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Seeking black gold.

Seeking Black Gold

A third-generation oilman who grew up on drilling rigs from Oklahoma to the Middle East, William Stewart managed to guide his small exploration and production company through some difficult economic times in Alaska. After five years of careful planning and deal-making, the independent oilman from Anchorage returns to the Cook Inlet Basin in August to do a little prospecting for black gold.

The inlet is ripe for a discovery, Stewart believes. It's an ideal location for the independent operator who often lacks the financial resources to compete with the majors or to explore for oil and gas in Alaska's more remote areas.

Says Stewart, "Cook Inlet is the place where independents need to be, because I think there are some fine prospects. The infrastructure is here. The market is here. Independents can't afford to wait years and years to build a pipeline. In the case of Prudhoe Bay, it took 10 years. Independents can't wait 10 minutes. We have to be able to get to market."

For Stewart, 42, the oil business is a family tradition dating back to the 1920s; his grandfather, Ray, worked as a driller on oil rigs in Kansas and Oklahoma. Stewart's father, Don, began roughnecking at age 14 and worked his way through oil fields in the Middle East, Europe, Africa, Mexico, Canada and eventually Alaska.

"I was an oil field brat and grew up all over the world, and I recall that in the fourth grade, I was in four different schools on two different continents. I grew up on drilling rigs. I climbed derricks instead of trees," Stewart says.

The family moved to Anchorage in 1961. Stewart recollects, "We stayed in Alaska as a family longer than anywhere else."

After he graduated from West High School in 1965, Stewart attended the University of Alaska Fairbanks, roughnecking in Cook Inlet during summers and vacations. "There weren't too many platforms then, mostly exploratory rigs," he recalls. "I've always been interested in Cook Inlet."

Stewart transferred to the University of Tulsa in 1967, where he attained a business degree "with a heavy emphasis on petroleum." While in college, he worked part-time in various administrative positions for Reading and Bates Drilling Co., the same oil field service company for which his father worked. He also married the daughter of now-retired Alaska Superior Court Judge Tom Stewart. The couple's daughter, Audra, will be a sophomore at West High next fall.

Returning to Anchorage in 1969, Stewart worked as general manager and landman for Petroleum Land Services Inc. until 1973, when he joined Simasko Production Co. He worked 11 years for Simasko as treasurer, vice president and Alaska manager, and ultimately, as president and chief operating officer, until forming his own firm, Stewart Petroleum Co., in 1984.

For Simasko, an independent oil company, Stewart managed drilling operations for six exploratory wells - one on the North Slope, a dry hole, and five in Cook Inlet, which led to the discovery of 55 billion cubic feet of natural gas. That field, however, remains uneconomical to develop.

"My experience on drilling rigs is the most important part of my background. If it's time for me to negotiate a drilling contract, for example, the guy can probably fool me a little but not too much," Stewart says.

It's been a decade since Stewart has sunk a wildcat well in the Cook Inlet Basin and years since the inlet has seen much of any exploratory drilling. "Cook Inlet has been a stepchild ever since the discovery of Prudhoe Bay, and that was so huge and so overwhelming that the major companies, almost all of them, took their projects and efforts to the North Slope and later to the Beaufort Sea," Stewart notes.

"There has been very little exploration in Cook Inlet since. In my opinion, there is a lot of oil left in the basin."

Game Plan. Stewart Petroleum Co. and its partners are zeroing in on West McArthur River Prospect Unit No. 1. In the Trading Bay area on the west side of the inlet, it's near a field that already has produced in excess of 500 million barrels of crude for major oil companies.

The drill site is located on a privately owned, abandoned airstrip constructed by Pan American Petroleum in 1966 to support operations for its West Foreland Unit No. 2 well. Stewart Petroleum was expected by mid-August begin drilling a 14,500-foot well, angling at about 45 degrees to an offshore site that rests beneath 100 feet of water.

The company holds 6,000 acres of state offshore leases in the prospect area surrounded by property held by major oil companies. Because the drill site is located on Native-owned land, Stewart had to negotiate a deal with Salamotof Native Association and Cook Inlet Region Inc. to drill on and through their property to reach the prospect.

Stewart expects to use a Grace Drilling rig that was to be trucked from the North Slope to Kenai in June and then barged 24 miles northwest to the drill site. Initial drilling will take about 75 days. In the event of a discovery, up to four additional wells would be drilled. At a cost of about $6 million to drill, complete and hook up each well for production, the program's cost could exceed $30 million. Field work this summer is expected to employ about 30 people.

If the venture is successful, Stewart Petroleum plans to build a 2.5 mile pipeline to Marathon's oil-processing facility. The oil would be transferred via the Cook Inlet Pipe Line to the Drift River terminal.

Stewart characterizes the venture as entailing "low to moderate risk." Based on information gleaned from seismic studies and several exploratory wells drilled in the area, the West McArthur River Prospect "is a good size play," he notes, containing an estimated 87.5 million barrels of recoverable oil and 278 billion cubic feet of natural gas.

"It's time to drill. We've learned everything we're going to know at this point," Stewart says.

He points out that nearly all the fields discovered in Cook Inlet are larger than 100 million barrels. "That's strange, not normal. There must be some 50s,V30s and 20s in there somewhere," he says.

The West McArthur River venture included six major partners from Alaska and Outside, who Stewart declines to name until negotiations were completed. Stewart Petroleum will serve as field operator and has taken a working interest in the project. No major oil companies are involved.

"I always participate as a working-interest owner in my projects, so I make investments along with the investors. I think that's good business," Stewart explains.

A small company with two full-time employees and about $5 million in assets, Stewart Petroleum uses consultants for specific projects and contracts with drilling companies for field work. In addition to Alaska, the company holds interests in wells in Texas, Oklahoma, Kansas, Louisiana, Colorado, Wyoming and New Mexico.

"I try to make my bread and butter out there while I chase the big ones up here," says Stewart. He recalls a particularly critical time in 1986 when collapsing world oil prices put the bite on his new company.

Notes Stewart, "I was lucky and had a few discoveries in North Texas that carried me through. I stay small and try to watch my overhead. My whole company will fit in a Volkswagon."

In addition to being president of an independent oil company, Stewart is a director and past president of the Petroleum Club of Anchorage. He also is a member of the Independent Petroleum Association of America, the American Association of Petroleum Landmen and the Alaska Association of Petroleum Landmen.

Stewart also has served as a director for Junior Achievement of Alaska and Boys Club of Alaska and as chairman of the State Chamber of Commerce Alaskan of the Year Committee. He is listed in Who's Who in The West.

Independents' Role. Stewart points out about 80 percent of all oil discoveries in the United States have been made by independent oil companies. But he is among a handful of independents who operate in Alaska, where the high cost of drilling and the governmental regulatory climate tend to discourage investing in the smaller projects, according to a recent study compiled by the state-financed International Oil Tax Comparison Group.

"The only reason I can do it is because I've been here close toV30 years, and I think I understand it," Stewart says.

Nevertheless, Stewart believes the independent oil company could prosper in Cook Inlet and in certain areas on the North Slope close to producing fields and existing production facilities. "We need a discovery to revitalize Cook Inlet, and I hope it's mine," says the owner of Stewart Petroleum.

"That will provide the impetus to do whatever is necessary. It only takes one discovery and then the sheep syndrome will set in and you'll see industry coming back."

PHOTO : A gift of appreciation for work done in Indonesia, William Stewart's ornate hardhat is one of several oil field memorabilia decorating his office.
COPYRIGHT 1990 Alaska Business Publishing Company, Inc.
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Title Annotation:William Stewart
Author:Tyson, Ray
Publication:Alaska Business Monthly
Date:Aug 1, 1990
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