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November 2008

Vol. 13, No. 44 Week of November 02, 2008

Alaska grew proved reserves in 2007

Alaska led the nation in new oil reserves and showed growth for gas, but could face competition bringing new resources to market

Eric Lidji

Petroleum News

Alaska got a tiny feather in its cap as well as a slight elbow in the side in October from a preliminary update of the proved oil and natural gas reserves in the U.S.

Led by new finds in Alaska, proved oil reserves in the U.S. grew last year for the first time since 2003, while proved natural gas reserves increased more than any year on record, according to new figures from the U.S. Energy Information Administration.

The figures mean that while Alaska helped the country replace the crude oil produced last year, the state could face competition as it works to bring massive gas fields online.

Nationally, domestic proved oil reserves increased 2 percent last year, while proved natural gas reserves jumped 13 percent over the previous year, the largest one-year jump since the EIA began tracking proved reserves in 1977.

The EIA calculates proved reserves by combining new discoveries with the existing reserve base, and then subtracting any resources produced during the year. Discoveries come from new fields, new reservoirs in old fields and satellites.

The EIA determines new discoveries and production through a survey of 1,379 operators around the country, defining “proved reserves” as oil and gas reservoirs expected to come into production in the coming years “under current economic and operating conditions.”

New oil discoveries in Alaska

Of the 2 billion barrels of proved oil reserves added in the country last year, Alaska contributed 284 million new barrels, while Texas added 251 million barrels and North Dakota, fueled by development of the Bakken formation, added 70 million barrels.

Most of the new reserves booked in 2007 came from satellites to existing fields, and not from new discoveries. But of the 66 million barrels of proved reserves connected with “new field discoveries,” about 70 percent, or 45 million barrels, came from Alaska.

Although the EIA breaks down the reserve figures by state, it would not release details behind the state-by-state figures, citing the proprietary nature of company filings.

As a result, it’s hard to know for sure what new fields companies might have booked in Alaska last year. Pioneer Natural Resources spent much of 2007 building an offshore island to support development of the Oooguruk unit, but didn’t actually bring the prospect online until the summer of 2008. The company expects the unit to produce as much as 90 million barrels of oil over the 25 to 30 year life of the field.

Huge boom in gas exploration

But Alaska natural gas reserves declined last year.

The state saw a 12 percent decline in “nonassociated” proved natural gas reserves during the year, to 1.27 trillion cubic feet.

Nonassociated reserves are those not connected to oil fields, and in Alaska are focused around the Cook Inlet.

Looking statewide, the EIA gives Alaska a net-gain in proved natural gas reserves, from 10.2 tcf to 11.9 tcf. That figure is perplexing because it clearly includes only some of the 35 tcf of proved natural gas reserves on the North Slope. Without a pipeline to carry those resources to markets outside the state, those natural gas reserves have been used almost exclusively for field operations.

Even considering the larger figure, though, Alaska lags behind much of the midcontinent region, which continues to experience a boom in natural gas exploration and production: Texas, Wyoming, Colorado, New Mexico and Oklahoma all added more than 2 tcf of proved natural gas reserves last year.

Nationally, natural gas reserves jumped more than twice as much as any year on record.

Unlike domestic oil reserves, which rarely replace the oil produced during the previous year, domestic natural gas reserves have been rising every year since 1998, and are now nearly 50 percent higher than they were in 1993, the lowest year on record.

Different definitions at play

The EIA aims to include only those reserves that have a 90 percent probability of eventually being produced, and will occasionally remove reserves that have sat on the books too long without coming online, according to Steve Grape, the author of the report.

But the state classifies reserves as those likely to be produced through 2035. As a result, the EIA estimates of proved reserves differ considerably from those listed in the most recent annual report of oil and gas assets in Alaska, which covers all of 2006.

The EIA reports Alaska as having about 3.9 billion barrels of proved oil reserves at the end of 2006, while the state reports having about 6.3 billion barrels.

However, state economists take a more conservative view when forecasting revenue from oil and gas operations, only counting resources expected to come into production within the next few years. As a result, the state did not include many heavy and viscous oil reserves, or oil and gas in federal lands and water, in its most recent forecast made earlier this year.






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