreement

between the U.S.Department of theInterior and Chugach Natives Inc. (nowChugach Alaska Corp.) gave the Native cor-poration exclusive rights to drill for,mine,extract, remove and dispose of all oil andgas deposits in a liquid or gaseous statefrom the date of signing until midnight Dec.

Anchorage-based independent is working to get permits to explore Alaska’s first producing oil field

C

Oil seeps were recorded in the Katallaarea and on the north side of ControllerBay about 1896. In the Katalla area, theU.S.Forest Service said, the oil seeps areconfined to a narrow eastward trendingbelt near the coast.

Forty-four wells were drilled in theKatalla oil field between 1901 and 1930,all to depths of less than 2,300 feet.

The 18 or so producing wells werewithin an area of approximately 60 acresand produced oil from fractured sand-stone and siltstone of the Katalla forma-tion at depths ranging from 360 to 1,750feet.

Most of the productive wells were onKatalla Claim 1 where Cassandra wants todrill. It was patented under the placer

mining law prior to the enactment of theoil and gas leasing law.

Recorded production in the Katallaarea amounted to 153,922 barrels of oilover 30 years — a number that comesfrom the refinery operations.But sincethe oil was light enough to be burneddirectly in diesel engines without refin-ing, the amount of actual produced oil isthought to be larger.

Oil production ceased in 1933 whenthe refinery was destroyed by fire. It wasnever rebuilt, since the local marketdemand had diminished.

The Forest Service said that some addi-tional geologic interpretive work hasbeen conducted in the Katalla area since1950.

see CASSANDRA page 36

Katalla oil field, early 1900s THE BARRETT WILLOUGHBY COLLECTION, ACCESSION NUMBER 72-116-213, ARCHIVES,ALASKA AND POLAR REGIONS DEPARTMENT, UAF

Oil seeps recorded in 19th century

31,2004,“and so long thereafteras oil and gas are produced inpaying quantities,”U.S.ForestService officials told PetroleumNews Alaska.

If a well capable of produc-ing in paying quantities withinthe 10,134 acre Katalla area isnot completed during that timeperiod, all rights, title and inter-est of CNI reverts back to theUnited States.

Approaches Forest ServiceIn October 2000, a Forest

Service official told PNA thatCassandra President Bill Stevenshad approached the agencyabout doing oil and gasexploratory drilling at Katalla.

“A plan of operations wassubmitted in early December of2000 and rejected in lateJanuary of 2001, since drillingunder federally owned surfacetriggered a federal action andcorresponding regulations,”

Stevens told PNA Oct.30,2002.Stevens,who is the safety

and health program coordina-tor for Inlet Drilling Alaska Inc.in Kenai, told officials heplanned to use Inlet Rig CC1for an exploration drilling pro-gram that would start with twoor three wells and, if they hadcommercial oil shows,couldresult in as many as 12 wells onprivately owned acreage, for atotal cost of approximately $20million.

On April 18,2001, Stevenstold PNA he had signed a lease-purchase agreement with Deland Ginger Welch for the 465-acre Katalla oil field adjoiningthe Chugach Alaska acreage and2.5 miles from the formerKatalla townsite.

Plan to Forest ServiceIn August 2001,Cassandra, as

agent of Chugach Alaska, sub-mitted a second plan of opera-tions to the Cordova RangerDistrict-Chugach NationalForest for oil and gas explorato-

ry drilling at Katalla in the eastCopper River Delta region.

The Forest Service saidCassandra requested approvalof the plan and a special usepermit and that an environmen-tal analysis would be conduct-ed.

Stevens is reluctant to dis-cuss the challenges he facedover the two year period fromthe time he filed his first planof operations, and continues toface,with getting the Katallaproject permitted.

Part of the problem,he said,was that the process was ineffi-cient;part was regulations forone agency conflicted with reg-ulations for another;part wasthe fact he was the first personto permit a well in the Katallaarea in more than 15 years; andpart,he felt,was the reluctanceof a few of the regulators heworked with — in some of theagencies — to allow oil and gasdrilling in the ChugachNational Forest.

The final planAccording to the final explo-

ration plan Stevens filed withthe Forest Service, the drillingrig and crew camp would siton the land Cassandra had pur-chased from the Welchs.

One exploratory well wouldbe drilled vertically to explorethe subsurface of Katalla Claim1; the other well would bedrilled laterally from the drillsite to explore Chugach Alaska’ssubsurface acreage. A third wellinto the subsurface controlled

by Chugach Alaska was also apossibility, the plan said.

Cassandra’s proposal includ-ed moving equipment, suppliesand materials some 1.5 milesup the Katalla River with asmall, shallow draft barge froma staging area of approximatelytwo and a half acres on statelands.

Various alternatives toaccess the drill site have beenevaluated as part of the ongo-ing permitting process.Thealternative which appears tobest protect other resourcesand provide for efficient oper-ations is a river bank landingarea on the east side of theKatalla River with a short tem-porary access road to connectwith an existing road used forprevious exploration.

An option proposed by theForest Service to offload on asteep river bank at the termi-nus of the existing road wasrejected by the AlaskaDepartment of Fish and Gamedue to concerns over salmonhabitat.

Other access alternativesevaluated include substantialroad construction and are notsupported by Cassandra orregulatory agencies. All alter-natives include directionaldrilling from private lands toavoid impacts to the federallymanaged surface overlayingthe Chugach oil and gasestate.

If there is oilIf Cassandra finds commer-

cial quantities of oil on itsChugach Alaska leases, RickRogers, vice president for landand resources for the Nativecorporation, said his companyis entitled to surface accessunder its 1982 agreementwith the feds.

Surface access wouldinclude pipelines, roads andother facilities for the trans-portation of oil and gas fromthe Katalla area to market, hesaid.

Cassandra is owned by agroup of private investors. ◆

THE INDEPENDENTS


CASSANDRA CASSANDRAENERGY CORP.■ CEO: Bill Stevens■ Headquarters: Anchorage,Alaska, with office in Kenai,Alaska ■ Email: [email protected] [email protected]■ Sister companies/affili-ates: Dixon and Associates■ Founded: 1997■ Net oil and gas leases:10,599 acres

THE INDEPENDENTS

By KAY CASHMAN Petroleum News • Alaska

rom day one Aurora hashad its sights on becominga producer and an opera-tor in Cook Inlet, Scott

Pfoff told Petroleum NewsAlaska in 2001.

Pfoff is president of two ofthe three Aurora companies,Aurora Power Resources Inc., acommercial gas seller inSouthcentral Alaska,and AuroraGas LLC,a gas producer inCook Inlet.

But the company’s transitionfrom gas marketer to produceroccurred in steps — albeit bigones,considering Pfoff and hisassociates founded the firstAurora in 1994 and by October2002 laid claim to the biggestchunk of large commercial gascustomers in SouthcentralAlaska and 105,000 acres ofCook Inlet oil and gas leases.

The first AuroraThe first Aurora company

was Aurora Gas,which laterchanged it name to AuroraPower Resources because mar-keting natural gas had been itsfoundation,Pfoff told PNA.

The company was foundedby two longtime Cook Inlet oilmen,Pfoff and Steve Severy,who left Marathon Oil Co. tolaunch the new venture.

Aurora Power, incorporatedin Alaska but headquartered inHouston, signed its first con-tract in August 1994 to provide

gas to the Tesoro refinery inNikiski.

The company began its com-mercial marketing efforts in theCook Inlet in the mid-1990s. Ithit the big time in 1999 when itsigned a three-year $50 millioncontract to supply natural gasto the Department of Defensefor Elmendorf Air Force Base,Fort Richardson and other fed-eral facilities in SouthcentralAlaska.

Aurora Power has becomeone of the fastest growing pri-vately held companies head-quartered in Houston, rampingup its sales from $740,000 in1994 to more than $34 millionin 2001,Pfoff told PNA in arecent interview.

By October 2002, the com-pany laid claim to 55 to 60 per-cent of the “large commercialcustomers by volume”naturalgas market in SouthcentralAlaska,Pfoff said.

Aurora Power gets first leasesBut Pfoff and his people had

not forgotten their goal tobecome a Cook Inlet producer.

In 1997, Aurora Power was asuccessful bidder in Cook Inlet

lease sales on some 8,000 acreson the Kenai Peninsula, and in1998 the company acquiredChevron’s working interest inthe Marathon-operated Kenaiand Cannery Loop gas fields.

Pfoff said Aurora Powerlacked the technical expertisenecessary to make the transi-tion to an operating company,so it teamed with Ed Jones andAndrew Clifford of OrionResources,both formerly with

THE INDEPENDENTS

Gobbling up Cook Inlet leases, business First came Aurora Power, then Aurora Gas, and then Aurora Well Services….

F“Aurora Gas is one of only sixcompanies that operate in theCook Inlet, and the only ‘smallcompany’ to have operated pro-duction in Alaska.”

■ President: G. Scott Pfoff ■ Executivesin charge of Alaska:J. Edward Jones, executive VP,operationsAndrew C. Clifford, executiveVP, exploration■ Headquarters:Houston, Texas■ Main telephone:(713) 977-5799■ Alaska office telephone:(907) 277-1003■ Web site:www.aurorapower.com■ Sister companies/affiliates:Kaiser Francis Oil Co., AuroraPower Resources Inc., OrionResources LLC, Aurora WellService LLC■ Founded: 1999

see AURORA page 46

THE INDEPENDENTS

Australia-based BHP Petroleum,to form a 50-50 joint venture,Aurora Gas LLC, in late 1999.

All of Aurora Power’s explo-ration and production assetswere transferred to Aurora Gas.

Aurora operator at Nicolai Creek In 2000,Aurora Gas traded

its working interests in theKenai and Cannery Loop gasfields for Unocal and Marathon’sownership in the Nicolai Creekunit on the west side of CookInlet,where gas had been foundwhen companies were lookingfor oil. Some of the gas hadbeen used for field operations.

Pfoff later characterizedAurora Gas as being in the busi-ness of “low-risk type explo-ration”and taking advantage of“discovered fields that haven’treally been developed.”

First Nicolai productionDevelopment of the Nicolai

field started in December 2000with the workover of theNicolai Creek Unit No.3 well.The well was tested in February2001 at flow rates in excess of4 million cubic feet a day,Pfoffsaid at the time, from five com-mingled perforated intervals ofthe Upper Tyonek formation atdepths of 1,900 feet to 2,380feet.

It currently produces about1 million cubic feet a day.

Production facilities and apipeline were installed betweenMay and October,and on Oct.8,2001, Aurora Gas announced ithad begun gas sales Oct.3 fromthe Nicolai Creek unit.

While it had previouslyowned some production at theKenai and Cannery Loop gasfields, this was Aurora Gas’s firstcompany-operated productionin Alaska.

Half of the Nicolai unit’s pro-duction was committed longterm to the Agrium fertilizerplant at Nikiski,Pfoff said; theother half to Unocal under a

short-term arrangement.

Another new ventureOn March 8,2002,Aurora

Power announced it hadappointed David L.Boelens asvice president Alaska operationseffective March 1.Boelenswould be responsible for theday-to-day operations of AuroraPower and its associatedendeavors in Alaska.

At the same time the compa-ny announced the formation ofAurora Well Services.

Formed in early 2002 byAurora Power and Aurora Gasprincipal and president,ScottPfoff, and Wyoming-basedBoelens Well Service LLC,Aurora Well is based inAnchorage.

In the summer of 2002,Aurora Well brought to Alaska aspecially equipped, truck-mounted,Franks 300 Series wellservicing unit — a workover rig— and associated allied equip-ment for use by Aurora Gas.

Boelens said he would alsomarket the rig to other opera-tors in the Cook Inlet area.

“The timing of his (Boelens)involvement couldn’t be betteras Aurora has committed toenter the well service business.He grew up on his father’spulling units (workover rigs) inWyoming and I worked withhim for many years at MarathonOil,”Pfoff said.

“Dave and I have been kick-ing this idea around for years,we both see the need as devel-opment activity heats up in theCook Inlet,”he said.

Raising $25 million in capitalOn May 31,2002, Aurora

Gas announced it had secured a$25 million line of equity withAurora-KF L.L.C., an affiliate ofKaiser-Francis Oil Co.of Tulsa,Okla., and Cosco CapitalManagement LLC,a NewYork/Connecticut based invest-ment banking firm.

Aurora Gas said it would usethe capital to acquire and devel-


AURORA

see AURORA page 47

op proved undevelopedreserves and acreage,primarilyon the west side of Cook Inlet,and continue development ofthe Nicolai Creek field.

Andy Clifford, Aurora Gas’vice president of exploration,said the financing would allowAurora “to aggressively pursue”prospects, leads and develop-ment opportunities he hasalready identified through sub-surface geology and 2-D and 3-Dseismic on its existing and soon-to-be-acquired acreage.

“We’re rapidly transitioningfrom a market that is in an over-supply situation to a marketthat’s in an under-supply situa-tion.Our whole company’s busi-ness strategy is built aroundthat:Pick up the reserves now,develop them during a periodwhen they’re going to acceler-ate in value,”Pfoff told PNA inJuly 2002.

On fast forwardOn Oct.3,2002, Aurora Gas

closed a transaction withConocoPhillips Alaska Inc. toacquire a 50 percent workinginterest and leasehold atMoquawkie on the west side ofthe inlet.

On Oct.18 Aurora Gas said ithad reached an agreement withAnadarko Petroleum Corp. toacquire Anadarko’s entire CookInlet oil and gas lease holdings,which included the remaining50 percent at Moquawkie andapproximately 40,000 acres on

the Kenai Peninsula.A purchase price was not

disclosed for either transaction.In three short years Aurora

Gas’Cook Inlet stake grew from8,000 acres of oil and gas leasesto 105,000 acres, includingstate, Alaska Mental Health Trustand private acreage.

Conditions are favorablenow,Pfoff said: “The Cook Inletis a resource-rich,yet underde-veloped oil and gas basin.Thedemand for newly discoverednatural gas reserves is increas-ing,but the interest level of themajors is decreasing.This hascreated tremendous opportuni-ties for smaller companies, suchas Aurora Gas.”

Budget for 2003 at $13.4 million. The Moquawkie area hold-

ings include approximately43,000 acres.

The west side acreageincludes onshore and offshoretracts and centers aroundMoquawkie.The KenaiPeninsula acreage is morespread out.

Pfoff told PNA Oct.18, thatthe east side acreage the com-

pany is acquiring is “as far northas Birch Hills and as far south asAnchor Point.”

Pfoff said Aurora Gas’capitalbudget for 2002 is $11.6 mil-lion,and the anticipated budgetfor 2003 is $13.4 million.

At least part of the 2002expenditures were for theacquisitions,he said,and nextyear money will be spent onseismic,drilling, facilities andpipelines.

Lone Star No. 1 tests at 10.6 McfThe Moquawkie acreage

includes the Lone Creek No.1

discovery well drilled in late1998 by Anadarko and ARCOAlaska Inc.

ConocoPhillips andAnadarko subsequently signed agas sales agreement with EnstarNatural Gas Co.and Aurora willtake over the rights and obliga-tions pursuant to that contract,the company said.

Anadarko,operator at LoneCreek, said in October 1998that the well tested 10.6 millioncubic feet of natural gas per dayfrom 53 feet of perforations atapproximately 2,400 feet.“Thisrepresents one of the best shal-low gas tests in the vicinity for areservoir of this age and type,”the company said.

What is next? “We’ve done work at two

wells at Nicolai Creek” thisyear, Jones said,“re-enteredtwo suspended wells.”One ofthe wells was re-completed inshallower horizons than theoriginal completions and the

THE INDEPENDENTS


AURORA

see AURORA page 48

From left, Scott Pfoff, David Boelens, Ed Jones and Andrew Clifford.

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other was sidetracked to a newlocation and completed in thezones originally tested plus anadditional zone.

A new well, the NicolaiCreek No.8,was deferred to2003,he said.

Also planned for 2003 areinstallation of gathering linesand surface production facilitiesto get the gas from the No.2and No.1B wells to market.

Jones said Aurora is workingon permitting now for seismicand is evaluating bids from sev-eral contractors.The seismicwould be shot on both sides ofthe inlet.

“We’d actually be doingsome shooting on the KenaiPeninsula and some onMoquawkie,”Jones said,withprobably more seismic shot atMoquawkie than on the Kenai.

“Our most promisingprospects are our Nicolai CreekField plus the adjacent

Moquawkie area,where wehave three shut-in gas fields plusa number of attractiveprospects,”Pfoff said.

“As far as number of wells,we’re confident we’ll do at leastsix wells next year and probablymore — and we could do six to10 pretty easily,workovers anddrilling new wells,”Jones said.

In addition to the LoneCreek well,which is ready to beproduced, Jones said there area lot of old wells in theMoquawkie area,“some ofwhich we might re-enter atsome point.” Boelens said thecompany will probably “spendthe winter going through andprioritizing which of thosewells make sense to do in whatorder and then over the nextcouple of years”workover thewells,either re-completing themor sidetracking them. Boelenssaid the number of wells in thearea “with workover potential ispretty amazing.…

“If this was anyplace else —in the Lower 48 — this would

have been done a long timeago.… but it’s on the wrongside of the Cook Inlet in Alaska.”

“These are not going to behuge fields,”Pfoff said,“but for acompany our size,we can makethe economics work,goingback in,essentially targetingmissed pay,or pay that wasidentified and never really test-ed because of lack of a gas mar-ket, lack of economics at thetime.”

Moquawkie on production 2003

Aurora plans to putMoquawkie on production inearly 2003. Jones said there isstill a lot of work to be doneand they’re up against a weath-er window,but “we’re going todo what we can this winter.”

He said Moquawkie willprobably come on a bit aheadof the next two wells at NicolaiCreek,and when all those pro-ducible wells are on stream, thecompany will go for anotherround next year of probablytwice as many.

Pfoff said that within a yearAurora Gas hopes to be produc-ing 10 million cubic feet of gasper day,and possibly as much as20 million cubic feet per day.

At the end of the third quar-ter 2002,prior to the company’spurchase of inlet acreage fromAnadarko and ConocoPhillips,Aurora Gas’s Cook Inlet produc-tion was approximately 1 mil-lion cubic feet of gas per day.

Room for improvement

When asked what are thebenefits of doing business inAlaska,Pfoff said excellent geol-ogy,“relatively little competition,an under-explored and underde-veloped basin in which to con-centrate, the opportunity toapply newer technologies andtechniques.”

As to the challenges ordownside of doing business inthe state,he said,“Lack of infra-structure,high cost environ-ment, regulatory obstacles, taxa-tion and royalty uncertainty,andfiscal instability.” ◆


AURORA

THE INDEPENDENTS


TO Energy Inc. — former-ly Cross Timbers Oil Co.— buys properties that

are no longer prof-itable for larger com-panies, employswhat it refers to as‘A-Level’ scienceteams to develophidden upsides.

To date, that strat-egy has worked,XTO PresidentSteffen E. Palko saidin an early 2002statement about company-wideperformance.

He said XTO’s developmentactivities since its establish-ment in 1986 have “deliveredan 83 percent increase in theproduction and reserve base of

all acquired properties”— i.e.XTO purchased propertieswith 2.3 billion cubic feet ofgas reserves and pulled anoth-er 1.9 billion cubic feet out ofthem.

According to com-pany reports, XTO’soil and gas reserveswere almost 2.7 tril-lion cubic feet equiva-lent by the end of thethird quarter 2002,making it the fourthlargest owner ofdomestic gas reservesamong the indepen-dents. The company

said that it has a market capital-ization of $2.8 billion and anenterprise value of $3.8 billion.

Entered Alaska in 1998XTO has operations in

Texas, New Mexico,Arkansas,

Oklahoma, Kansas,Wyomingand Louisiana.

In 1998, XTO entered Alaskawith the purchase of two plat-forms, A and C, at the MiddleGround Shoal field in CookInlet from Shell Oil.

Included in the acquisitionwere 12 million barrels ofreserves and 8,866 net acres.

Doug Schultze, the compa-ny’s vice president of opera-tions for the Permian Basin andAlaska, said that XTO’s reserves

in Alaska had increased 42 per-cent by the end of the firstquarter 2002,“and we reallybelieve there’s more potentialout there.”

West flank challengeStarting in the 1960s,

Schultze said, Shell developedthe east flank of the structure.

Shell began work on thewest flank in the late 1980s.

The west flank “is really thebig opportunity we’ve beenworking on for the last threeor four years,”he said.

The west flank looks nar-row on a surface view, Schultzesaid:“But if you look at thestructure, it’s a very turnedover structure. … And so youhave the whole reservoir basi-cally turned over on its side,which makes for challengingdevelopment.”

XTO has had one rig run-ning steadily for more thantwo years. It has convertedthree wells to water injectionto water flood the west flank, aproject Schultze described as“critical to our success uphere,”and is starting to see

THE INDEPENDENTS

XTO pumps up Cook Inlet reservesFort Worth firm sees 10-15 years more production from offshore platforms

X

see XTO page 52

“Fastest growing naturalgas producer in the U.S.”

■ CEO: Bob R. Simpson■ Executive in charge ofAlaska: Doug Schultze■ Stock exchange:NYSE, ticker XTO■ Headquarters:Fort Worth, Texas■ Main telephone:(817) 870-2800■ Alaska office:Kenai, Alaska■ Main telephone:(907) 776-8473■ Web site:http://www.xtoenergy.com■ Founded: 1986

DOUG SCHULTZE

results from the water flood.The company has just com-

pleted its eighth horizontalsidetrack — at a cost of $3 mil-lion to $5 million per well.

XTO has been getting anaverage of 750,000 barrels ofoil reserves per well, Schultzesaid.The horizontal wells cameon at more than 500 barrels aday and the company has beenable to continue at that rate.

XTO’s capital budget forAlaska in 2002 was $15 mil-lion, he said, with $7 millionbudgeted for operations costs.

In 2003, the companyexpects to spend $16 million.

Studies of both flanks

Schultze said XTO’s westflank simulation study was afirst for the area:“It’s a difficulttechnical problem to simulatean overturned reservoir.Andwe’ve got something that webelieve is giving us a lot ofassistance and helping us pickour candidates for drilling andalso for the water injection.”

For the west flank — thereservoir turned on its side —XTO has developed a way oflooking at the reservoir fromthe side, instead of from above.“That’s allowed us to go in andselect these locations and findthe holes in the reservoir thatwe think we can get undrainedoil from and that’s worked verywell for us,”he said.

XTO also has an east flankstudy under way and at presstime, early November 2002,was drilling the C13-13 LN.This well will be the first testto access trapped/banked oilon the east flank, Schultze said.

Schultze said that althoughthe east flank has been waterflooded since the 1960s,“wereally think there’s somebypassed oil on the east flankand this is an opportunity totest that concept and potential-ly identify additional east flankdrill locations for Middle

Ground Shoal field.”

Jurassic possibilities

The properties produceabout 4,600 barrels per day.Without XTO’s developmentwork, current productionwould probably be at about3,000 bpd, Schultze said.

But there’s more potential,something XTO has been look-ing at for a while.

“There actually is a forma-tion below the Hemlock calledthe Jurassic that has beendrilled in the inlet once ortwice before,”he said, althoughnot commercially produced.

A well was drilled into theJurassic in the McArthur Riverfield, but while it came on withvery high production itdropped off very quickly,Schultze said.

“And we believe that withsome different techniques, dif-ferent completion methods,that maybe you can get some-thing that will produce longterm,”he said. If the companycan get a good test, it will thenlook at whether it could moveto full development.

“And that could be a hugeboost to us out there if wecould find a way to get into theJurassic and develop that.Because that structure under-lies our entire acreage positionout there,”Schultze said.

The company’s reserveshave “easily 10 and probably 15years of economic life left,”hesaid.“And if the Jurassic wereto come into play that wouldchange that significantly, proba-bly.”

What are the benefits anddownsides of doing business inAlaska? "Alaska offers a tremen-dous range of opportunities forE&P companies," Schultze said.But "the regulatory environ-ment in Alaska is a challengethat significantly impacts pro-ject profitability. You can notnecessarily rely on consistencyin regulation over any timeperiod."◆

THE INDEPENDENTS


XTO

An XTO platform in Cook Inlet

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Northstar’s gasline project moves forwardFirm plans to build lines from North Fork unit to KKPL, Anchor Point, Homer


n late September 2002, NorthstarEnergy Group Inc. announced it wasmoving forward with plans to build a

natural gas pipeline from its North Forkunit to Anchor Point and Homer. (Seemap on page 53.)

Merger in the worksThe Tulsa-based independent, which

purchased Alaska-based Gas-Pro LLC in2000 and is the operator of the NorthFork unit north of Homer, also said itplans to merge in the near future with afirm that will significantly expand its gasmarketing and pipeline operational capa-bilities. Company officials would notidentify the firm.

In May 2002, following KenaiKachemak Pipeline LLC’s announcementit would terminate its Kenai Kachemakgas pipeline in Ninilchik versus AnchorPoint or Homer, Northstar said it waslooking at building a line to connect itsNorth Fork unit and other stranded gasproperties to Anchor Point and Homer, aswell as possibly build a line north toNinilchik to connect with KKPL’s gasline.

KKPL is jointly owned by Marathonand GUT LLC, a wholly owned subsidiaryof Unocal Corp.

ConocoPhillips Alaska Inc. ownsapproximately 23 percent of the partici-

pating area of the North Fork unit, butNorthstar said is not involved inNorthstar’s pipeline plans.

KKPL’s change spurs NorthstarNorthstar had responded to KKPL’s

open season letter, issued in December2001, saying it intended to “reserve up to40 million cubic feet per day of capacity”in the new gasline.

Anticipating the KKPL’s pipelinewould extend to Anchor Point, Northstarhad tested an existing well at its NorthFork field, acquired additional leases atNorth Fork and began planning “anaggressive development drilling pro-gram,” Larry Snead told Petroleum NewsAlaska Oct. 2, 2002.

Snead is in charge of Northstar’s landand legal matters.

In late April, when KKPL said it wouldterminate its gas transmission line at

Ninilchik, Northstar began to look forinvestors to build its own pipeline.

Construction of KKPL’s pipeline isexpected to begin in the first quarter of2003 and be complete by October.

No timelines have been established byNorthstar, which is currently in the pre-permitting stage, having initiated meet-ings with state, federal and local agenciesin late September.

Might go north and south with linesAccording to state officials who met

with Northstar in September, the compa-ny is looking at the possibility of buildingeight inch gathering lines from NorthFork to both Anchor Point and theNinilchik terminus of KKPL’s line, as wellas a four inch transmission line toHomer.

Snead said Northstar “has purchaseddata from Unocal that was gathered inthe assessment of the route for the KKPLline from Anchor Point to Homer and hasalso retained Michael Baker Jr. Inc. to pro-vide feasibility studies and engineeringsupport.” Michael Baker was the leadengineering firm for KKPL’s project.

Snead also said “Schlumberger hasrecently completed an assessment of cur-rent well costs to support Northstar’sefforts to continue with the developmentof the gas and oil reserves at the NorthFork field,” something that will remain

I■ CEO: Sam Nappi■ Executive in charge of Alaska:Keith Summar ■ Headquarters: Tulsa, Okla.■ Main telephone: (918) 748-8775■ Main fax: (918) 748-8891■ Founded: 1996

see NORTHSTAR page 55

THE INDEPENDENTS

THE INDEPENDENTS

“an objective for the compa-ny” despite the fact thatNorthstar told the state thatthe North Fork unit’s gas well,number 4135 on a federallease, is capable of supplyingHomer with natural gas for 15years.

“The number that has beenaround for that well is 12 bil-lion cubic feet,” a state officialtold PNA Oct. 1.

“Northstar said they testedthe well in October, last year,and it flow tested at about 4million cubic feet a day fromone interval at 8,500 feet.That’s sort of a minimum todeclare a well commercial.They said there were six moreintervals, but that’s all thedetail they gave,” the state offi-cial said.

Prospects for development goodThe state official said the

North Fork unit has been shut

in since 1965 for lack of apipeline to market.“The samegoes for Falls Creek and all theprospects along the highway.…

“There has never been apipeline to market for the gas.Now there is a potential short-age of gas, so the prospects fordevelopment are good.”

He said the unit was origi-nally “much larger and con-tracted down to the participat-ing area boundary. … I wouldsay it’s a good hunch that theprospect is larger than theexisting unit or maybe there’smore than one prospect.”

Looking at all optionsNorthstar is looking at

more than one option for mar-keting gas in Homer, includingmarketing to commercialusers, such as schools and thelocal hospital, and applying fora certificate from theRegulatory Commission ofAlaska that would allow thecompany to market the gas to

all area users, including resi-dential.

“Now that we have gasmarketing and pipeline operat-

ing specialists coming into ourcompany with the merger, wehave a lot of options,” Sneadsaid. ◆

Northstar pleased with North Fork well testNorthstar Energy Group Inc. released test results

April 26, 2002, from a previously shut-in well at itsNorth Fork gas field, which is eight miles east of AnchorPoint.

The company said the well “tested at more than 4.2million cubic feet of gas per day from one sand. Othertest information indicated that significant additionalproduction could be achieved by perforating othersands in the well.”

The North Fork unit is a shut-in gas field that waspreviously owned by Unocal Alaska, Summar said. It waspurchased by Gas-Pro LLC, which, in turn, was boughtby Northstar Energy in 2000.

Northstar has not decided whether it will permit thewell for gas or for both gas and oil, Summar said.

“We think the field has significant potential for oilbut permitting is much simpler for gas,” he said.

An oil well requires an oil spill contingency plan thatmust be approved by the Alaska Department ofEnvironmental Conservation.A gas well doesn’t need aspill plan, he said.


NORTHSTAR

THE INDEPENDENTS

Forest Oil: Cook Inlet’s top oil producerRedoubt to boost company’s daily Cook Inlet production to 30,000-35,000 barrels


n 2003, after its offshore RedoubtShoal field comes on line, Forest OilCorp. expects to become the largest oilproducer in Cook Inlet, usurping

Unocal.Oil production in Cook Inlet currently

comes from seven fields — Beaver Creek,Granite Point, McArthur River, MiddleGround Shoal, Swanson River,Trading Bayand West McArthur River.Total oil produc-tion is approximately 30,500 barrels aday, with Unocal producing between12,000 to 13,000 barrels per day andForest currently producing 10,000 barrelsa day.

Once in production, Redoubt will pro-duce 20,000 to 25,000 barrels a day, effec-tively promoting Forest to No. 1 producerin the inlet — and boosting the compa-ny’s world-wide production by 30 per-cent.

From a “drill bit standpoint”Alaska andwestern Canada are Forest Oil’s “growth

areas,” with the Redoubt Shoal field inCook Inlet poised to become “the numberone component” in the Denver-basedindependent’s “production growth in2003,” company President and COO H.

Craig Clark said at Merrill Lynch’s GlobalEnergy Conference Nov. 5, 2002.

“Most of our activity is currentlyfocused” on North America, he said,although Forest, founded in 1916, hasinternational operations in central andeastern Europe and off the west coast ofSouth Africa.

Only 20 percent of the 2.6 million netacres Forest has in North America isdeveloped, Clark said.“We have moreacreage in Alaska than we do in theLower 48 and the Gulf of Mexico com-bined.We have as much net acreage inCanada as we have in the Lower 48 andGulf of Mexico combined. ”

Forest will spend approximately $80million of its $250-350 million capitalbudget in Alaska in 2002, largely in itsRedoubt Shoal development, as comparedto $20 million in Canada.

Redoubt on line by year end“Except for a few drilling delays

I“From the people weemploy to the wells wedrill, Forest Oil is com-mitted to being the bestoil and gas company inthe industry.”

■ CEO: Robert S. Boswell■ Stock exchange: NYSE, ticker FST■ Executive in charge of Alaska:Gary Carlson■ Headquarters: Denver, Colo. ■ Main telephone: (303) 812-1400■ Alaska office: Anchorage■ Main telephone: (907) 258-8600■ Web site: www.forestoil.com■ Founded: 1916■ Market capitalization, 10-31-02:$1.2 billion■ Enterprise value, 10-31-02:$1.9 billion■ Proven reserves, end of 2001:1.546 Bcfe

see FOREST OIL page 57

(Redoubt Shoal) constructioncontinues pretty much onschedule in anticipation ofsales at the end of the year,”Clark said.

“The offshore and onshorepipelines are finished. ... Onlythe onshore facility and thecompletions of the wellsdrilled thus far remain to bedone,” he said.

Mostly Cook Inlet Forest has about 1.25 mil-

lion net acres in Alaska, includ-ing exploration licenses in-hand and pending, GaryCarlson, senior vice president,Alaska, told Petroleum NewsAlaska in late October 2002.

Although it is largelyfocused on the Cook Inletbasin, Forest also has smallacreage positions on the NorthSlope in the Prudhoe Bay andin Point Thomson fields.

The company has alsofarmed into the eastern NorthSlope’s Slugger unit, but hasno capital at risk to date sincedrilling plans for an explo-ration well in the winter of2002-2003 were postponed byoperator BP in the summer of2002.

Forest is also interested ingas-to-liquids technology, has

stock in Rentech, a companythat has that technology andhas “pushed it as a possibilityfor both the North Slope andthe Cook Inlet,” Carlson said.

But he said the company’smost promising explorationprojects in the state are in theCook Inlet basin and “includeRedoubt, Corsair,Viggen andValkyrie, all in the inlet, andCopper River nearGlennallen.”

In 2003, he said, Forestexpects to “most aggressivelypursue wells in RedoubtShoal,” where the company is

operator and 100 percentworking interest owner.

Carlson said the company’s2003 budget for Alaska willlikely be approximately $50million.

Gas also a targetBut Forest is not just

focused on oil exploration anddevelopment in Alaska.The

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FOREST OIL

Redoubt’s Osprey platform was the first platform to be set in Cook Inlet since 1986. The 3,200-ton platform was designed to with-stand winds of 140 miles per hour and cost $30-$35 million to construct and set in place. The cost does not include the pipelines.The platform has 28 slots; 15 dedicated to oil producers, three to gas, and 10 will be for water injectors for pressure maintenance.

THE INDEPENDENTS

company is actively exploringfor gas reserves in the CookInlet basin, as well.

In a Nov. 5, 2001, letter tothe Legislature’s JointCommittee on Natural GasPipelines, Carlson said thatwhile the company’s currentoperations are focused on oilin the inlet,“our strategyincludes finding and develop-ing gas reserves in our areas ofactivity.”

Forest “has defined multiplegas prospects on our leasedacreage” in the Cook Inletbasin, and is working on boththe geologic and businessaspects to turn them into “spe-cific drillable prospects.”

Forest’s Cook Inlet drillingbudget for the next five years(2002-2007) is $225 million,Carlson said, including devel-opment and exploratorydrilling to both oil and gas tar-gets.

Merged with ForcenergyForest entered Alaska in

2000 due to its merger withForcenergy Inc., an aggressiveMiami-based independentformed in 1990 by StigWennerstrom.

Forcenergy came to Alaskain 1996 when it partnered

with Unocal, operator of theMcArthur River field and theTrading Bay field, both in theTrading Bay unit in the CookInlet basin.

Forcenergy had purchasedMarathon Oil Co.’s oil interestsin McArthur River (45 per-cent) and the Trading Bay (50percent), acquiring a total of21,834 acres of onshore CookInlet acres.

“Forcenergy was a very fastgrowing independent inupstream development, in theGulf of Mexico primarily,”Carlson told PNA.

“They were successful inpicking up production andproperties in places that bigcompanies were not success-ful at getting.

“The head of that companyfelt that Cook Inlet was underexplored and majors were los-ing interest in the area,” hesaid.“So they felt their successin the gulf could be duplicatedin Alaska.”

Acquires Redoubt from DancoForcenergy bought 100 per-

cent working interest in eightleases (40,000 acres) in 1996from Danco Exploration,including the offshore RedoubtShoal prospect in northernCook Inlet. (See related storyon Danco on page 75.)


FOREST OIL


THE INDEPENDENTS

The following year,Forcenergy bought StewartPetroleum Co. out of bank-ruptcy, gaining its 100 percentinterest in and operatorship ofthe West McArthur River field,which Alaska Department ofNatural Resource documentsshow having remaining oilreserves of less than 3 millionbarrels.

The deal also included non-producing leases for a totalprice of $23.25 million.

Forcenergy files for bankruptcy Forcenergy led the bidding

in Cook Inlet lease sales in forthe next three years

By 1999, Forcenergy hadnearly 180,000 acres in Alaskaand was the sixth-largest hold-er of leases. But it took onheavy debt in doing so. Lowoil prices further took theirtoll, and Forcenergy filed forChapter 11 in 1999, whichlead to its merger with Forestin December 2000.

Following the merger,Forest launched an evaluationof its new holdings, includingRedoubt Shoal and the Ospreyplatform, and began buyingand selling properties to solidi-fy its Alaska portfolio.

The company committed

$100 million in 2001 to CookInlet exploration, 20 percentof its total exploration budget,and said it would drill eightdevelopment wells in the WestMcArthur River field and fiveexploratory wells in RedoubtShoal that year.

Well No. 1 looking goodOn Feb. 19, 2001, Forest

announced it had successfullylogged and tested the 1Redoubt unit exploratory well,drilled in 2000 from theOsprey platform.The well wasdrilled to a total depth of15,323 feet and loggedapproximately 450 feet of netpay. It tested at 1,010 barrels aday from the Hemlock forma-tion.

Forest said it would pro-duce the well by artificial liftand expected it to flow at aproduction rate of 2,500 bar-rels a day.

Forest said it planned todrill up to three more wellsafter the 2 Redoubt and hadinitiated permitting for fielddevelopment.

Redoubt reserve estimates upOn June 19, 2001, Forest

announced the successful log-ging and testing of its secondRedoubt unit well andreleased an estimate of recov-


FOREST OIL


Pipeline construction for the ReDoubt Shoal prospect is complete. Forest Oilhopes to bring the field on production by the end of 2002.

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erable oil from Redoubt ofmore than 50 million barrels,a significant increase from thecompany’s Dec. 31, 2000, esti-mate of 9.8 million barrels ofproved reserves.

Forest said June 2001 thatthe Redoubt No. 2 wellextended the field into asouthern fault block separatefrom the Redoubt No. 1 dis-covery well, drilled in 2000.The second well was drilledto a total depth of 15,325 feetand logged approximately 452feet of net pay, testing at a sta-bilized flow rate of 1,170 bar-rels of oil per day from twointervals in the Hemlock for-mation. Production rate wasestimated to be 3,000 barrelsof oil per day using artificiallift.

Full field development begins

After it had the resultsfrom its second Redoubt well,Forest began full field devel-opment, with drilling andfacilities construction estimat-ed to run between $150-$175million in 2001 and 2002.

In presentations to analystsin the fall of 2001, Forestexecutives said the companywas estimating 450 millionbarrels of original oil in placeat the Redoubt Shoal unit.At a25 percent recovery rate,Forest said, that would be 113million barrels of oil.

Carlson told PNA in

October 2001 that 25 percentis “a recovery rate that youwould expect with either asecondary recovery or astrong water drive.”The typi-cal Cook Inlet Hemlock reser-voirs are under saturated, hesaid — they don’t contain asmuch gas in a barrel of oil asthe oil could hold.Withoutthe gas release, he said, youstart water flood early to pro-vide pressure support.

Forest was planning a pres-sure maintenance project atRedoubt right from the begin-ning.That was done with thebig Cook Inlet fields in the1960s, he said.

Converting the Osprey The Osprey platform, built

for Redoubt exploration byForcenergy and set in CookInlet in the summer of 2000,was the first platform to beset in the inlet since 1986. Itwas designed to be moved if

drilling was not successful atRedoubt — and converted forproduction if drilling was suc-cessful. Once Forest’s produc-tion plan was approved bythe state, the company begantransforming the Osprey fordevelopment.

Three pipelines — for oil,gas and return water — andone power line were builtfrom the platform to theKustatan production facilityonshore.

Power for Osprey will begenerated onshore andbrought to the platformthrough the power cable.About 20 percent of addition-al deck space was added tothe Osprey, expanding thetwo decks with cantilevers.

Third well results inOn Oct. 26, 2001, Forest

said its third Redoubt well,drilled to a total depth of16,940 feet, had logged some436 feet of net pay, wasexpected to produce at ratessimilar to No. 2. Drillingextended the reservoir’sdowndip limit of the Hemlockformation in the southernfault block by approximately300 feet without encounter-ing the oil-water contact attotal depth.

No. 3 also encountered anatural gas zone which testedat 8.5 million cubic feet a day.

Forest said Redoubt No. 4,a 20,203-foot directionalattempt to delineate the east-ern boundary of the north


FOREST OIL

THE KUSTATAN PRODUCTION FACILITY AND CAMP FOR THE REDOUBT SHOAL UNIT DEVELOPMENT.

CO

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fault block, found low vol-umes of oil and water in thelower Hemlock; one shallowgas sand tested at 1.2 millioncubic feet a day.

State, Boswell say reserveshigher

In a Nov. 8, 2001, presenta-tion to a state legislative com-mittee,Alaska Division of Oiland Gas geologist Tim Ryherdsaid the Redoubt “field is big-ger than originally thought,”estimating it held up to 193million barrels recoverable.

On April 23, 2002, RobertBoswell, Forest’s presidentand CEO, said the firm’s esti-mate of oil in place was up to550 million barrels of oil.With10 water injectors for pres-sure maintenance at the field,he said Forest expected recov-ery in the 27-40 percentrange. Gas production fromthree wells, he said, is expect-

ed to be 30-50 million cubicfeet a day.

Forest said Aug. 7, 2002,that Redoubt No. 5 was direc-tionally drilling in theHemlock objectiveat 14,450 feet mea-sured depth.Thewell would be thefirst test on thewestern flank of thefield. Delineation ofthe field to the westand south wouldoccur with thedrilling of the No. 5and No. 6 wells.

On Nov. 12, 2002, Carlsontold Petroleum News Alaskathat Forest was “completingthe fifth well now and gettingready to complete the otherwells. … We’re runningpumps in all the wells, sowhen the pipelines and facili-ties test out we can push abutton and produce.”

Boswell also said April 23that the Cosmopolitan unit insouthern Cook Inlet wasbeing evaluated for commer-

cial development. Forest is apartner in the ConocoPhillipsAlaska Inc.-operated prospect.

Boswell said Forest has sev-eral “high potential drilling

prospects” in CookInlet that it intendsto drill in 2003.Thecompany estimatesthat the prospects(Cosmopolitan unitincluded) hold 768million barrels oforiginal oil in place

and 582 billioncubic feet of gas.

Forest is lookingfor 50 percent partners forsome of its prospects, Carlsonsaid, describing them as “lowrisk exploratory plays.”

Permitting, lawsuit delaysCarlson called the geologic

risk of doing business inAlaska less than in many otherareas that Forest is exploring.The regulatory climate, how-ever, is unfavorable.

“It’s a very difficult state towork in,” he said.“The permit-

ting process is very inefficient

and time-consuming. … It

took us three and a half years

to get production permits for

a field. It was just going to be

one more field in Cook Inlet

that was to be the center of

oil operations for 35 years.”

Forest’s drilling from the

Osprey platform has been

repeatedly delayed by legal

action from Trustees for

Alaska, acting on behalf of

Cook Inlet Keeper.

“In my opinion it (lawsuits)

doesn’t have anything directly

to do with the environment.

We are very aggressive in

putting together programs to

protect the environment. ...

We recognize we have to

share Cook Inlet with other

industries and stakeholders

and we’ve done that all along,

shippers, fishers, whoever

uses the areas where we’re at.

... we’re all in it together.” ◆

THE INDEPENDENTS


FOREST OIL

GARY CARLSON

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Coalbed methane leader drills in AlaskaEvergreen on fifth pilot well; development could mean 500 jobs for Mat-Su

By KAY CASHMANPetroleum News Alaska

ess than a year and a halfafter Evergreen ResourcesInc. of Denver, Colo., pur-

chased the 48,000-acrePioneer unit in Alaska’sMatanuska-Susitna Borough,Evergreen Resources (Alaska)Corp. is drilling the first oftwo pilot projects in the unitand has expanded its original48,000 acres in the area to70,000 acres.

A leader in uncon-ventional gas devel-opment,Evergreenacquired the Pioneerunit some 30 milesnorthwest ofAnchorage betweenWasilla and Houston,in May 2001 fromOcean EnergyResources Inc. andUnocal Alaska.

Evergreen first went afterMat-Su coalbed methane prop-erties in the state’s initial offer-ing of shallow gas leases inFebruary 2000 when it appliedfor 46,080 acres of shallow gasleases,which have not yet beenissued because of legal entan-glements unrelated to

Evergreen. In September 2001the company won 14,908 acresin the Matanuska-SusitnaBorough at an Alaska MentalHealth Land Office lease saleand most recently took another1,510 acres near the Pioneerunit at a July 2002 University ofAlaska lease sale.

Lots of coal At the mid-November 2002

North American EnergyConference,Evergreen Presidentand CEO MarkSexton saidEvergreen wasdrilling its fifth wellof eight in two four-well pilot projects atPioneer,which is inthe Cook Inlet basin.The first well wasspud Oct.28.

Evergreen estimat-ed about four days to drill eachwell. Site preparation will bedone in daylight hours;drillingwill be a 24-hour operation.

“We’ll have all the wellsdrilled up by the end of thismonth and we’ll be fracturestimulating one pilot early nextyear in the first quarter and theother pilot in the second quar-

ter,”Sexton said atthe conference.Hesaid the wells areencountering “over ahundred feet of coal.”

The most recentPioneer unit reserveestimate released byEvergreen was inNovember 2001when Sexton told acommittee of theAlaska Legislaturethat very conserva-tive estimates showthe unit contains atleast 1 trillion cubicfeet of natural gas.

Prior attempts toproduce coalbedmethane in the area have beenunsuccessful and Sexton saidthat after reviewing the wellhistories,“we are not surprisedthat none of the wells producegas.”Evergreen knows throughexperience,he said, that “slight

variations in drilling, cement-ing, completion and productionpractices”spell success or fail-ure in coalbed methane wells.

Evergreen’s 2002 capitalbudget for Alaska was $6.5 mil-

THE INDEPENDENTS

“Recognized leader in coal bed methanetechnology”

■ CEO: Mark Sexton■ Stock Exchange: NYSE, ticker EVG■ Enterprise value: $1 billion■ Executive in charge of Alaska:John Tanigawa■ Headquarters: Denver, Colo.■ Main telephone: (303) 298-8100■ Alaska Office: Wasilla■ Alaska main telephone:(907) 357-8130■ Web site: www.evergreen-res.com■ Sister companies: EvergreenResources Inc. (parent company)■ Founded: 1981

MARK SEXTON

L

see EVERGREEN page 64

THE INDEPENDENTS

Is that all there is?Evergreen Resources’ top

executive Mark Sexton sayspeople who have grown upin the oil and gas industrywith “big, deep wells inTexas, Oklahoma andLouisiana, offshore andonshore, are generally sur-prised at how low impactcoalbed methane develop-ment is to the area,” referringto the Raton Basin in south-ern Colorado whereEvergreen Resources hasmore than 900 wells in a400 square mile area.

“You can drive rightthrough the middle of thefield and wonder where allthe wells are,” Sexton toldPNA Oct. 28, 2002.

When they are shown awell,“they say,‘is that all?’Our wells look like modifiedwater wells.We have wonawards for visual impact,” hesaid.The most recent awardthe company took was fromthe Colorado Oil and GasConservation Commissionfor outstanding oil and gasoperations in 2001.The

award recognized visualimpact mitigation and newtechnology application.

In addition to being com-mitted to minimizing thevisual impact of the

Pioneer development inAlaska, Sexton said he alsointends to bring the compa-ny's safe drilling practices tothe state: "We have drilledmore than 9000 wells in theRaton Basin. ...We have nothad a single well in thebasin blow out and get awayfrom us,” Sexton told PNA inearly November 2002.

Pictured above is one of more than100 Evergreen Resources’ coalbedmethane wells in the Raton Basin inColorado.

Cou

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ergr

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Res

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lion out of a company-widebudget of $113 million, Sextontold Petroleum News Alaska inearly November. In 2003,hesaid the company will likely set

its capital budget at $100 mil-lion;he anticipates Alaska willget $10 million of that.

The two Mat-Su pilot pro-jects will help determine theeconomic feasibility of thePioneer unit as they will test


EVERGREEN

see EVERGREEN page 65

the ability of coals in the unitto produce gas,he said.Butunlike conventional gas plays, ittakes as long a year to test thewells. A company spokesmantold PNA Sept.11,2002, thatonce drilled the wells “will takeapproximately 12 months to

test … and even longer todetermine how much gas isthere. ...Unlike conventionalgas,unconventional gas is easyto find but hard to produce.”

If Pioneer does prove “assuccessful as we expect,”Evergreen will be opening afield office adjacent to the unitin early 2003 “somewherealong the Parks Highway near

Wasilla or Houston,”Sexton told PNA.

Development ofPioneer could alsomean as many as 500new jobs for the Mat-Su area — the num-ber of peopleemployed directly orthrough contractorsin Evergreen’sColorado’s Raton basin 900well development.

Other Alaska prospectsIn addition to its drilling

plans for Pioneer in 2003, thecompany is looking at explor-ing 333,383 acres it has underoption with a group of lease-holders represented by DaveLappi (see story on page 72)and is “looking at others wecan’t talk about at themoment,”Sexton told PNA inearly November 2002.

But before Evergreen pro-ceeds with development ofPioneer and with exploration inother parts of the state, Sexton

said some state poli-cies and regulationswill have to bechanged.

Coalbed methanedrilling is differentthan the drillingAlaskans are used to,he said. In the RatonBasin the companydrills, logs, cements,

completes, equips and placeson line a new well every 72hours.

“Doing this type of develop-ment requires streamlining thepermitting and regulatoryprocesses,”he said.

But Sexton said the greatestchallenge in Alaska coalbedmethane development is thesplit estate issue: the state ownsthe subsurface rights and thesurface is owned by an individ-ual. Sexton said Evergreenbelieves legislation “must bepassed that encourages the sur-face owner to cooperate withthe gas companies wanting todevelop gas on their lands.”◆

THE INDEPENDENTS

JOHN TANIGAWA


EVERGREEN

THE INDEPENDENTS

Unocal gets leaner and meanerExploration and production giant transforms itself in Alaska and worldwide

By STEVE SUTHERLINPetroleum News Alaska

nocal Alaska is reducing its coststructure and transforming itselfinto the leaner, meaner operation it

must be to profitably exploit the smallernatural gas and oil plays available todayin the state.

The theme of transformation in Alaskamirrors the transformation of the compa-ny as a whole. Union Oil Company ofCalifornia, DBA Unocal, started in SantaPaula, Calif., in 1890. It grew into a fullyintegrated energy company, but in 1997 itshed its downstream assets to focus onexploration and production. Now it is anindependent.

Charles Pierce, Unocal Alaska vice pres-ident, is responsible for fine tuning thecompany’s Alaska posture as it deals withmaturing oil and gas fields in Cook Inlet,where it is the dominant producer, and asit looks toward the North Slope forgrowth. Pierce wants to expand reservesand production in the state, he toldPetroleum News Alaska in a mid-2002interview.

“My goal when I got here was to transi-tion from a hold and exit strategy to agrowth strategy,”he said.

Pierce’s strategy consists of two keycomponents. One is making existingassets profitable, and the second is findinggrowth opportunities.

The company is focusing on safety andenvironmental protection, so it will have ahealthy base of assets to build a growthstory on, he said. It is bringing in newpeople, reanalyz-ing old fields, andlooking for newopportunities.

“My vision for Alaska is: it’s a growthbusiness unit that’s having a signaturevalue to the corporation,”he said.“We pro-duce about 40,000 barrels a day, about 6percent of the overall production of thecorporation.”

Pierce said the company is taking a

look at its Alaska assets with new eyesafter its K-13 well at the King Salmon plat-form in McArthur River field of theTrading Bay unit produced at the highestrate of any well in Cook Inlet history.

“We had some success last year, drilledin old field,”he said.“The well came on at8,000 barrels a day — typical is 500 a day.”

In January, Unocal said the well wasstill producing at 5,900 bpd.The well con-firmed a structure in the Hemlock forma-tion on the northern flank of the field thatUnocal said could contain more than 35million barrels of oil in place.

But the opportunities are not withoutrisk, Pierce said.Two signature incidents inhis first 18 months at the helm — an April20 fire on the company’s King Salmonplatform and some Cook Inlet pipelineleaks — spurred a new emphasis on pre-vention.

The leaks were small, Pierce said, butthey called into question the integrity of

pipelines andcaused the compa-ny to accelerate

program of addressing its old infrastruc-ture.

“What I want to emphasize is we haveto keep our focus on safety and environ-ment,”he said.“In poker that’s called tablestakes, you’ve got to ante that up before

U

see UNOCAL page 67

“Improving people’s lives wherever wework”

■ CEO: Charles R. Williamson■ Executive in charge of Alaska:Charles Pierce, Unocal Alaska vice president■ Parent Company: Unocal Corp.■ Stock Exchange: NYSE, ticker UCL■ Headquarters: El Segundo, California■ Main telephone: (310) 726-7600■ Alaska Office: Anchorage■ Alaska main telephone:(907) 276-7600■ Web site: www.unocal.com■ Founded: 1890

M A J O R T U R N E D I N D E P E N D E N T

THE INDEPENDENTS

you can think about making aprofit.”

The company said Nov. 12it would restructure toimprove Cook Inlet profitabili-ty, encompassing a reductionin capital investments, elimina-tion of duplicate services, shut-ting in certain facilities andstreamlining operational, tech-nical and support functions.Unocal’s Kenai office ismarked for elimination, alongwith 71 positions at field loca-tions and in the company’sAnchorage and Kenai offices.Unocal Alaska spokeswomanRoxanne Sinz told PNA thatprior to restructuring therewere 450-plus companyemployees.

The company also said itwould shut in the Baker andDillon platforms in Cook Inlet.Sinz told PNA Oct. 29 thatUnocal expected to shut inDillon near the end of 2002,

and Baker by the end of thefirst quarter of 2003.

Exploration aheadUnocal Alaska’s 2002 capital

budget of $80 million contin-ues the company’s 2001 activi-ty level, up steeply from 2000’s$35 million capital budget.

Pierce said the company


UNOCAL

see UNOCAL page 68

Unocal installed the world's first sin-gle-legged monopod platform toproduce oil from the Trading Bayfield in Cook Inlet. The unique designutilizes a single leg support for thestructure which guards against andreduces exposure to ice and hightides.

CHRI

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END

THE INDEPENDENTS

would continue Cook Inletexploration projects, particu-larly in the southern Kenai,and in the Ninilchik unit.

“The story there is that themarket needs new supply andwe’re committed to explo-ration and we’re lookingonshore and offshore,”Pierce

said, adding that the company

also plans to re-energize old

fields with new technology.

On the North Slope, Unocal

will continue to invest with

joint venture partners, BP and

ConocoPhillips, Pierce said.

“We’re investors there, and

second, we’re establishing an

emerging exploration posi-

tion.”◆


UNOCAL

Pictured is the Grayling platform atthe McArthur River field, whichUnocal installed in 1966, the first of10 platforms it would operate inCook Inlet. Unocal first enteredAlaska in 1911 when it began sellingpetroleum products in the state.Since that time, the company hashad a lot of “firsts” in Alaska. In1939, it initiated surface geologicalprograms in the state which led toAlaska’s first gas discovery at theKenai gas field in 1958. In 1968,Unocal dedicated its urea plant inNikiski, one of world’s largest chemi-cal complexes (sold to Agrium in2000). In 1977, Unocal built the firstice island in the Beaufort Sea,between Point Barrow and PrudhoeBay. The 12 foot thick island wasused as base for exploration drilling.

In the 1980s Unocal used the firstdrillship in the U.S. Arctic when itdrilled Hammerhead No. 1 – the firstoil discovery in the Beaufort Sea. Thecompany’s offshore McArthur Riverfield, discovered in 1965, was thelast big Cook Inlet discovery untilForest Oil’s Redoubt Shoal.

MAR

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Prodigy Alaska targets Cook Inlet oilFormer ARCO Alaska landman, geologist say ARCO walked away from the prospectBy STEVE SUTHERLIN & KAY CASHMAN

Petroleum News • Alaska

ed by Prodigy Alaska LLCand Forest Oil Corp., agroup of oil and gas

companies interested inexploring offshore CookInlet prospects has contract-ed with Fairweather E&PServices Inc. to bring a jack-up rig into Cook Inlet fordrilling in the summer of2003.

Prodigy Alaska will be usingthe rig, expected to be a class400 jack-up that can handledeeper wells, to target a deepoil zone in its only oil and gasleases in Alaska, which areadjacent to the southernboundary of ConocoPhillipsAlaska Inc.’s North Cook Inletgas unit and directly north ofForest Oil’s Corsair prospect.

Prodigy Alaska’s 9,683 acreNorthern Lightsprospect consists offive tracts it pickedup in the May 9,2001, state CookInlet areawide oiland gas lease sale.

Then calledSaddlebackResources LLC,Prodigy Alaska wasthe highest bidder per acre atthat sale, bidding a total of$214,775, or $22.18 per acre.

Mark Landt, Prodigy Alaskavice president of land andnew business ventures, andDaveDoherty,ProdigyAlaska manager of geology,brought the Cook Inletprospect to the attention ofIrving,Texas-based ProdigyOil & Gas LLC (for-merly Epic Oil &Gas Inc.).

Doherty hadspent 14 years inAlaska with ARCOAlaska Inc. He wasresponsible for tak-ing a new look atthe geology of theCook Inlet basin.

Landt worked forARCO Alaska from 1992 to1997. Initially he was district

land manager forCook Inlet and thenswitched to theNorth Slope wherehe spent four years“working theColville develop-ment from scratch,”he told PNA.

“Sunfish andNorth Forelandwere my wells,”

Doherty said.“I saw an oppor-tunity south of the NorthCook Inlet field, but ARCO

walked away from it.”Sunfish, now called Tyonek

Deep, is a deep oil zonebeneath thearea.

“He spent 14years studying the area,including 14 field seasonswith a helicopter and crewsout there,” Prodigy Oil & Gas

Vice President LeeHiggins told PNA.“The prospect we’relooking at drillingcame out of that. …They have signifi-cant explorationpotential. … Theseare bigger reservesthan we normallylook for.”

Following theMay 2001 lease sale, the menput together a team to work

the Cook Inlet leases andformed a limited liability com-pany, now known as ProdigyAlaska LLC, to own and man-age them.

The team consist of Dallasfinancier Shawn Bartholomae,chairman (also president, CEOand sole owner of Prodigy Oil

THE INDEPENDENTS

L

see PRODIGY page 70

PRODIGY ALASKA LLC■ CEO: Shawn Bartholomae■ Executives in charge ofAlaska:Mark Landt, Dave Dohert y■ Headquarters:Irving, Texas■ Main telephone:(972) 506-0909■ Web site:www.prodigyoilandgas.com■ Sister companies:Prodigy Oil and Gas Inc.

MARK LANDT

DAVID DOHERTY

O T H E R P L A Y E R


rading Bay Energy Corp.has spent much of the last10 years promoting three

Cook Inletprospects named forsisters Hanna,Marieand Heather,daugh-ters of companyfounder Paul Craig,chairman of theboard and 100 per-cent owner.

The company cur-rently owns two ofthe three prospects.The 1,156-acre Marie prospectis on the northwest boundaryof the Beluga River gas field onthe west side of Cook Inlet.The7,040-acre Hanna prospect isadjacent to the Pretty Creekunit to the south, the LewisRiver unit to the north and theIvan River unit to the east.

In October 2002,Craig toldPNA he was looking forinvestors to purchase outrightor to capitalize Trading Bay tofund drilling Marie and Hanna.

Marie drilled in 1970sA well was drilled on the

Marie prospect in the 1970s,but with gas prices at just 50cents per thousand cubic feet,150 feet of gas-charged sandsindicated on well logs werenever tested,Craig said.

Marie’s location adjoiningthe trillion-cubic-feet Belugafield makes it an excitingprospect,he said.

Unocal planned a well onthe Hanna prospect in 1983,but the crash in oil pricessquelched it,Craig said.

Seismic shot over the areasuggests good structure,possi-bly an extension of the PettyCreek and Lewis river forma-tions,he said.

In its literature promotingthe sale of its Cook Inlet prop-erties in the late 1990s,Craig

said,Unocal touted Hanna as a50 to 100-million barrelprospect.

The third, the Heatherprospect,on the Kenai

Peninsula north ofand adjacent to FallsCreek, is a 1961 gasdiscovery that hasnever been produced.

Unocal now ownsHeather,part of theClam Gulch block ofthe Ninilchik unit. In2003,Marathon OilCo. is scheduled todrill the Abalone well

in the Heather prospect.Craig holds a small overrid-

ing royalty interest in Heather,he said.

A winding roadCraig says his ultimate goal is

to get the Hanna and Marieprospects developed:but itwon’t be hisfirst attemptto do so.

In 1996,Trading Bay permit-ted three wells,one for each ofthe prospects.

The company put together aunique financing plan:an offerof investment units in TradingBay One Limited Liability Co.,an Alaska licensed and regis-tered limited liability companyorganized to drill two of thethree prospects.

The offering,which was lim-ited to Alaska investors only,was designed to raise $4.5 mil-lion,offering 4,500 LLC units at$1,000 each with a minimuminvestment of $10,000.

If commercial gas wasfound, the prospectus said,anadditional cash call would bemade on investors for the “actu-al cost of the production equip-ment, surface facilities orpipeline,”estimated to be 15percent per well but not toexceed 30 percent of initialinvestment.

Funds were deposited in animpound account. If the offer-ing was unable to raise a mini-mum of $2.4 million by Dec.1,1997, the funds would bereturned to investors with inter-est, less escrow fees.

Setting the offering at the$4.5 million two-well level “dri-ves up the initial cost but low-ers mobilization costs and also

lowers risk of los-ing it all on onedry hole,”said Bill

Webb, then working for Craig aspresident of Trading Bay.

He said the initial offeringdid not include the company’sHeather prospect in the ClamGulch area because Trading Baywas waiting to see if Marathonhit a large enough gas find onits adjacent Corea prospect tojustify building a pipeline intothe area.

Both of the other wells,how-ever,were within 1,500 feet ofexisting pipelines.

Deal falls throughBy February 1997, it became

apparent that the offering was-n’t going to fly.

Webb said he’d gotten a lotof promises but little money inthe bank,adding,“…any waywe looked at it we were notgoing to achieve it … in Alaska.”

THE INDEPENDENTS

The three sisters of Cook Inlet Trading Bay has two prospects back on market; or wants capital to drill

TTRADING BAYENERGY CORP.“An Alaskan-owned compa-ny creating opportunitiesthrough research andvision.”

■ CEO: Paul Craig■ Headquarters: Anchorage,Alaska■ Main telephone:(907) 278-7489■ Web site: none■ Founded: 1993

PAUL CRAIG

see TRADING BAY page 71


& Gas LLC), who holds an80 percent interest inProdigy Alaska, and Landt,Doherty, Higgins and PaulLokke, a petroleum engi-neer, who each have a 5percent interest.

Infrastructure investment

In August 2001, ProdigyAlaska executives met withstate of Alaska officials andoilfield service contractorsto discuss an offshore wellthat the company wantedto drill within two years onthe Cook Inlet acreage.

The company spent thefirst year after the salestudying seismic from thearea and iplan to shootadditional seismic over theprospect in 2003. ProdigyAlaska eventually plans todrill two delineation wellson the leases, the first inthe summer of 2003.

If Prodigy Alaska suc-ceeds in finding oil, compa-ny officials said it will needits own platform, pipelinesand related infrastructure toproduce and transport thecrude.

Raising capital

Company officials havebeen busy raising capital fortheir proposed NorthernLights drilling program.

Prodigy Alaska’s litera-ture marketing its NorthernLights prospect toutsBartholomae’s experiencewith Epic, identifying himas “prominent in identifyingand marketing high qualityoil and gas prospects since1988.“

Landt said the companyis confident it will have thecapital needed to drill itsfirst well in 2003.◆


PRODIGY

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Waiting for UmiatArctic Falcon drilling on hold while feds perform cleanup


rctic Falcon Explorationhas but one 6,133-acrelease in the Umiat field in

the National PetroleumReserve-Alaska. History sug-gests it’s a sure thing, and theLakewood, Colo., companythinks the field will becomecommercial as infrastructurecomes closer.

In 1951, during the KoreanWar, Umiat was determined tobe an “uneconomic 70 millionbarrel oil field”by a committeeworking for the Office of NavalPetroleum Reserves, the com-pany said.The Navy produced40,000 barrels of oil from thefield between 1951 and 1965.The Umiat anticline is definedby surface mapping and 11wells drilled between 1945 and1952 but due to lack of infra-structure, the field was notdeveloped. In 1979, the U.S.Geological Survey drilled an

unsuccessful 16,500-foot testwell there based on seismictesting.

Arctic Falcon plans to drillseveral wells to delineate thefield, once cleanup work cur-rently being performed by theDepartment of Defense is com-plete, includ-ing the plug-ging of twoof the original Umiat wells.

If the structure had beennear a market it would havebeen developed in the 1950s,the company said. Instead,Umiat has been viewed by theindustry for decades as a largeoil accumulation with low-pro-ducing-rate wells and thereforeuneconomic.

Arctic Falcon proposes tochange that perception.

Established base camp Umiat has existing facilities

including a 5,500-foot airstripand commercial base campused as support for geological

field parties in the summer.Various government and pri-vate operations have usedUmiat as a base camp over a60-year span.

“As the region has success-ful exploration in the next sev-eral years by multiple compa-

nies, the infra-structure ofpipelines, roads

and river crossings will devel-op,”Arctic Falcon said.

“Umiat was discovered by agovernment geological fieldparty finding a natural oil seepwhile floating the ColvilleRiver in 1920s, after the NPR-Awas set aside in 1923,” the com-pany said.

“The field contains severalstacked oil sands trapped on alarge surface anticline.Thesource of the natural oil seepsoccurs where these sands wereeroded at the surface or out-crop.”

The company tried this yearto add to its acreage at Umiat,but in the Bureau of LandManagement’s June 3 leasesale,Arctic Falcon lost out in abid for adjacent tract L-006 to apartnership of Paul L. Craig andPeter S. Zamarello.

The company was attractedto Alaska by the “opportunityfor large reserves using a differ-

ent perspective on the NorthSlope’s first field discovery,”CEO Gary Nydegger told PNA.The company thinks the emptyhalf of the trans-Alaska pipelinerepresents a golden opportuni-ty for independents.

Outside Alaska,ArcticFalcon’s sister corporation,GLNA LLC is active in explo-ration and in drilling and pro-ducing oil and gas projects inKansas,Wyoming and Utah.

The company has hiredMark Schindler of LynxEnterprises Inc. of Anchorageas a permitting consultant, butit said its 2003 capital budgetwould not be set until legalissues with the federal govern-ment are resolved.◆

THE INDEPENDENTS

Three sisters sold In April 1997,Trading Bay

sold all of its leases in CookInlet to Miami-based indepen-dent Forcenergy Inc.

In May 1997,Trading Bayclosed its offices.Webb wentlooking for a job and Craig con-tinued with his practice as aneuropsychologist.

On March 21,1999,Forcenergy filed for reorganiza-tion under Chapter 11 of theU.S.Bankruptcy Code,citinglow energy prices as the rea-son.

The company emerged frombankruptcy in early 2000,andthen merged with Forest OilCorp.and divided some hold-ings with joint-venture partnerUnocal Alaska,Craig said.

Unocal got the Hanna andMarie prospects,Forest gotHeather. Unocal let Hanna andMarie expire,but it approachedForest and purchased theHeather prospect.

Hanna and Marie re-acquiredIn the May 2001 and the

May 2002 Cook Inlet areawidelease sales,Trading Bay re-assem-bled the Hanna and Marieprospects.

In June 2002,Trading Bayentered into an agreement tosell all of its Cook Inlet workinginterest holdings to U.S.Petroleum Corp.of Vancouver,British Columbia.

In September 2002, justbefore closing,U.S.Petroleumpulled out of the deal,Craigsaid,putting him back where hestarted with two of theprospects in 1993:Looking forcapital to drill them.◆


TRADING BAY

Expanding to NPR-AOn June 3,2002,Paul Craig of Trading Bay Energy Corp.

and sometime bidding partner Peter S.Zamarello won Umiattract L-006 in the U.S.Bureau of Land Management’s NationalPetroleum Reserve-Alaska oil and gas lease sale.

Craig and Zamarello outbid adjacent leaseholder ArcticFalcon Exploration. (See Arctic Falcon profile above.)

The one-half township lease is right on the crest of theUmiat anticline,Craig told PNA.

He said three wells on the lease drilled by Husky Oil hadoil shows,but those wells were not deep enough to tap struc-tures that geophysical analysis suggests might lie under thearea.


A

ARCTIC FALCONEXPLORATION LLC“Arctic Falcon’s Umiat —The Great Ones take a littlelonger!”

■ CEO: Gary Nydegger■ Executives in charge ofAlaska: Gary Nydegger, P.E.,P.G.; Randy Ruedrich,drilling operations consul-tant, Arctic E & P Advisors;John Nydegger, productionoperations, Arctic Falcon;Mark Schindler, permittingconsultants, LynxEnterprises■ Headquarters: Lakewood,Colorado■ Main telephone:(303) 237-2883■ Main Email: none■ Founded: 2001


app Resources Inc.of Anchorage is100 percent owned by David W.Lappi,a leader in exploiting Alaska’s shallowgas potential.The company, incorporat-

ed in 1991, is pursuing oil and gas explo-ration projects in the Matanuska Valley,Homer and Delta Junction areas.

Lappi, a long-time Alaskan,earned a bach-elor of science in geology from theUniversity of AlaskaFairbanks and a post-graduate diploma ingeosciences fromMacquarie University in Sydney,Australia.

After working with resource firms inAustralia,Lappi returned to Alaska in theearly 1990s to explore for shallow gas inthe Cook Inlet basin.He was instrumentalin the establishment of Alaska’s shallow gasleasing program and he assisted the AlaskaOil and Gas Conservation Commission todevelop drilling requirements for coalbedmethane wells,which can be drilled withsmaller rigs than conventional gas wells.

Goal to be a producer“The goal is to become a producer,”he

told PNA.“Hopefully we can do that withcoalbed methane.”

Lappi said the company explores on theroad system,where costs are lower,but aseconomical technology emerges, shallowgas will serve areas off the state’s natural

gas distribution network.Many bush com-munities now import heating oil and otherfuels by aircraft or barge.

Lappi has worked to identify shallow gasprospects by aerial mapping so that ruralcommunities in Alaska could find gas.Thestate’s shallow gas leasing program is target-ed for such use,with royalties set at 6.25percent for gas used in the immediate areaversus the standard 12.5 percent.

While private companies provide tech-nology,Lappi sees a need for government

involvement to find gas for smallcommunities. “It’s difficult forprivate companies to take the

risk for such small markets,”he said.

Matanuska Valley drillingLappi obtained conventional state oil

and gas leases in the Houston area,and in1997 his company,Lapp Resources Inc.,assigned its working interest in the acreageto an Australian company.

In early 1998,Lappi was project manag-er for Alaska’s first coalbed gas productionwells into coal seams on the up-thrownblock of the major Castle Mountain fault.

The wells pioneered drilling techniques,including the use of compressed air insteadof mud as the drilling fluid.

On the 2,030-foot Houston No.3 well,the company used a reverse-driven down-hole progressing cavity pump mounted ona packer in a tubingless completion totransfer 500 barrels per day of water from

the producing zones to a thick salt-water-bearing disposal sandstone at the bottom ofthe well,without first producing that waterto the surface,Lappi said — another first forAlaska.

In 2000,the Australian company lost inter-est in the acreage, Lappi said. EvergreenResources now holds the leases (see page63).

Shallow gas for HomerLapp Resources applied for eight leases

in the Homer area in February 2000,underthe state’s new shallow natural gas leasingprogram.Once the leases are awardedLappi will work with Unocal Alaska,whichhas farmed into the acreage.

The area’s 10,000 residents use a varietyof fuels including beach coal,wood,propane,oil and electricity for heat.

THE INDEPENDENTS


Alaska shallow gas pioneer maintains questDave Lappi’s goal is to make Lapp Resources a gas producer

L

see LAPPI page 73

LAPP RESOURCES INC./DAVE LAPPI“Alaskan owners developing their ownresources.”

■ CEO: David W. Lappi■ Headquarters: Anchorage, Alaska■ Main telephone: (907) 248-7188■ Fax: (907) 248-7278■ Web: http://home.gci.net/~lapres■ Sister companies/affiliates:Matanuska Energy LLC, Noatak EnergyInc.■ Founded (year): 1991■ First production: LRI still in the explo-ration stage

Delta Natural Gas Project Lapp Resources has farmed

into the separate applicationareas of several individuals toform the 333,419-acre DeltaNatural Gas Project.

Combining acreage appli-cations into a single contigu-ous block allows orderlyexploration and developmentof conventional and coalbednatural gas thought to existthere.

Evergreen Resourcesfarmed into the Delta project

as operator and applied thissummer to for permits to drillstratigraphic holes to identifythe resource, Lappi said.

Lappi hopes to access theFairbanks market using theright-of-way of an abandonedmilitary fuel pipeline fromDelta Junction to Fairbanks.

Alaska’s pros, consWhen asked what are the

benefits of doing business inAlaska, Lappi said,“few com-petitors, good prospects.”

And the challenges?“Unfavorable business –

regulatory — climate, highcosts,” he said. ◆

THE INDEPENDENTS


LAPPI

Burlington Resources betting on gas pipelineHouston independent picks up 32 leases in gas-prone Brooks Range Foothills


urlington Resources Inc.expanded itsglobal reach to Alaska when its whollyowned subsidiary,5051 Alaska Inc.,

successfully bid $1.99 million on 32 tractsin the May 9,2001,North Slope Foothillsareawide lease sale.

The Houston independent was high bid-der on approximately 180,000 acres in thegas prone Brooks Range Foothills.A sourceat the company told Petroleum News Alaskain the summer of 2002 that Burlingtonwould probably do little with its leasesunless a natural gas pipeline is built to takeNorth Slope gas to Lower 48 markets.

On holdEllen R. DeSanctis, vice president of cor-

porate communications, told PNA after theMay 9 lease sale that thefoothills leases represent alow risk way to enter anarea that might soon have amarket for its vast gas reserves.

“We are trying to get a toehold in someopportunities in the far northwest of NorthAmerica that would be in concert with ourefforts in the Mackenzie Delta to build aposition in what could be future opportuni-ties in North America,particularly gas,”shesaid.

Burlington has done fieldwork and sur-face mapping in the area, said Norm Napier,

Burlington Canada manager of new ven-tures and Alaska team leader,adding that thecompany has 2D grid information on theproperties and is devising better ways toresolve its data.

Burlington is a partnerwith BP Canada Energy Co.and Chevron Canada Ltd.on

540,000 acres in the Mackenzie Delta and amember of the Mackenzie Delta ExplorersGroup. With gas supplies diminishing inthe United States,Napier told PNA,Burlington considers Arctic gas propertiesto be a sound investment.

Fourth largest gas producerBurlington is among the largest indepen-

dent oil and gas companies in the UnitedStates,with reserves of 11.8 trillion cubic

feet of natural gas at year-end 2001.The company operates primarily in

North America in the San Juan Basin, theGulf of Mexico, the Mid-continent and west-ern Canada. It also has properties in theEast Irish Sea, the North Sea,China,LatinAmerica and Africa.

Fast and hard into CanadaBurlington had no assets north of the

U.S.-Canada border prior to 1999,when itcombined its business with Poco PetroleumLtd.of Calgary.

The US$2.5 billion transaction providedentry into the Western CanadianSedimentary Basin and made Burlington thefourth largest producer of natural gas inNorth America.

In 2001,Burlington acquired CanadianHunter Exploration Ltd. for US$2.1 billion.

Burlington hopes to leverage its exper-tise from 11,000 wells in the San Juan Basinto maximize results in the geologically simi-lar Western Canada Sedimentary Basin.

The company spent US$385 million in2001 and 2002 to acquire Petrobank’s AlderFlats and Cynthia properties and the ATCOViking-Kinsella properties in Canada,addingapproximately 300 Bcf of proved reservesand 379,000 net acres.

Next step? Start-up of oil productionfrom new fields in Algeria and offshoreChina during 2003,and initiation of naturalgas production from new fields in the EastIrish Sea during 2004.◆

B dba 5051 Alaska Inc.“We know where we are going.”

■ CEO: Bobby S. Shackouls■ Executive in charge of Alaska:Byrd Larberg, chief geologist■ Headquarters: Houston, Texas■ Main telephone:(713) 624-9500 ■ Stock exchange: NYSE, ticker BR■ Web site: www.br-inc.com■ Founded: 1988


THE INDEPENDENTS

Escopeta makes big wavesHouston independents are shooting for 2003 Cook Inlet drilling


ouston-based EscopetaOil and Gas Corp.has itssights fixed on hugedeposits of oil and gas its

analysis suggests is under itsCook Inlet leases,and if all goeswell, the first well will spud in2003.

“I imagine we’ll drill our firstwell this coming summer,”Escopeta President Danny Davistold PNA inOctober.“That’smy prediction.”

Davis saidEscopeta has not initiated thepermitting process yet but hasabout half of the funding linedup to drill.

The company has contract-ed with Fairweather E&PServices Inc. to find and mobi-lize a jack-up drilling rig for thewell,Davis said.

Escopeta recently purchased“another 100 miles”of seismicdata on its property,and isreprocessing the data using anew energy absorption tech-nique,Davis said,adding thatnow the prospect “looks evenbetter.”

Initial estimates ofthe company’sreserves wereobtained using energyabsorption toreprocess 20 year-old2-D seismic,Davistold PNA shortly afterEscopeta capturednational headlines inOctober 2001 withestimates of 12 trillion cubicfeet of natural gas and 1.35 bil-lion barrels of oil at its Kitchen

and EastKitchenprospects east

of the South Middle GroundShoal unit.

If Escopeta’s estimates arecorrect, the gas equals one-thirdof proven North Slope naturalgas reserves.,Davis said.

Cook Inlet futureEscopeta operated small oil

and gas wells in Texas for 25years,but now its focus is onCook Inlet.

At the May 9,2001,CookInlet areawide sale,EscopetaProduction-Alaska Inc. spent themost — $776,217.60 for 63.9percent of the total apparenthigh bids.Escopeta took all 14

tracts on which it bid.In April 1999,

Escopeta won twelveof 14 tracts it bid on,spending$433,611.37.

In January andFebruary Escopetatransferred 100 per-cent of its workinginterest in its Cook

Inlet leases to BBI Inc., a hold-ing company owned byEscopeta President Danny Davisand Lawrence Berry of BerryContracting Inc.of Texas.BBI isthe third-largest leaseholder inthe inlet with 120,000 acres.The leases are owned 50 per-cent by Escopeta and 50 per-cent by BBI,Davis said.

Escopeta and Davis first didbusiness Alaska in 1993,Davissaid. In 1994 it invested withStewart Petroleum Co.onCosmopolitan in Cook Inlet.Davis holds a royalty interest inthe unit.

Bob Warthen of Anchorage,who has been working in theinlet since 1967,does the com-pany’s geological work.Thecompany uses freelance geo-physicists and other experts.

Warthen said much opportu-

nity exists in the inlet basin,especially for smaller compa-nies.

“The infrastructure is laidout and the threshold for thevolume of oil to make a profitis less,”Warthen said.

Warthen said although othercompanies leased the area pre-viously, it didn’t mean therewas no oil.Other companiesanalyzed seismic results with-out new concepts Escopeta isusing.

“When something isdropped, it doesn’t mean theylooked it over carefully,”hesaid.

“We’re a company that’ssitting on the two largestundiscovered oil and gasfields in the United States.”

■ CEO: Danny Davis■ Headquarters: Houston,Texas■ Main telephone: (907)248-7188■ Web site:www.escopetabbi.com■ Sister companies/affili-ates: BBI Inc.■ Founded: 1992, first didbusiness in Alaska in 1993

HDANNY DAVIS


see ESCOPETA page 75

Company seeks partners In January 2002 Davis told

PNA Escopeta was seeking part-ners to drill three prospects inCook Inlet.

“If I was big enough to drillit straight up myself, I would,”Davis said.

Escopeta hired Fairweatherto negotiate the permitprocess.

“Things that take 30 days in

Texas take six months upthere,”Davis said.

East Kitchen is likely to seethe first drilling, and Davishopes it will approach the sizeof McArthur River, about 600million barrels of oil.

Escopeta’s data suggests 200million barrels to 500 millionbarrels of oil, and 2 trillioncubic feet to 5 tcf of naturalgas,he said.The structure isabout 60,000 acres,with four-way closure, and Davis is confi-dent it will pay.

North Alexander, in the

Upper Susitna area on the westside, is smaller; it might containas much as 600 billion cubicfeet of gas,Davis said.

Davis said that despite regu-

latory delays and expense,Cook Inlet is the place to be forindependents.

“The geology is phenome-nal.”◆

THE INDEPENDENTS


ESCOPETA

Cook Inlet player finally getting payoffTwo decades of speculation, litigation pay off; Dan Donkel forming independent

By STEVE SUTHERLIN Petroleum News Alaska

anco Exploration and its founderDaniel “Dan”K.Donkel will finally cashin on Cook Inlet investments later this

year when they collect on overriding royal-ties from the Redoubt Shoal unit, an off-shore oil field under development by ForestOil Corp. in northern Cook Inlet.Depending on whom you talk to — thestate or Forest Oil — Redoubt is expectedto hold between 100 million and 200 mil-

lion barrels of recoverable oil.For Donkel and some patient investors,

Redoubt is the long-awaited plum arisingfrom two decades of scrambling, in and outof the courts, to acquire and hold CookInlet assets long enough to see production.

Donkel has a new company,DancoRoyalty Partnership Ltd.,which holds inter-ests in his Alaska leases,and he toldPetroleum News Alaska in October 2002that he is forming a new exploration com-

pany,Danco Oil & Gas Inc.

Began buying leases in 1983Dan Donkel started buying leases in

Cook Inlet in 1983.“I said Cook Inlet was underdeveloped

… had tremendous potential,but I couldn’tget anybody to listen to me,”he says.

He did eventually secure some privateinvestment to back his acquisition of bothleases and technical data.

Donkel said he based a lot of his leasepurchases in Cook Inlet on geological andgeophysical data he purchased fromChevron as the company was exiting theinlet.

“I got 3,000 miles of seismic from them

Note: The current com-pany is Danco RoyaltyPartnership Ltd.; thenew company will beDanco Oil & Gas Inc.

■ CEO:Daniel K. Donkel■ Headquarters:Houston, Texas■ Main telephone: (305) 438-1114 ■ Email: [email protected]■ Founded: 1988

D

see DANCO page 76

and just about everything theyhad from studies of the inlet. Ieven agreed to hire some oftheir people for awhile, includ-ing their Cook Inlet explorationmanager.”

It was Chevron’s data andthe acquisition of formerRedoubt ShoalleaseholderAmocoProduction Co.’s seismic anddrilling data that convincedDonkel Redoubt Shoal was aviable prospect.

Amoco discovered oil atRedoubt Shoal in 1967,but didnot develop it in favor of otherCook Inlet projects,eventuallyletting the leases go back to thestate.Danco Exploration pickedthem up in two state lease salesin 1991 and 1993.

“We’re more than a leasehound that buys leases just tosell.We interpret scientific data,”he says.“We’re explorationists.”

Sells Redoubt to ForcenergyBy 1994,Danco had amassed

247,000 acres in Cook Inlet wasin the top 10 leaseholders inthe state.

Danco sold its Redoubt leas-es in 1996 to Forcenergy Inc.(predecessor to Forest Oil),keeping an overriding interestin the leases,which have sincebeen unitized.

DancoExploration,along withrelated compa-

nies Danco Inc.and DancoAlaska Partnership,voted to dis-solve and wind up affairs in1997 after the sale toForcenergy.

Danco Inc. still exists for thesole purpose of pressing legalclaims for Danco investors,DanDonkel, its president, told PNA.Several of those claims havebeen against the state of Alaska.

Case law important Donkel has been an outspo-

ken, sometimes turbulent,pres-ence in Alaska’s oil patch and

has been more than willing togo to court to prove a point.Hethinks he is in court too muchand he worries about the mes-sage that is sending.

“After working in Alaskasince 1986 in the oiland gas business,oneof the biggest bene-fits I have found isthat you get to meetsome of the bestlawyers in Alaska,”Donkel said.

Donkel also wascomplementary ofAlaska judges, saying,the judges providefor a fair and levelplaying field for smalloil and gas compa-nies in the state.

“These cases aregenerating a lot of case law,andit’s important that we get goodcase law in Alaska,”Donkel says.

As his corporation wraps upits affairs, and with royaltyincome from Redoubt Shoalsoon to flow in,Donkel sees anopportunity to redefine hisposition in the industry.Goinginto the future,Donkel toldPNA,he wants to focus on thepositive future opportunities forthe public of Alaska andinvestors.

Despite the challenges,Donkel said, there is hope for areturn on investment in Alaska,but he added that “unwarrantedeconomic burdens placed on

independents and the major oilcompanies by the state in itsregulations cause oil companiesto place investment dollars inmore competitive areas in theworld thereby hurting

Alaskans.”

Donkel’s futureprospects

Donkel said hismost promisingprospects today areHarriet Point,KalginIsland,NorthRedoubt Shoal,EastTrading Bay,SouthPrudhoe Bay,SouthKuparuk,NorthLewis River,SouthPretty Creek,NorthBirch Hill and SouthWasilla.

Donkel says he thinks theRedoubt Shoal structureextends as far south as KalginIsland.

He said he wants to developa promising prospect at HarrietPoint.

Jerry Hodgden,geologist andformer director of Danco Inc.,echoes Donkel’s excitement forHarriet Point.

“Harriet Point is a wonderfullittle prospect; I like it better insome ways than RedoubtShoal,”Hodgden told PNA,adding that he would like to seea bit more seismic beforedrilling,but that he had seenenough to know they havesomething there.

“There’s a lot of undiscov-ered petroleum in Cook Inletbut the dollars were diverted tothe North Slope,”Hodgden says.“But now we know there’s a lotof undiscovered oil;our seismicability is better.We know aboutCook Inlet.”

On the North Slope Donkelhas interests in leases southeastof Kuparuk; two are directlysouth of the Prudhoe Bay unitand two are adjacent to thePrudhoe Bay unit nearDeadhorse.Three tracts south ofPrudhoe Bay and one west ofthe Dalton highway near thetrans-Alaska oil pipeline haveabandoned wells,he says.◆

THE INDEPENDENTS


DANCO

Dan Donkel, presidentof Danco Inc., onUnocal’s Dillon plat-form in Cook Inlet,atop the MiddleGround Shoal field,August 1995.


THE INDEPENDENTS

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