Judging by completion reports alone, Armstrong Energy LLC drilled its first North Slope exploration well this past winter with the Horseshoe No. 1 well and No. 1A sidetrack.
But that measurement fails to capture the full scope of the company’s work in Alaska.
Through joint ventures, Armstrong is directly or indirectly connected to nearly 50 North Slope exploration wells drilled since 2000. By that measure, the company has been the second-most prolific exploration company on the North Slope after ConocoPhillips.
In its role as a partner and a facilitator, Armstrong is also connected to three of the most important discoveries made on the North Slope during the 21st century: Oooguruk, Nikaitchuq and the recently announced Pikka/Horseshoe discovery west of Kuparuk.
The Oooguruk unit and the Nikaitchuq unit are responsible for expanding North Slope development beyond BP Exploration (Alaska) Inc., ConocoPhillips Alaska Inc. and ExxonMobil Alaska Inc. The Pikka/Horseshoe discovery represents the beginning of a new type of play that could reap benefits across the North Slope for several decades.
Additionally, through a brief foray into the Cook Inlet region, Armstrong brought the North Fork unit into production. The unit expanded regional development into the southern Kenai Peninsula and finally connected the city of Homer to a natural gas supply.
Repsol partnership
The current exploration on the North Slope dates to a large lease position that Armstrong began acquiring in 2008 and 2009 through a new subsidiary called 70 & 148 LLC.
Working with the independent GMT Exploration Co. LLC, Armstrong brought the Spanish major Repsol YPF to Alaska in March 2011 to operate a major exploration program at the leasehold. The leasehold was mostly situated between the Kuparuk River unit and the Colville River unit, with an additional section south of the Prudhoe Bay unit.
Under the deal, Repsol acquired a 70 percent interest in 494,211 acres across the North Slope and planned to spend around $768 million, with most going toward exploration.
The joint venture eventually increased both its land position and its budget, leasing some 750,000 acres across the North Slope and spending about $1 billion on exploration work.
The exploration program eventually included 16 wells or sidetracks, two 3-D seismic surveys and the formation of the offshore Qugruk unit and the Pikka unit along the Colville River Delta. After hinting at results for years, the joint venture provided some brief details in mid-2015 for discoveries in the East Alpine and Nanushuk formations.
By early 2016, Armstrong founder and top executive Bill Armstrong was estimating that the field could produce 120,000 barrels of oil per day at its peak. A project of that size would increase current throughput on the trans-Alaska oil pipeline by nearly 25 percent.
At that time, the companies were reporting proven contingent oil reserves of 497 million barrels, probable contingent reserves of 1.4 billion barrels, and possible contingent reserves of 3.7 billion barrels. And the Alpine and Nanushuk represented just two of the six notable horizons, suggesting the possibility for even higher estimates in the future.
Along similar lines, those early exploration activities only covered about 10 percent of the total Armstrong leasehold, creating many opportunities for exploration nearby.
Although the oil was spread across multiple reservoirs, those estimates were billed at the time as a discovery to rival the legendary giants on the North Slope. As then-Alaska Department of Natural Resources Commissioner Mark Myers described it in February 2016, “the proven contingent oil reserve number makes the discovery the largest since the Alpine field, the probable contingent reserve number the largest since the Kuparuk field, and the possible contingent number makes the discovery the largest since Prudhoe.”
The Alpine discovery would have been notable on its own, but the Nanushuk discovery has since inspired the greatest interest in the Alaska oil patch. Armstrong described the discovery as “a new and different play for the North Slope,” with thicker pay at shallower depths. “That’s what makes it so exciting. Nobody has seen this formation productive in this depositional environment before. You look at how thick it is, how good the oil is, how good the reservoir is - it all bodes really well for the play,” he said in early 2016.
More to the point, Armstrong noted, “there are more fields out there to be found.”
Speaking to the Alaska Geological Society in mid-April 2016, U.S. Geological Survey geologist Dave Houseknecht gave credence to that notion. He said that the initial Armstrong/Repsol discovery in the Nanushuk had revealed the possibility of major undiscovered oil resources along a fairway extending perhaps 100 miles to the west.
Over the past year and a half, ConocoPhillips makes a discovery in the Nanushuk at its Willow prospect in the Greater Mooses Tooth unit in the National Petroleum Reserve-Alaska, and announced plans to explore the Nanushuk south of the Colville River unit.
And Caelus made a discovery in the related Torok formation in the Smith bay region.
After making its initial discovery announcement, the Armstrong/Repsol joint venture soon began the early stages of permitting a development at Pikka. The U.S. Army Corps of Engineers is currently preparing a draft environmental impact statement and expects to be finished this summer. Armstrong believes it can begin production as soon as 2021.
Horseshoe
Around the time of the first discovery at Pikka, Repsol was planning to make a public decision about how it would approach a development program in the Pikka region.
But instead, the joint venture reorganized. After the shuffle, Armstrong became the project operator and got a majority interest in the exploration and development acreage, and Repsol took a minority position - handing over control but remaining engaged.
The joint venture lost a year of drilling to the reorganization effort, but still conducted some limited fieldwork and reprocessed some 3-D seismic information from the region.
In an interview with Petroleum News in the summer of 2016, Bill Armstrong contrasted the discovery with the unconventional projects gaining attention across the Lower 48.
“We believe we have proven an oil pool that covers more than 25,000 acres, at a shallow depth of only 4,100 feet, with an oil column of 650-plus feet, up to 225 feet of net pay and an average porosity of 22 percent. Individual wells should be in excess of 10 million barrels each,” he said, noting, “to put it in perspective, this is 25 times larger than the average Bakken well,” referring to the famous tight oil play in the North Dakota region.
“Dream oil fields are still out there to be found, especially in Alaska,” he added.
This past winter was the first drilling season with Armstrong at the helm.
Armstrong initially planned to drill two wells. The Pikka No. 1 well would appraise the previous discoveries in the southern tip of the Pikka unit. The Horseshoe No. 1 well would be a wildcat well some 20 miles south of the Pikka unit, near a horseshoe bend in the Colville River, and was designed to “test a new idea,” according to Armstrong.
Concern from villagers in nearby Nuiqsut led Armstrong to cancel plans for the Pikka No. 1 well. The company struck a deal with ConocoPhillips to share information from the proposed Putu No. 1, which was located in the vicinity. But ConocoPhillips ultimately cancelled its plans as well, also in response to concerns from villagers in Nuiqsut.
The Horseshoe project went ahead.
The project involved a group of leases in a small swath of acreage that Armstrong acquired from the independent Royale Energy Inc. in late 2015. Royale had been at least partly interested in the source rock potential in the acreage, as well as the conventional potential of the Brookian and Beaufortian in the region. But Armstrong was exclusively interested in exploring conventional opportunities along the lines of its Pikka project.
After acquiring these leases in 2012, Royale touted both the conventional potential of the Brookian and Beaufortian in the region as well as source rock potential. Along with its partner Rampart Energy Inc., Royale commissioned the Big Bend 3-D seismic program and began permitting a two-well Aki exploration program. In early documents, Royale pointed to a June 2014 report from Netherland Sewell and Associates Inc. estimating that two prospects identified through the seismic program might contain between 17.8 million and 325.3 million barrels of oil in place, with a best-case scenario of 77.5 million barrels.
Royale proposed eight potential well locations at its Aki prospect in an oil discharge prevention and contingency plan released for public comment in August 2014.
In a proposed plan of operations for Horseshoe No. 1 released in October 2016, Armstrong said that it intended to drill a 9,000-foot nearly vertical well from a 4.5-acre ice pad. The ice pad would be connected to a 200-foot square staging pad at the existing Drill Site 2P at the Meltwater satellite of the Kuparuk River Unit by a 17.5-mile road across Great Bear Petroleum and ConocoPhillips Alaska leases. The drilling pad would include space for a drilling rig, maintenance buildings and a 60- to 90-man camp. The company eventually used the Doyon Arctic Fox drilling rig for the Horseshoe program.
While the Royale program, in theory, would have used conventional discoveries to create infrastructure and cash flow for an unconventional work, Armstrong was only interested in conventional. Armstrong is betting that oil prices will rise over the coming decade. The company believes existing conventional fields and even unconventional fields will fall short of demand by 2020, sending oil to “$70 to $80 per barrel at a minimum,” Armstrong explained in an August 2016 interview with Petroleum News.
The bet is paying off, so far.
After drilling a well and a sidetrack at the Horseshoe prospect earlier this year, Armstrong increased the size, scale and importance of the earlier discovery. The joint venture now estimates that it has made a 1.2 billion barrel discovery, which it described as being “the largest U.S. onshore conventional hydrocarbons discovery in 30 years.”
The Horseshoe 1 discovery well was drilled to a total depth of 6,000 feet and encountered more than 150 feet of net oil pay in several reservoir zones in the Nanushuk section, according to Repsol. The Horseshoe 1A sidetrack was drilled to a total depth of 8,215 feet and encountered more than 100 feet of net oil pay in the Nanushuk interval as well.
“The successive campaigns in the area have added significant new potential to what was previously viewed as a mature basin. Additionally Alaska has significant infrastructure which allows new resources to be developed more efficiently,” Repsol said in a statement.
Partner to leader
Armstrong is one of several smaller companies that came to Alaska in the late 1990s and early 2000s, when a series of mergers was changing the operating environment on the North Slope and when the basin as a whole was beginning to pass into operational maturity.
These smaller companies saw opportunities to reconsider mid-size fields that had been overlooked by the major players on the North Slope over the first five decades of exploration and development. Added to these geological opportunities was a range of regulatory opportunities, as the state and the companies agreed to sharing agreements.
Starting around late 2001, Armstrong began pursuing prospects that were too small to be of interest to the majors but would be big by the standards of just about any other basin.
Through its exploration and partnering efforts, Armstrong brought Pioneer Natural Resources, Kerr-McGee and Eni Petroleum to Alaska by proving up the Northwest Kuparuk, Nikaitchuq and Tuvaaq prospects in the nearshore waters of the Beaufort Sea.
In time, the Northwest Kuparuk prospect became the Oooguruk unit, first operated by Pioneer Natural Resources Alaska Inc. and now operated by Caelus Natural Resources Alaska Inc. Nikaitchuq and Tuvaaq jointly became the Eni-operated Nikaitchuq unit.
Those two projects saw Armstrong acquiring prospects, finding larger partners to finance and operate exploration activity at those prospects and watching as those larger companies reaped the glory of bringing the prospect into production. But with the North Fork project in the Cook Inlet basin, Armstrong oversaw the work from drilling to pipeline construction to development before selling the unit to Cook Inlet Energy LLC.
