By Matthew Radman,
Money and Investing Writer
Spanish oil giant Repsol SA (OTCQX International Premier: REPYY) uncovered approximately 1.2 billion new barrels of oil in Alaska’s North Slope; an area previously known as an aging oil basin. The find could be the relief that Alaska was looking for as it faces budget pains.
In a joint venture with Denver-based Armstrong Energy, who owns a majority of the interest in the Horseshoe oil well, Repsol claims that they can begin producing as much as 120,000 daily barrels starting in 2021.
The two companies have been working ogether since 2008 on oil discovery projects. Their previous project, known as Pikka, was discovered 20 miles north of Horseshoe. Repsol spokesperson Kristian Rix said in a statement to CNNMoney, “The interesting thing about this discovery is the North Slope was previously thought to be on its last legs. However, this is a significant emerging find.”
The news does not put investors at ease who are concerned about the stubborn abundance of oil in the US. After the competition of a two-year battle over prices between US oil and OPEC, signs are pointing to an increase in shale oil production.
Since 2008, the Saudi Arabian-led cartel OPEC has poured an excessive amount of oil into world markets, drastically cutting the price of oil as well as the profits of US producers.
After a painful two-year price war between the two producers, OPEC has agreed to stop flooding the market after its attempts to slow the US oil boom did not come to fruition.
The attempt to hurt US producers had opposite effects. While it was painful for the US, the price drops crushed the budget of Saudi Arabia and other OPEC producers.
The move to cut production came as a way to protect OPEC’s budget rather than a friendly gesture to the US. OPEC was successful in slowing American oil production in those two years, however. Overall, the price war mostly missed its objective, mainly due to oil discoveries such as Repsol’s keeping the US oil boom alive.
Six months before Repsol’s find, Caelus Energy in conjunction with private-equity firm Apollo Global Management made another massive Alaskan oil discovery. The two discovered a potential supply of approximately 6 to 10 billion barrels of oil.
The recent boom in oil production has been a good sign for the struggling state. A lack of production has hindered Alaska over the past few years. The state has faced a strained budget including cuts, a hiring freeze, and a limit to state employee travel.
Alaskan revenues rely heavily on the taxation of oil and gas production. Therefore, shrinking production due to old aging wells combined with halved oil prices has hurt Alaska’s budget.
The struggling state is finally seeing the potential for some relief to their budget troubles.
The recent discovery of billions of barrels of oil will certainly pump their budget as well as their oil pipelines full of life.
Alaskan Governor Bill Walker has even stated that “[Alaska] must pull together to fill an oil pipeline that’s three-quarters empty.”
Repsol’s discovery at their Horseshoe well is just the latest in the shale boom experienced by the US. Its production will be a needed lift to Alaska as well as an increase in the US’s advantage over world oil prices.
A version of this article appeared in the Tuesday, March 21st, 2017 print edition.
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