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Linc mulling Umiat sale
Aussie independent received ‘unsolicited’ offer for field; decision by year end
Eric LidjiFor Petroleum News
Linc Energy Ltd. is considering an offer to sell its Alaska assets.
The Australian independent recently received “unsolicited expressions of interest” to sell the undeveloped Umiat oil field on the North Slope and conventional assets in Wyoming.
In response to the solicitation, Linc has launched “a formal process to work with additional parties who have expressed an interest in the potential acquisition of the company’s entire USA based oil and gas portfolio,” the company said Sept. 3. Linc intends to make a decision by the end of the year. But, the company warned, “There is no assurance that these activities will result in a formal offer or binding arrangement.”
“It is early days on the oil asset negotiations but it is always nice to receive unsolicited approaches on our assets that reconfirm the underlying value and provide third party validation,” Linc CEO and Managing Director Peter Bond said in a statement. “We will work with the parties and update the market if we can agree final and binding terms.”
Any sale of “core assets” would require shareholder approval.
An aggressive timeline
After acquiring an initial package of Cook Inlet leases in early 2010, Linc expanded its Alaska horizons in mid-2011 by acquiring rights to explore and develop the Umiat field.
A drilling campaign in early 2013 and early 2014 brought horizontal drilling techniques to Umiat for the first time in some 65 years of exploration. The results increased Linc’s confidence that it could economically develop the remote and geologically complex field, which sits approximately one hundred miles from existing infrastructure and would require a system for developing a shallow reservoir partially embedded in permafrost.
In 2013, Ryder Scott estimated that Umiat held some 154.5 million proved and probable (2P) barrels of oil equivalent with another 39 million barrels of possible (3P) reserve. Generally, “probable” means at least a 50 percent chance of recovered volumes meeting the 2P estimate and “possible” means a 10 percent chance of meeting the 3P estimate.
Early on in its exploration activities at Umiat, Linc proposed an ambitious timeline to bring the field into production by 2017. But after several years of weather and logistical delays, the company backed off from specific dates, saying instead that it planned “to aggressively develop this field once commerciality is determined.” After a successful flow test earlier this year, the company said that it saw a “clear path” to development.
While Linc is currently in the early stages of permitting and engineering, the company believes that the Umiat field could produce at a peak of 50,000 barrels per day by 2020. The estimated $1.8 billion development program would be eligible for state tax credits.
Even with an estimated 1.2 billion barrels of original oil in place and years of historically high oil prices, Umiat presents economic challenges for development. Some six weeks after announcing the results of the flow test, Linc said that it was “evaluating the advantages of introducing an industry partner to assist us in the future development.”
The onshore Umiat field straddles the boundary of state and federal land in the National Petroleum Reserve-Alaska in the foothills of the Brooks Range Mountains.
What about Wyoming?
The initial expression of interest included the Umiat field and conventional oil assets in Wyoming, which spawns a question: Was one asset a bigger draw than the other?
The Wyoming property is in the Powder River basin, which covers southeast Montana and northeast Wyoming. The region is primarily valued for its coal and coalbed methane potential but also includes considerable oil and gas resources. A 2006 U.S. Geological Survey study estimated that the Powder River basin contained some 639 million barrels of mean undiscovered conventional oil and unconventional oil, as well as gas and liquids.
Unlike Umiat, the Wyoming fields are already operational, having produced some 147 million barrels of oil to date from an estimated 400 million barrels of original oil in place, according to third-party estimates provided by Linc. With an enhanced oil recovery program focused on injecting carbon dioxide into the fields to improve reservoir pressure, Linc believes its Wyoming properties could produce another 75 million barrels of oil.
Other assets on the table
By expanding the potential sale to include its entire United States oil and gas portfolio, Linc is also putting its onshore and coastal U.S. Gulf Coast assets on the market.
Those fields in Texas and Louisiana have 11.1 million barrels of proved oil and 3.1 billion cubic feet of proved gas, according to Haas Petroleum Engineering Services Inc.
But Linc appears to be holding onto its coal assets, which include a sizable portfolio across Wyoming and considerable Alaska properties in the Interior and Cook Inlet.
The company has been studied the feasibility of underground coal gasification, a method of synthesizing methane in coal deposits too deep to mine. Combined with gas-to-liquids technology, Linc believes it can turn these coal seems into a profitable liquid fuel.
Since arriving in Alaska, Linc commissioned a custom-built land rig and drilled several core holes. Earlier this year the company began permitting a five-well delineation program on Alaska Mental Health Authority leases on the west side of Cook Inlet.
While mulling over the offer for its Umiat and Wyoming oil and gas assets, Linc intends to continue with “business as usual” for its remaining assets, according to Bond.
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