Armstrong and Repsol Restructure Alaska Project

Repsol and privately held Armstrong (70 & 148, LLC 75% and GMT Exploration Company LLC 25%) have reached an agreement to strategically re-align their interests in their Alaska North Slope exploration and development venture. The confidential agreement includes a combination of cash, operational control, drilling commitments and contractual adjustments for monetary considerations in excess of $800 million.

 Per the restructured agreement, Armstrong has acquired a 15% working interest (to add to its 30%) in the initial development area near the Colville River Delta where the majority of exploratory and appraisal drilling activities have been carried out. In addition, Armstrong has the option of acquiring an additional 6% and assuming operatorship in the development area. Armstrong also acquired a 45% working interest (to add to its 30%) and operatorship in the jointly-owned exploratory lands (750,000+ acres). It is anticipated that Armstrong, after exercising its 6% option, will own 51% and Repsol 49% in the development area, and Armstrong 75% and Repsol 25% in the exploration area. As part of this agreement, the previously planned 2015-16 winter appraisal drilling campaign has been deferred.

Over the last four years, the venture has drilled 16 wildcat and appraisal wells on the North Slope resulting in a 100% track record of finding oil with most wells having oil pay in multiple zones. Third-party engineering firm DeGolyer and MacNaughton reports C1 reserves of 497 million barrels of oil (MMBO), C2 reserves of 1,438 MMBO and C3 reserves of 3,758 MMBO. These "Contingent" reserve classifications would be converted to Proven, Probable, and Possible where appropriate upon the final investment decision.

With each drilling campaign, the project has become more valuable, larger in scope and more capital intensive than the parties originally envisioned. To accommodate this success and meet the changing needs of the partners, Repsol and Armstrong amended their initial Acquisition and Development Agreement. For Repsol, the transaction aligns the Alaska project with the company's new strategic plan to integrate its recently acquired Talisman assets into its portfolio and realign legacy assets. For Armstrong, the transaction concentrates the company's activities on the North Slope and allows it to focus on its core strengths: exploration and development of shallow, conventional oil plays identified by advanced 3D seismic stratigraphic technologies.

Armstrong and Repsol are in the early stages of developing their new discoveries in the Colville River Delta area located between the 3.5 billion barrel Kuparuk River Field and the 700+ million barrel Alpine Field. Permitting work is ongoing for a three-pad development. Field production rates are estimated to be on the order of 120,000 barrels of oil per day.

“Armstrong and Repsol’s North Slope project is representative of the new movement in Alaska where smaller independents work and operate in areas previously dominated by major oil companies,” said Bill Armstrong, President of Armstrong Oil & Gas, Inc. “As an example, the two most recent developments on the North Slope are operated by independents: Oooguruk Field developed by Pioneer Natural Resources and the Nikaitchuq Field developed by ENI. Both fields were originally generated and assembled by Armstrong Oil & Gas, Inc. With oil flowing through the Trans-Alaska pipeline at about 25% of capacity, Alaska is working hard to attract new oil and gas companies to the state. A new competitive tax regime is now in place along with a pro-development mindset.”