Armstrong Energy CEO aims to prove North Slope is still ‘target rich’

Armstrong Energy CEO aims to prove North Slope is still ‘target rich’

By Elwood Brehmer

Morris News Service – Alaska

ANCHORAGE — If all goes as planned, the upcoming North Slope drilling season could be the winter of Bill.

Bill Armstrong, CEO and founder of his namesake company Armstrong Energy LLC, and his team will be working to shore up estimates on what many believe to be one of the largest oil discoveries ever on the Slope.

Armstrong said in a Sept. 2 interview with the Alaska Journal of Commerce that his company also has plans to be one of the only outfits to invest in exploration this winter: drilling two wells south of the company’s previous work in the Pikka Unit.

Production estimates from Armstrong’s prospective Nanushuk development in the Pikka Unit have varied widely as Armstrong Energy and its partner in the project, Spanish major Repsol, have progressed from exploration to appraisal work in recent years.

But Armstrong, a guy who urges others to focus on what is done over what is said, has confidence in projecting his company can eventually produce 120,000 barrels per day from Nanushuk, with room to grow.

“This is going to be an absolute windfall for (the trans-Alaska Pipeline System),” Armstrong said. “And TAPS needs it.”

The 120,000-barrel per day forecast from Nanushuk would be nearly a quarter of the average TAPS throughput of about 520,000 barrels in state fiscal year 2016 that ended June 30.

By the time Nanushuk is brought online — the hope is in early 2021 — full production from the development could boost throughput by upwards of 30 percent.

The state Revenue Department is currently forecasting North Slope production to decline to an average of 418,000 barrels per day by 2021.

If the Nanushuk project can be seen through, it should come online at a time when Armstrong, an oil bull, sees prices being back near $80 per barrel.

It could also be a major windfall for the Alaska Native regional corporations through the Alaska Native Claims Settlement Act resource revenue sharing program, as Arctic Slope Regional Corp. holds varying royalty and subsurface interests in many of the Pikka Unit leases.

Hitting those targets will likely take $5 billion of investment over the coming years, according to Armstrong, who characterized the spend as “not small, but for the size of the prize, not big,” either.

In total, the reservoir holds about 1.5 billion recoverable barrels, according to Armstrong.

The U.S. Army Corps of Engineers is currently evaluating Armstrong’s development plan for three well pads and a processing facility in the early, scoping phase of the Nanushuk environmental impact statement, or EIS.

Armstrong said working through the deliberate EIS process with the Corps has gone well so far and he doesn’t see any issues on the horizon given the prospect’s location on state land surrounded by long-established infrastructure.

The Pikka Unit-Nanushuk project is tucked between two of ConocoPhillips’ major developments — Kuparuk to the east and Alpine to the west. It is also adjacent to Caelus Energy’s Oooguruk field, which Armstrong discovered in the early 2000s and eventually sold to Pioneer Natural Resources, who sold it to Caelus in late 2014. After pinning down the Oooguruk and Nikaichuq prospects, Armstrong left the Slope for several years.

His primary company, Armstrong Oil and Gas, is based in Denver, where the Texas native calls home.

He returned to the state in 2010, bought “tons of seismic” data, assembled roughly 500,000 acres of state leases and began a “deliberate search for these very subtle (stratigraphic) traps,” said Armstrong.

“The one that worked the best was this deal that we found in the Nanushuk just to the east of the Alpine field, between Alpine and Kuparuk,” he said. “Like what we had found the other times it was not our primary objective. It was a secondary objective and it was almost invisible on the seismic, so you can see why everybody missed it.”

While the exact formation that produced oil might not have been the primary objective, it’s no accident that Armstrong made a big discovery. Despite being an independent player, he looks for big plays in arenas dominated by the majors, in part to weed out competition.

“Small and Alaska don’t seem to go together very well,” Armstrong said.

Before venturing north the first time in 2000, he called a dozen industry friends who all advised him against trying his hand in Alaska.

“They said, ‘Don’t go to Alaska. It’s a great place to find oil but it’s a terrible place to make money,’” for small companies, he recalled. “Which is really great, because that’s exactly the kind of advice I need to do exactly the opposite.”

Repsol and Armstrong began a five-year drilling program in 2011 in what has since become the Pikka Unit. Over the next four years the companies drilled 16 wells and sidetracks, which all produced something. Of those, 14 were appraisal wells to delineate exactly what they had.

Armstrong swapped ownership positions in late 2015 with Repsol on the Pikka Unit —Armstrong is now the operating company and majority owner with a 51 percent stake in the project — in a deal that closed last October and temporarily put last year’s work plan on hold.

If the shallow Nanushuk formation proves out to be even half of current expectations, Armstrong, a geologist by trade, believes it will be the next play on the North Slope, which he considers to still be a “target-rich environment.”

Most of the classically oil-friendly geologic “bumps” in the otherwise generally flat North Slope rock formations have been drilled and developed, but the layered oil traps have mostly been ignored, he described.

“This Brookian interval that we’re chasing wasn’t the type of thing that they had found historically. The one that we just found is the first of its kind on the Slope, but mark my words, it’s going to be the new hot play,” he said.

Modern 3-D seismic aids greatly in pinpointing the subtle Nunushak-like stratigraphic traps that couldn’t be seen on 2-D data, he added.

While fully acknowledging the fact that Alaska is a high-cost environment, the geologist in Armstrong enjoys the relatively simple, shallow, conventional plays the state affords.

“We’re psyched about operating up here, just psyched. It’s cold and it’s dark, but otherwise, from an operational standpoint, its just not that hard,” Armstrong said.

The independent has operated numerous fields in the Lower 48 and the North Fork gas field east of Anchor Point on the Kenai Peninsula, which it sold to Cook Inlet Energy in 2014.

Armstrong Energy has about 45 employees in Alaska based out of its new Downtown Anchorage office space in the Peterson Tower, with about another 20 in Denver. Armstrong said his companies employ another 750 contractors and that allows him to hire experts in local conditions.

“I pick my team and my contractors for the play that they’re best at because why would I suspect that my company is the best Arctic drillers? Wouldn’t you rather go to the Arctic and find the best Arctic drillers?” he said.

The Nunushak development wells are likely to be set much like to what has been done across the Slope: horizontal wells in producer-injector pairs that will be flooded, according to Armstrong.

The first of the two wells planned for this winter will be drilled about 6 miles south of Armstrong’s latest Nanushuk penetration on the western edge of the Pikka Unit, roughly 5 miles from the village of Nuiqsut.

The other, “true wildcat” well will be about 25 miles south of the Nunushak work on leases outside of Pikka, Armstrong said, in a similar stratigraphic trap. It’s based on a seismic shoot the company did last year.

“This thing popped out of the seismic that looked really interesting. We’ll see. It’s still a wildcat,” he said.

Elwood Brehmer is a reporter for the Alaska Journal of Commerce in Anchorage.

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