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November 2004

Special Pub. Week of November 30, 2004

THE EXPLORERS 2004: Breaking the barriers to increased Alaska exploration and production

Mark Myers

Director, Division of Oil and Gas

The movie “The Right Stuff” highlighted the breaking of the sound barrier (Mach 1) by Chuck Yeager in the Bell X-1. Yeager’s flight was considered very risky because an aircraft encountered buffeting as it approached Mach 1, but it was unclear what would happen to an aircraft after passing through Mach 1. Today, concern about a sound barrier is ancient history and supersonic flight is a routine operation.

Alaska’s oil and gas industry has experienced its share of buffeting associated with some real (and some perceived) barriers. These ‘fear factors’ have included: lack of access to well and other technical data; restricted access to certain highly prospective areas; permitting uncertainty; limited winter exploration season; high exploration and development costs; long cycle times for project development; lack of infrastructure or lack of access to existing infrastructure; high transportation costs due to distance from supply hubs; distance to markets for oil and gas; and the return of low commodity prices.

Efforts in some form or fashion to break these barriers have been ongoing for several decades. It’s time to examine these efforts and see how we are doing.

Government is doing its part

The state of Alaska and the federal government are doing their part to break through these barriers.

For example, access to geological, well and production data has never been easier with the Alaska Oil and Gas Conservation Commission’s Web enabled, user friendly public databases and the Department of Natural Resources’ expanded research programs and digital map data releases.

The state’s streamlined permitting processes are bearing fruit with real life examples of explorers going from lease issuance to the completion of permitting for offshore exploration drilling operations in less than three months.

The results of last year’s detailed scientific studies will likely allow DNR to expand the North Slope winter tundra travel season (hopefully with a little help from Mother Nature) without compromising the environment.

State and federal resource management agencies have recently opened or are in the planning stages for opening many highly prospective areas for oil and gas leasing including the northeastern and northwestern National Petroleum Reserve-Alaska, expanded areas in both federal and state waters of the Beaufort Sea and the onshore and state waters of the Alaska Peninsula.

In order to lower exploration and development costs and to stimulate exploration, the state Legislature has passed significant tax incentives for seismic, exploration drilling and gas development.

Due to the recent passage of key incentives by Congress, large scale commercial North Slope gas production is much closer to reality. The state is doing its part by accelerating its processing of TransCanada’s gasline right-of-way application, while at the same time aggressively negotiating fiscal agreements with multiple applicants to lower project risk for both pipeliners and producers.

New geologic concepts, can-do attitudes

In addition to bringing new geologic concepts and an aggressive can-do attitude to Alaska, explorers are doing their part to break the cost, cycle time and access barriers by bringing new innovative ideas and technologies to Alaska.

For example, Armstrong Alaska has engineered a lower cost but elegant modular development system for offshore and onshore areas. Additionally, a few years ago Anadarko Petroleum’s Arctic platform was just a concept. It could now become a reality, a prototype having completed a two-season test drilling program.

Some explorers are developing lower cost drilling solutions, while still others are developing partial processing alternatives to mitigate the costs associated with using certain existing infrastructure. Clever use of these and other technologies combined with their lower overhead and accelerated time frames, will allow explorers to break down the minimum economic field size barrier and economically produce fields that apparently aren’t attractive to some of the state’s large producers.

Due to a growing worldwide economy and limited supply, the $50 per barrel and $6-plus per million Btu price barriers have been shattered and it appears that higher commodity prices are here to stay.

Finally, the intrastate tariff on the trans-Alaska pipeline has been lowered significantly and it is expected that the interstate tariff will be substantially lower by no later than 2009. This is good news for all future North Slope oil production.

Due to a lot of hard work by many people, the barriers are falling and we have begun to see a more robust and diversified oil patch.

I look forward to the day when Alaska’s oil production increases back to more than 1 million barrels per day and we have gas flowing south from the North Slope: That will truly produce a sonic boom heard ‘round the state.






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