Petroleum industry bucks low oil prices, cost pressures, to bid heavily in state North Slope lease sale

The annual state North Slope lease sales held Nov. 19 have drawn the most industry interest in more than decade, State officials said. Bids for onshore acreage and offshore Alaska Beaufort Sea state-owned submerged lands were opened Nov. 19 after a period of on-line bidding.

More than 519,000 acres were leased, the most since 2014, with cash bonuses of $17.5 million offered to the state. “This is one of the most successful North Slope lease sales we’ve seen in years,” Alaska Gov. Mike Dunleavy said.

There were concerns about the lease sale because crude oil prices are trending downward while costs for companies working on the North Slope are rising. ConocoPhillips, for example, said that its new Willow oil project will cost $1 billion more than estimated at its recent third-quarter call with analysts. Earlier, Santos, Ltd., an Australian company, said that Pikka, a second new project, has also experienced cost hikes.

But what seems significant is that Santos and Repsol, based in Madrid, its 49% partner in Pikka, bid widely for new leases and won large additions to acreage held despite oil prices and cost trends, which signals those companies’ confidence in the North Slope.

However, ConocoPhillips, a major North Slope explorer and oil producer, was absent from the lease sale. This could be because the company has shifted its focus to federal lands in the National Petroleum Reserve-Alaska where Willow is located. ConocoPhillips also plans a large test drilling program this winter on unexplored NPR-A leases it holds. The NPR-A is a large 23-million-acres federal enclave on the western North Slope.

Oil and gas companies bidding for new leases usually don’t weigh current oil prices heavily when they bid because prices always change over the several years it takes to bring any discoveries into production. However, a low oil price cuts into revenue the companies earn, which can reduce the funds available for new exploration. For small explorers low prices can dampens their ability to raise funds from investors.

Despite those headwinds, however, the results on Nov. 19 were very positive. There were nine bidders for 271 tracts for onshore North Slope acreage and nine bids for 14,510 acres of offshore state Beaufort Sea tracts, according to an analysis done by Alaska’s Department of Natural Resources.

Also, for the first time in years the North Slope “foothills,” region in the southern slope area drew several offers from companies, with nine bids submitted on 37,979 acres. In last year’s sale there was only one bid in the foothills and no bids in the annual sales for several years previously.

There were newcomers among bidders, too. Two new companies, small independents Duncan Resources LLC and Frontier Exploration LLC, bid for the first time in an Alaska lease sale. Among larger companies working the slope Repsol expanded its existing Alaska position with 45 new leases, while Santos picked up 22 new leases to expand its existing acreage. Burgandy Exploration, an independent explorer previously active in North Slope sales, picked up 57 leases.

What no doubt also influenced the positive trends were President Donald Trump’s aggressive support for new Alaska oil development, although Trump’s policies mainly affected federally-owned lands, not state lands where the state’s leases were sold.

The federal government has also announced plans for renewed leasing in the National Petroleum Reserve-Alaska along with relaxed operating rules for companies in the NPR-A.

Alaska’s state lease sales are held yearly on the North Slope and in Cook Inlet, and are watched closely as barometers of industry interest. New support for Alaska development from the Trump administration may have encouraged companies to bid for more acreage in the Alaska sale.

In a closer look at the Nov. 19 results, Repsol’s bids on 45 leases were mainly southeast of the new Pikka field development, where the company is 49% owner with Santos. Santos itself acquired 22 new leases, through subsidiary Oil Search Alaska. The company’s new leases are south of where the company is developing the Pikka field and are near the boundary of the 23-million-acre National Petroleum Reserve-Alaska, which is federally-owned.

The bids by Repsol and Santos reflect those companies’ belief that the geologic trends in which Pikka was discovered extends widely to the south and southeast on the central North Slope.

Lagniappe Alaska, the Alaska subsidiary of Denver-based independent Armstrong Oil and Gas, also expanded its acreage position Nov. 19 on the eastern North Slope where the company has been exploring southwest of the large Point Thomson gas and condensate field, which is producing. Lagniappe’s new acreage also extends to the Canning River, the western boundary of the federally-owned Arctic National Wildlife Refuge, or ANWR.

Armstrong is a veteran North Slope explorer, leading early exploration on several important discoveries including the Pikka field now being developed. That Armstrong is now interested in state lands near ANWR will likely encourage interest in the federal refuge lands, state officials said. ANWR will see new leasing and exploration when President Donald Trump administration begins a new leasing program now planned in the Arctic refuge.

Burgandy Exploration and Surprise Valley Resources, another independent, also acquired new lease positions in the central North Slope south of the Prudhoe Bay field in an area where London-based Pantheon Resources and 88 Energy, an Australian company, are exploring discoveries.

Burgandy won 57 leases to the west of the Pantheon and 88 Energy acreage and Surprise Valley Resources acquired 116 leases in the same area as well as near the Pikka project development in the west-central North Slope. Both Burgancy and Surprise Valley are based in Houston.

State Department of Natural Resources officials were very pleased. John Crowther, acting commissioner of the department, said “Over the last decade we’ve seen significant exploration, new discoveries with more and more acreage under lease. Today there are projects with significant new production on the verge of coming on-line.”

The state’s new leasing results also come as North Slope companies head into one of the busiest construction and exploration seasons in years, Crowther said.