HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS PAY HERE

Providing coverage of Alaska and northern Canada's oil and gas industry
January 2003

Vol. 8, No. 1 Week of January 05, 2003

Access to properties, facilities and Alaska Clean Seas necessary for independents to work in Alaska, say Bo Darrah and Jim Weeks

Kristen Nelson

PNA Editor-in-Chief

Access is the issue for independents, Jim Weeks of Winstar Petroleum told the Resource Development Council's annual conference in Anchorage Nov. 21. John “Bo” Darrah of Alaska Venture Capital Group also listed access, along with environmental and financial concerns, as factors keeping independents out of the state.

“I'll cover three topics: access, access and more access,” said Weeks. “We need access to existing production equipment and facilities, access to Alaska Clean Seas oil spill cleanup equipment and year-round access to our leases. If you don't remember another thing about my talk, remember access,” he said.

Weeks said a company the size of Winstar can't even join Alaska Clean Seas, which requires companies to have a net worth of $200 million and a $100 million insurance policy, on top of the $500 million it costs to join.

That's why Winstar isn't drilling its Oliktok Point lease, which will be drilled from Kuparuk River unit drill site 3R, some 250 feet from Simpson Lagoon. To get permits to drill, Weeks said, Winstar would need access to Alaska Clean Seas for spill equipment.

Kuparuk River operator ConocoPhillips Alaska has agreed to drill the Oliktok Point well, Weeks said, because the charter for development, a result of BP's purchase of ARCO, obligates BP and ConocoPhillips to furnish access to their facilities on reasonable terms.

Weeks said the arbitration provision in the charter is important: “if you can't agree to access then either party can go to binding arbitration and get it resolved.” And that's important, he said, because it took 13 years for the Tabasco accumulation at Kuparuk to come online because it didn't have access to Kuparuk facilities, “even though it was drilled right from an existing Kuparuk drill site… and it was owned by the same people that owned the facilities except in different fractions.

“So facility and infrastructure access can be difficult and has been difficult.”

The charter doesn't, however, dictate terms. It took two tries and more than a year and a half the second time around before agreement was reached on drilling the well, because Phillips (now ConocoPhillips) “didn't want to assume obligations for drilling wells for an independent third party.”

If oil is found, however, agreement of all the Kuparuk facilities owners — Unocal, ExxonMobil and ChevronTexaco in addition to charter signatories BP and ConocoPhillips — will be needed for Winstar to use Kuparuk River unit processing facilities.

Roads also important

Another big access issue is physical access, Weeks said. A second company he heads, UltraStar, is looking at prospects to drill on leases it has on the eastern part of the slope. This area is also close to the Beaufort Sea, and, Weeks said, the Department of Environmental Conservation has said it will require a backup rig. Moving two rigs to the area would be very expensive, Weeks said, because options are by barge in open water season, by ice road in the winter or by rolligon in the winter.

“All three of those options are time constrained and very expensive,” Weeks said. “And the best answer is to have access to this and other remote areas on the North Slope with permanent gravel roads.” Weeks said how permanent the roads were would depend on drilling success.

With a gravel road, a backup rig could be on standby in Deadhorse. With ice roads, he said, you're forced to move two rigs to the drilling site.

“We have proposed such a road and with a new administration we will pursue getting it constructed,” Weeks said. Such a road “would make smaller reservoirs more economical, drilling operations safer and development and exploration of leaseholds over there (on the east side) less expensive.”

Weeks pegged the cost at $50-$60 million and said estimates are that the eastern side of the slope has a cumulative potential of 800 million barrels, “so we're looking at less than 10 cents a barrel of developed reserves in the success case. … I think it's totally within reason to talk about such a thing.”

Weeks said he will be telling the Murkowski administration that the state needs to get involved in providing access if it wants to reverse the decline in the state's oil production.

“We need roads and we need a simplified access to production facilities. We need roads that lead to access to the Alaska Clean Seas cleanup equipment and roads to physically access our leases.

“Let's make 'roads to resources mean roads to riches' the bumper sticker of this administration.”

Alaska fear factor

Darrah, president of Wichita, Kansas-based AVCG and Pintail Petroleum, said Lower 48 independents he talks with about the North Slope see the resource opportunities. But, he said, he is unable to overcome what he calls the Alaska fear factor — financial and environmental concerns about doing business in Alaska.

“I do believe this: a proactive state Legislature can do a lot to mitigate these fear factors,” he said, and change some of the things “that are so damaging to getting new entrants on the North Slope.”

The environmental fear that companies have about Alaska grew out of what happened to Exxon after the Exxon Valdez oil spill. Darrah said he typically hears the fear that “one accident or spill might bankrupt my company.” Darrah said he thinks that is a legitimate concern, because companies “can have problems in other places and they're not so devastating as what we saw Exxon go through and their problems.”

Lower 48 independents “also say things like 'seems to me the environmentalists are running the state up there,' and sometimes I think that's true,” Darrah said.

On the financial side, he said, there is the cost of permitting to do work in Alaska. The Department of Natural Resources has “been nothing but helpful,” Darrah said. “Obviously they're just trying to work under the existing rules.” But, he said, when he wants to drill a well in Montana or Wyoming he fills out three pieces of paper, sends in $150 with the application and posts a $25,000 performance bond.

“Wyoming and Montana have a lot of the same kind of environmental issues that Alaska does, it's just not cold there and they don't have tundra, but they have open range, they have oil and gas operations a long ways from service centers.

“But in those states,” Darrah said, “apparently the states are willing to accept some of the risk of what it takes to be an operator in order to enjoy oil and gas revenues.”

He said he thinks the state should consider returning to royalties that are one-seventh or one-eighth of the oil, rather than one-sixth.

And he said that while he doesn't think the state needs to reduce its bonding requirement to $25,000, “I think the bonding requirements are just flat unreasonable up here.” Darrah said he knows a lot of the bonding levels are a result of the Exxon Valdez oil spill, and thinks “they could be lowered to some reasonable level.”

Facility access a concern

Darrah said his third concern was facility sharing access agreements and said he doesn't know what the state can do about this. He plans to approach the Prudhoe Bay owners and “see if they're really serious about giving me agreement in advance.”

The biggest concern he has with facility sharing, he said, is the “oil back out caused by too much gas production off a satellite.” Darrah said he thinks the companies owning the facilities “need to come to the realization that if they want to keep those facilities alive and essentially sell the capacity to independents, that they're going to have to change their thinking about what they've done in the past on that issue.”

He also wants the state to change its policy on requiring removal of roads and facilities.

“If we start tearing down pipelines in advance of the final demise of the reserves on the North Slope, it may keep another satellite from coming on stream in another area which just hasn't been found yet.”






Petroleum News - Phone: 1-907 522-9469
[email protected] --- https://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)Š1999-2019 All rights reserved. The content of this article and website may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law.