Petro-Hunt pulls out {Dallas-based company drops its bids from the September NPR-A lease sale}

Petroleum News ^ | Week of January 11, 2009 | Alan Bailey

[thackney]

Just three months after successfully bidding on 72 lease tracts in the U.S. Bureau of Land Management’s September 2008 National Petroleum Reserve-Alaska lease sale, Dallas-based Petro-Hunt LLC has elected to relinquish all of its bids and forfeit its deposit of $2.75 million. Petro-Hunt had been the top bidder in the sale with total bonus bids amounting to $13.7 million.

In a Jan. 7 notice announcing receipt of final payments on high bids from the lease sale, BLM said that Petro-Hunt had notified the agency in late December that “falling oil prices made it uneconomical for it to pursue oil production at this time within the National Petroleum Reserve-Alaska.”

Alaska North Slope crude oil prices peaked at around $144 in July but have since dropped precipitously. According to the Alaska Department of Revenue the West Coast spot price for Alaska crude was $42.98 on Jan. 6.

Costs too high

In September Herbert Hunt, advisor to Petro-Hunt management, told Petroleum News that his company was primarily interested in exploring for oil rather than for natural gas in NPR-A. At current oil prices Petro-Hunt cannot justify expenditure on NPR-A oil leases, given the Alaska tax structure and the high cost of doing business in the state, Hunt told Petroleum News Jan. 7. Hunt said that, in addition to high tax rates, companies operating in northern Alaska have to deal with a high cost environment involving winter operations and many environmental restrictions.

“It would take much, much higher oil prices to make it worth taking this gamble,” Hunt said.

Hunt said that his company thought it unfair to hold onto leases that it was not going to use. Instead Petro-Hunt has relinquished its bids.

“We still like the acreage but we felt we shouldn’t warehouse it,” Hunt said. “… We just chose to suffer the loss and hope times will change.”

Hunt said that his company remains interested in Alaska and might return to the state were the economic climate to become more favorable.

Ikpikpuk River

Many of the leases that Petro-Hunt is giving up would have formed a fairway around and to the east of the Ikpikpuk River, which flows south to north up the boundary between Northwest and Northeast NPR-A. The company also bid successfully on a smaller group of tracts in the east-central part of the NPR-A northeast planning area. Petro-Hunt LLC is part of the Petro-Hunt Group, “one of the largest privately held energy groups of companies in the world,” according to the company Web site. Petro-Hunt Group companies have working interests in and/or operate thousands of wells in the United States, mainly in southern states but also in the Williston basin of North Dakota and Montana, the Web site says.

The group is associated with the Hunt family, which has a long association with Alaska. The family already has energy interest in Alaska in the form of a partnership involvement in PacRim LP, the company that proposes to develop coal mining at Chuitna on the west side of the Cook Inlet.

Other companies

Other companies that participated in the NPR-A lease sale have completed payments on their bids, BLM said Jan.7. These companies consist of ConocoPhillips Alaska with 33 leases; Petro-Canada (Alaska) with 17 leases; FEX with 11 leases; Anadarko and Petro-Canada with 50 percent each on 13 leases; and FEX with 60 percent and Petro-Canada with 40 percent on three leases. For the most part these companies bid on tracts that extend their existing lease positions in and adjacent to NPR-A. ConocoPhillips extended its exploration fairway around the Moose’s Tooth unit in northeastern NPR-A, as well as buying some leases west of Umiat and some others around the Ikpikpuk River.

“We’re going to be active in the coming year, so we’re just putting together additional acreage as we continue to explore,” ConocoPhillips Land Manager David Brown told Petroleum News in September. “We’re excited about our position in Alaska.”

On Jan. 7 ConocoPhillips spokeswoman Natalie Lowman confirmed with Petroleum News that the company is proceeding with plans to drill two wells in the Moose’s Tooth unit this winter.

Moose’s Tooth sits in an exploration fairway extending southwest from the Alpine field in the Colville River delta — success in the Alpine field has encouraged ConocoPhillips and its partner Anadarko to actively explore into northeast NPR-A.

Gas near Umiat

Anadarko and Petro-Canada picked up a swathe of leases extending northwest from Umiat on the eastern boundary of NPR-A, with Petro-Canada by itself picking up some tracts further to the southwest. Anadarko, with its partners Petro-Canada and BG, is engaged in a multiyear drilling program, assessing the development potential of gas pools in the Umiat area. FEX already had a substantial acreage position in NPR-A prior to the September lease sale and the leases that the company bid on in September built on that position. In 2007 FEX put its Alaska exploration drilling on hold for two years. However, the new leases give the company another exploration option if the company elects to recommence its NPR-A operations, perhaps in 2010, Richard Garrard, FEX’s geoscience manager in Alaska, told Petroleum News in September.

Although Anadarko, Petro-Canada and BG are clearly exploring for natural gas in the Umiat area, Garrard said that FEX is interested in finding oil as well as gas. ConocoPhillips is presumably looking for oil in the Moose’s Tooth area, although some of that company’s leases elsewhere in NPR-A appear to be located in more gas-prone areas.

[thackney]

[thackney]

National Petroleum Reserve - Alaska (NPR-A)
Oil and Gas Leasing Information
http://www.blm.gov/ak/st/en/prog/energy/oil_gas/npra/npra_leasing.html

[headstamp 2]

Sign of the times I guess.

Thanks for all of your informative posts on this subject.

[PGR88]

Does anyone know — approx. what would be the production cost per barrel of the oil in the leases that Hunt just gave up?

[thackney]

They had not discovered oil yet, so we cannot predict the cost. They had only paid for the right to explore and they are going to forfeit that down payment and relinquish the rights.

Heavier oil, deeper, higher pressure, more sour or CO2, size of fields, etc, these are all things that would effect cost and value.

[bert]

Thanks for this post.....