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This month in history: Two-Bits could be first for Armstrong 20 years ago: If drilling successful at Slope prospect, independent expects to begin production by late 2005 from modular facilities
Kristen Nelson Petroleum News
Editor's note: This story first appeared in the Nov. 7, 2004, issue of Petroleum News.
Smoother, faster, better, cheaper is Armstrong Oil and Gas's mantra.
"Smoother, faster, better, cheaper: every day that's what we try to do; without that we think the competition will go by us," Stu Gustafson told the Alaska Support Industry Alliance Oct. 28, 2004, in Anchorage.
Armstrong Oil and Gas hit the ground running in Alaska three years ago, acquiring a major North Slope acreage position and bringing in two large independents as operating partners, Pioneer Natural Resources and Kerr-McGee, in the interim. The Denver-based independent participated in five exploration wells with its partners, announcing discoveries at both Oooguruk and Nikaitchuq.
(See archive graphic in the online issue PDF)
Gustafson, Armstrong's vice president of operations, spoke to the Alaska Chapter of the International Association of Drilling Contractors and the Alliance the last week of October, updating Anchorage audiences on the company's three-year history in Alaska, on its plans for drilling with Kerr-McGee this winter in the Nikaitchuq and Tuvaaq units in the shallow waters of the Beaufort Sea and on Armstrong's plans for its onshore Two-Bit prospect, just off the western edge of the Kuparuk River unit.
Production in a box Armstrong could become the first independent to do its own North Slope production processing, if this winter's drilling at its Two-Bits prospect is successful.
At Two-Bits "we'll drill two exploratory wells over this winter. It's two prospects," Gustafson said, and if one of those prospects proves up, "we will start production drilling and we will be online by year end (2005)."
Armstrong Alaska, subsidiary of Armstrong Oil and Gas, would get Two-Bits online quickly with an idea Gustafson had when faced with North Slope Native concerns about offshore production.
They don't want to see a single drop of oil in the water, he said. The solution to that concern started as an idea sketched on a napkin in the Brower Cafeteria in Barrow: Put all the facilities inside a tank, a containment vessel, so that if there is a leak the leak is automatically contained.
This production-in-a-box plan has been refined by ASRC Energy Services, Gustafson said, but basically conductor pipe is put through the floor of the tank, wellhead and piping is inside and it's monitored from offsite by cameras and heat sensors inside the tanks. The concept has been embraced by Kerr-McGee, he said, and variations on the idea are being looked at by Pioneer Natural Resources.
Gustafson said that while production in a tank began as a response to an environmental concern -- keeping oil contained -- it is also proving economic, with drill site costs estimated at $12 million for a 12-well site, compared to $29 million for a conventional North Slope facility.
Modular processing facilities But there's more. Armstrong is also planning a standalone production facility at Two-Bits: "We believe we have to do all our own processing," he said, and plan to bring in modular processing facilities, a technology already in use elsewhere, and process oil on site. "We're looking at Arctic Service units," Gustafson said, truckable, skid-mounted production units.
With modular facilities, he said, "we're looking at repetitive designs," which will speed up permitting. And since these facilities are already in use "you can call up and order them."
There is nothing new here, he said: "This is proven technology: it works."
Two-Bits would use "no unit power, no unit processing, we do it ourselves, all the way to the LACT (lease automatic custody transfer) meter."
In a question and answer session at the end of his Alliance presentation Gustafson was asked about using existing processing facilities. He said you don't bid millions at lease sales and drill millions of dollars' worth of exploration wells "and hope that you can go to somebody else." The risk capital Armstrong has put up, he said, is based on doing it "on our own."
If Ed Kerr, Armstrong's vice president of land and business development, "is able to negotiate a better business environment for us ... we'll look at it." There have been North Slope projects that couldn't move without guaranteed access to existing facilities, Gustafson said: "The only thing that we were counting on is common carrier pipelines."
And road use: North Slope roads were built with state gravel, "so they really are state roads, and we're delighted to pay maintenance" and help the unit operators there, "but working deals gets to be long and can be convoluted, and that's not 'smoother, faster, better, cheaper.'"
Flexible transport pipe To move the oil off the Two-Bits pad, Armstrong is looking at the type of fluid transport line used in the Gulf of Mexico.
The flexible pipe comes in 3,200-foot rolls, he said, and is typically used for oil or gas gathering lines, injection lines and water or fuel transfer lines. This pipe would be laid pipe-within-a pipe inside of an outer pipe and buried in the road.
And what's next? Armstrong picked up some 115,000 acres of state oil and gas leases Oct. 27, 2004. It first acquired state leases in 2002, and had brought in a partner (Pioneer), was drilling within seven months of lease issuance and completed three wells offshore in one season, a single-company record, Gustafson said. In 2003, Armstrong doubled its acreage, brought in Kerr-McGee and drilled two wells in 2004.
"We buy prospects ... to drill," he said. We have brought in Pioneer and we have brought in Kerr-McGee, Gustafson said, and "we're working on other options."
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