This month in history: MMS Beaufort lease sale draws $10 million

20 years ago this month: ConocoPhillips picks up three leases at Sandpiper prospect, EnCana goes for large block off NPR-A

Kristen Nelson

Petroleum News

Editor's note: This story first appeared in the Sept. 28, 2003, issue of Petroleum News.

Three companies bid more than $10 million at the U.S. Minerals Management Service's Sept. 24, 2003, Beaufort Sea sale, with a known field in the central Beaufort and a wildcat area north of the National Petroleum Reserve-Alaska attracting the most attention.

There were 37 bids on 34 tracts, 15 in Zone "A" and 22 in Zone "B" with total high bids of $8,903,538, MMS Alaska Regional Director John Goll said in summing the sale results, with $10,175,949 exposed.

ConocoPhillips Alaska took three tracts for $4 million, bidding $2,151,600 on one tract, the highest single bid in the sale, and $1,201,600 and $646,800 on two other tracts. Armstrong Alaska, a subsidiary of Denver-based Armstrong Resources, which bid $2.6 million in the sale and took seven tracts for $1.4 million, also bid on these three tracts.

EnCana was the second highest bidder, at $3,550,158, taking all 24 tracts on which it bid, including a block of 19 tracts north of NPR-A in the Smith Bay area, adjacent to six existing ConocoPhillips-Anadarko Petroleum leases.

ConocoPhillips paid the highest average price per acre, $265.70 for approximately 15,055 acres; Armstrong averaged $36.01 an acre for some 37,600 acres; and EnCana averaged $27.51 an acre for some 129,100 acres.

MMS Director Johnnie Burton said after the sale that she was very pleased with the results.

"We're showing a couple of large companies that are still big players and we're seeing an independent" active, which hasn't happened a lot in that area. Burton also said MMS was "pleased to see that EnCana is really stepping out and going into a wildcat area."

Some tracts near existing exploration

The "A" area bids -- closer to shore and to existing infrastructure -- included five leases taken by Armstrong Alaska northwest of the company's existing acreage position in the Oooguruk unit, where Pioneer was operator for the partnership last winter on three exploration wells on state oil and gas leases acquired by Armstrong. Armstrong also took two leases adjacent to blocks of offshore state leases north of the Kuparuk River and Milne Point units.

ConocoPhillips took three "A" leases for $4 million -- the leases on which Armstrong also bid -- in the area of the old Sandpiper wells, northwest of the Northstar unit.

EnCana took two "A" and three "B" leases offshore on the east side between Badami and Endicott.

EnCana was the only bidder for "B" leases, those farther offshore and farther from infrastructure, bidding on 22 tracts, the three on the east side and the majority in the block north of NPR-A. There are six existing ConocoPhillips-Anadarko leases in this area, Goll told Petroleum News after the sale, "so it appears that people think there's something there." But there are no wells in the immediate area. It's in a hole between exploration wells, he said, and MMS will be very interested to see results of seismic exploration in the area.

Armstrong playing off last year's success

The tracts where Armstrong bid against ConocoPhillips are in the Sandpiper area, Kerr said. "And they had a bigger bid, of course, a bigger wallet," and took those tracts.

But he said: "The things we wanted most, we got, and we're very excited about it." The company is looking forward to doing a lot more in the Beaufort, he said, and still has a lot of work to do with acreage it already owns.

ConocoPhillips looking for gas

The ConocoPhillips tracts are about 11 miles offshore, he said, and about 8 or 9 miles from Northstar.

This is the area of the former Sandpiper unit. There have been two wells drilled on the feature, Mott said.

EnCana evaluating Alaska portfolio

Prior to this sale, he said, EnCana had 675,000 net acres in Alaska, about 390,000 in the Foothills, about 230,000 on state land on the North Slope, and about 57,000 acres in NPR-A.

Asked what the company had planned for its newly acquired acreage, Boras said EnCana would evaluate existing seismic data and do exploration evaluation with that existing data, as well as looking at whether the company might acquire additional seismic in the future. "It's very early days," he said, but the company will evaluate the prospects on its new leases and plan work in due course.

He said EnCana was pleased with its acquisitions at the sale. It adds to the company's portfolio of Alaska exploration acreage, he said, and the company continues to evaluate that portfolio.

No wells are planned in Alaska this winter, he said, although the company does plan to drill a well this winter in the Mackenzie Delta.

20 years ago: Sandpiper prospect a big draw

Shell Western Exploration and Production drilled the Sandpiper No. 1 9 miles northeast of Seal Island (where BP Exploration (Alaska) developed Northstar in the late 1990s), spudding the well in 1985 and completing work in 1986. Shell tested the 12,575-foot well from below 11,910 feet at 500 to 2,500 barrels of 40-52 degree API oil and up to 18.5 million cubic feet per day from two different Sadlerochit formation intervals. Shell had a 31.5% interest in the well. Its partners were Amoco Production (31.5%), Murphy Oil USA (20%), Petrofina Delaware (10%) and Koch Industries (7%).

Shell spud the second well, Sandpiper No. 2, but Amoco later took over as operator. That well was drilled to 14,983 feet, sidetracked three times due to downhole problems, and plugged and abandoned in July 1986.

Both wells were drilled from Sandpiper gravel island in 49 feet of water, and MMS lists both wells as producible. Former leases at the prospects expired in April 2001. The Alaska Department of Revenue said in 2001 that it considered Sandpiper a prospective source of oil production, and estimated production at 12,000 barrels per day by 2008.

BP was the operator until 1999; its partner Murphy Exploration and Production then took over as operator. Murphy told MMS that the most economic development plan would be "to construct a gravel island on Loan Shoal with minimum process facilities." Crude oil would then be piped to BP's Northstar facility for processing. Murphy estimated that Sandpiper would have peak daily production rates of 8,000 barrels of oil and 50 million standard cubic feet of gas and a field life of 24 years. Total recoverable liquid reserves were estimated in the 47 million barrel range.

There was a unit at Sandpiper until 2001.

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