Papua New Guinea company to take over big North Slope oil play

An Armstrong rig on the North Slope. The Denver-based company is selling off a big part of its stake in a promising oil field.. (Photo courtesy Armstrong Oil & Gas)

One of the most promising oil discoveries on the North Slope is getting a new owner.

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Denver-based Armstrong Energy is selling off a significant chunk of its stake in the Nanushuk oil play to Oil Search, a company based in Papua New Guinea. Oil Search announced Wednesday that it will take over as operator next June.

Estimated at over 1 billion barrels, Nanushuk could be one of the biggest future oil developments in Alaska. It’s on state land west of Prudhoe Bay, near the community of Nuiqsut. If developed, the companies think it could produce up to 120,000 barrels per day — close to a quarter of what’s currently flowing down the trans-Alaska pipeline.

Armstrong is still holding on to a percentage of its ownership in Nanushuk, but Oil Search has the option to buy up all of Armstrong’s stake in the field before next June, according to a presentation the company posted online.

Alison Wolters, an analyst with Wood Mackenzie in Houston, said selling its stake in the oil play isn’t a surprising move from Armstrong.

“It has been Armstrong’s business model to explore, prove up discoveries and then sell them to new operators on the North Slope,” Wolters said.

But Wolters said Oil Search is an unexpected buyer. Oil Search’s biggest investments are in liquefied natural gas projects in its home country.

“They’ve never operated in Alaska before, or on the North Slope, so that definitely took us by surprise,” Wolters said.

The company’s connection to Alaska is through Repsol, a Spanish oil company it partners with in Papua New Guinea, according to a press release announcing the $400 million purchase. Repsol also owns a significant stake in the Nanushuk play.

Oil Search aims to start producing oil by 2023. But because the company is new to the challenges of working in Alaska, Wolters said it could take longer for the oil project to get up and running.

Armstrong has started the permitting process for the Nanushuk project. The U.S. Army Corps of Engineers recently put out a draft Environmental Impact Statement, which is available for public comment until November 14.