Bidders dig deep for rights in NPR-A

$54 MILLION: Oil companies show strong interest in remote leases.
WESLEY LOY

Anchorage Daily News

Oil companies bid nearly $54 million Wednesday for rights to explore a vast and lonely swath of North Slope tundra at least 80 miles west of the state's established industrial oil patch.

The new territory is inside an Indiana-sized federal tract called the National Petroleum Reserve-Alaska. The tract is divided into three sections, and oil companies already have drilled and found oil in the easternmost area. Wednesday's lease sale was predominantly in the more remote northwest or middle section farther to the west and south of Barrow.

The lease sale pleased officials with the U.S. Bureau of Land Management, who had to win a court battle last week to hold the event. Environmental groups are suing the agency, saying the BLM is making too much of the reserve's wildlife-rich habitat available to the oil industry.

Although Judge James K. Singleton Jr. allowed the sale to go forward, he ordered that no drilling or other industry activity can occur on leased land pending a final resolution of the case, expected later this year.

Henri Bisson, the BLM's Alaska chief, said he was surprised by the intensity of the bidding on such remote land.

"What it shows is a commitment to develop Alaska's oil and gas resources," he said.

But a manager with one oil company that made winning bids on some acreage, Conoco Phillips Alaska Inc., said the northwest reserve is many miles from existing pipelines, roads and processing plants, and no drilling is expected next year or possibly ever on some of the leased land depending on geologic and cost factors.

"Many leases go undrilled," said Richard Garrard, a Conoco exploration manager.

Five oil companies submitted winning bids on a total of 1.4 million acres.

The company making the biggest splash was a relative newcomer to Alaska, Fortuna Exploration, a subsidiary of Calgary-based Talisman Energy Inc., known prior to 1992 as BP Canada. Fortuna bid $13.7 million for one block and $7.5 million for another. Both were at least 15 times larger than bids from competing companies and drew a hushed "wow" from some onlookers in Anchorage's Loussac Library auditorium, where the bids were opened.

Barry Nelson, a spokesman for Talisman in Calgary, said he couldn't provide more information Wednesday about Fortuna's plans for the Alaska land.

The other companies staking millions of dollars for drilling rights included another Calgary-based firm, Petro-Canada; Houston-based Anadarko Petroleum; and Pioneer Natural Resources Co. of Dallas.

Half of the $53.9 million in winning bids goes to the U.S. treasury, and the other half goes to the state.

The total is short of the $104.6 million generated in a 1999 lease sale in the petroleum reserve and the $63.8 million collected in a 2002 sale.

Still, BLM officials said Wednesday's sale showed surprisingly strong industry intent to march farther west into some forbidding new territory. At one time, interest in the reserve was ice cold, with one federal lease sale in the 1980s drawing no bids at all.

Much has changed since then. Oil-hunting technology has greatly improved. In late 2000, the Alpine oil field began operation just outside the reserve's eastern boundary. It has been a prolific producer for owners Conoco and Anadarko, pumping more than 100,000 barrels a day, third highest among all Alaska oil fields.

The two companies have drilled several exploratory wells in the reserve's northeast section and now are weighing whether to connect some small "satellite" oil fields by pipeline to the Alpine production pad. This would be the first significant commercial oil production from the reserve, though it probably wouldn't come until around 2008, Conoco engineers say.

The remote western Slope is not exactly virgin territory for oil hunters. After President Harding established the reserve in 1923 for its potential to supply oil for the Navy, government drillers punched numerous exploratory holes and made some decent discoveries, including a natural gas field that now supplies Barrow.

In the northwest section, only one hole has been drilled by private industry: the Brontosaurus well sunk in 1985 by Arco, whose Alaska operations now are part of Conoco Phillips. On Wednesday, Conoco Phillips bid $120,200 for a block that takes in that old well site.

Talisman, through its Fortuna subsidiary, last year partnered with French petroleum giant Total on an exploratory well in the northeast reserve. To date, the well remains a "tight hole," industry parlance for a deep secret.

Government geologists estimate the entire 23.5 million-acre reserve might produce 1.3 billion to 5.6 billion barrels of oil, assuming prices of $22 to $30 a barrel and 59.7 trillion cubic feet of gas. By comparison, the giant Prudhoe Bay field already has produced more than 11 billion barrels of oil.