Australian oil company buys into Alaska’s Nanushuk play

The Australian company Oil Search Ltd. has bought into the Nanushuk play in Alaska.  In March, Repsol hit what has been called the largest US onshore discovery in 30 years in the field. Repsol photo.

Nanushuk play on Alaska’s North Slope

Oil Search Ltd, the Australian company that operates all the producing oilfields in Papua New Guinea, is spending $400 million on three blocks in the Nanushuk play, located in Alaska’s North Slope.

The company is buying the roughly 26 per cent stake in the play from privately owned Armstrong Energy and GMT Exploration of the United States.

Repsol SA is a major investor in the Nanushuk play.

In March, Repsol hit oil in one of the three blocks, known as the Horseshoe block.  The find has been called the largest US onshore discovery in 30 years and estimates say the Horseshoe could hold 1.2 billion barrels.

According to Reuters, Oil Search bought in on the assumption that the field holds 500 million barrels and expects to begin production in 2023.

Output is forecast to reach between 80,000 to 120,000 barrels per day (b/d).

“With the quality of the assets, the fact that they’re tier 1, and the fact that we’ve gone in very conservatively against what Repsol are saying, I think we can demonstrate to the market that this will be a super deal for Oil Search in the medium term,” Oil Search Chief Executive Peter Botten told Reuters.

Despite the company’s optimism, investors were unnerved about the $8 billion move into an area where the company has no experience.  Shares fell by 3 per cent on Wednesday while other Australian oil and gas producers saw their shares rise by over 1 per cent.

“Questions will inevitably be asked about Oil Search’s competitive advantage to play in Alaska until it proves its operational capability there,” Saul Kavonic, an analyst with energy consultants Wood Mackenzie told Reuters.

Arguing that the company had bought the stake in the high-grade crude play at near the bottom of the oil price cycle and some of the appraisal work had already been done, Ben Wilson, RBC analyst said the move was well timed and that it has “good prospects”.

Peter Botten says he began working on the deal eight months ago at a time when oil prices were about 20 per cent lower than current values.  He added that Oil Search was the winning bidder for the assets, even though there were higher-priced interest from other nearby players.

Neighbouring fields are owned by ConocoPhillips, ExxonMobil and ENI.

Reuters reports Oil Search can double its stake in the Alaskan play for $450 million.  The company says it will fund the deal with cash reserves.

Oil Search will take over as operator of the assets in June 2018.