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FEX won’t drill until at least 2011 Company says it needs time to process 3-D seismic shot last year; says Alaska must compete for investment worldwide in tight times Eric Lidji Petroleum News
Talisman Energy won’t drill in the National Petroleum Reserve-Alaska this winter or next, a company executive told the Alaska Support Industry Alliance on Jan. 23.
Last fall, the Calgary-based independent, which operates in Alaska through a subsidiary called FEX, suggested it might resume its Alaska exploration program next winter.
Although FEX didn’t drill in Alaska last year, the company shot a major 3-D seismic survey. Processing and interpreting the information from that shoot “takes quite a while,” according to John ‘t Hart, executive vice president of global exploration for Talisman.
“As a result we won’t expect to be drilling either in 2009 or in 2010,” ‘t Hart said.
Last fall, FEX officials said the company was studying seismic data, and hoped to start mobilizing a drilling team early in 2009 in preparation for resuming exploration in 2010.
Benefits and challenges In January, Talisman unveiled a $4 billion spending plan for 2009 focused on “bigger prospects, which can renew the company,” as President and CEO John Manzoni put it.
With positive seismic results, the NPR-A could fit that description, ‘t Hart said.
“The Alaska North Slope has a lot of oil and gas to be found. The only problem is it’s hard to find commercial quality reservoirs,” ‘t Hart said, adding, “It’s a super charged system, and if you can find the right reservoir, this is a great place to be.”
He said Alaska is attractive because vast swaths of land remain unexplored; emerging technologies make exploring it less risky; the state provides tax credits for exploration work and technical cooperation; and the oil pipeline has plenty of spare capacity.
“So these are all good reasons to be here,” ‘t Hart said.
But there are significant challenges to working in Alaska as well, he said.
Companies working in frontier regions of Alaska, like NPR-A, run into short drilling seasons, a scarcity of infrastructure, long lead times and high project costs, ‘t Hart said.
Alaska is more expensive than other parts of the Arctic, he said, adding that Talisman operations in the Northwest Territories cost around 60 percent less than those in Alaska.
FEX is exploring difficult reservoirs in NPR-A, and “for new companies entering Alaska for the first time, the data challenge is time consuming and expensive,” ‘t Hart said.
He also pointed to a series of recent changes to the state fiscal system, saying it added uncertainty to the economics of long-term projects. But as a company working mostly on federal land, FEX wouldn’t pay state royalties or many state taxes once it produces oil.
Despite an expansion of the tax credit program in Alaska, ‘t Hart said the state doesn’t give special incentives for remote exploration, like those offered in the Gulf of Mexico.
Alaska is a very high-risk environment with the possibility of high rewards, but “the differential really needs to be better to remain competitive on a global basis,” he said.
Looking at a tight budget Like many independent oil companies, Talisman crafted a restrained budget this year in response to low oil prices and tight credit markets. The company plans to spend only the revenues it earns from existing operations, a figure projected to be around $4 billion.
Over the past five years, FEX has been responsible for some of the most remote wildcats in Alaska, some more than 100 miles beyond the existing North Slope infrastructure grid.
But after completing its fifth Alaska well in 2007, FEX put its exploration program on hold while it considered where to drill next. Last year, the company spent $25 million shooting seismic over the area of land near Smith Bay, northwest of Teshekpuk Lake.
During that time, Talisman underwent significant changes. In September 2007, John Manzoni took over as president and CEO of the company. In May, he unveiled a new corporate strategy centered on “fewer, more material assets.” Alaska remained a priority.
Unveiling the 2009 capital budget, Manzoni said spending would be limited to revenue earned from existing operations. The company based its budget on $40-a-barrel oil prices and $5-per-million British-thermal-unit natural gas prices, slightly above current prices.
One of the largest leaseholders in northern Alaska, FEX holds some 1.1 million net acres spread over 178 state and federal leases, most owned with Petro-Canada.
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