Providing coverage of Alaska and northern Canada's oil and gas industry
February 2010

Vol. 15, No. 7 Week of February 14, 2010

Big Risk, Bigger Rewards: Alaska — Big Risk, Bigger Rewards

A view from the perspective of a consultant

Arlen Ehm

Geological consultant

I firmly believe that any company can operate in Alaska, and I will tell you why I believe this to be true.

I have been involved in Alaska exploration for 44 years beginning with the first well drilled from the first platform in Cook Inlet in 1965. I have worked for entities of all sizes in nearly all of the basins in Alaska. I have been around Alaska for quite a while and have probably worked with the fathers and grandfathers of current professionals in Alaska.

I hold both bachelor’s and master’s degrees in geology from Wichita State University. After nine years of employment as a geologist I became a consultant and for the past 33 years have been an Anchorage-based geological consultant. I have provided consulting services to various state government agencies and to various federal agencies including the Internal Revenue Service, the Federal Trade Commission, the Federal Bureau of Investigation and the Securities and Exchange Commission. Consulting services have been provided to more than 80 clients both domestic and foreign.

I have also evaluated more than 20 oil and gas properties and I have served as an expert witness in seven court cases including one where I served as a special master to the Superior Court of the State of Alaska.

In addition to my sole proprietorship, I am a co-founder and a principle of Alaska Research Associates Inc. ARA prepared basin analyses of some of the major basins in Alaska including an extensive field investigation in ANWR in 1984. I was the vice president-Alaska for a small Lower-48 independent, and I later provided geological and management services to another small independent that entered the Alaska exploratory scene.

I have been involved in many aspects of exploration other than geology, although not always by choice. I simply performed as per the requirements of each project and each client. However, that exposure allowed me to develop experience in areas far afield from simple geology.

In my role as a consultant, I am constantly in contact with independents and mid-sized companies in the Lower-48 who wish to review the prospectiveness of the Alaska exploratory scene. I would estimate that I have communicated with at least 25 such companies and I have encouraged them to come to Alaska.

I am presently the project manager for a firm that has an agreement with NANA Regional Corp. for the evaluation of the oil and gas potential of NANA’s lands in Northwest Alaska. NANA holds the mineral rights on a large block of acreage and owns seismic, gravity and magnetic data that have been collected within its lands. Evaluation of these data has revealed drillable prospects of considerable size. The potential exhibited by these analyses was sufficient to convince this small company to proceed with the evaluation.

Risks are naturally inherent in a project that is both remote and without oil and gas infrastructure. In order to lower these risks, efforts must begin early on to adequately plan and coordinate all aspects of the operation. By so doing, the risks are reduced and the rewards-to-risks ratio is elevated.

There are many concerns of those companies looking to come to Alaska and become involved, but it should be noted that space does not permit all of them to be addressed here.

The most commonly given concerns are:

• High entry costs

• High operating costs

• High risk

• Permitting problems

• Excessive bureaucracy

• Excessive environmental constraints

• Long lead time

• Remote exploration targets

• Seasonal operational restrictions

• Lack of infrastructure

• Seasonal access

While many of these are common with operations in the Lower-48, several are unique to Alaska or are exacerbated by Alaska conditions. It should be noted that becoming involved in Alaska exploration might not be the correct move for a lot of companies. High potential alone is insufficient cause for such a decision.

When I started to work on the present project, I advised the client that the primary concerns were not going to be the 11 concerns given above as these can all be ameliorated by proper planning. In this project, the primary concerns were going to be logistics, mobilization and demobilization, efficient scheduling and excessive standby charges. However, as stated above, adequate planning and efficient use of the lead time can reduce the cost of the operations considerably. Contingency plans are an absolute must.

For most other areas of Alaska, logistics, mobing and demobing and standby charges will not be as high as in this project. This is true even for North Slope operations since excessive standby costs can be diminished or even eliminated due to the needs of nearby operators for the equipment and because the equipment can be brought back down the Haul Road to Anchorage, both of which reduce the standby costs.

I was 68 years old before I attempted to obtain permits for either geophysical surveys or the drilling of oil and gas wells. I learned the system quickly and have been able to obtain permits that, on the surface, have appeared difficult.

It is my determination that any operator can come to Alaska and enter into the oil and gas drilling business. However, it must plan efficiently and far in advance. Failure to plan adequately blunts the picks of more operators than any other single factor. Not being able to negotiate around a sudden road block because of weather conditions, seasonal constraints or unnecessary standby costs can often lead to total operational costs that are double or even triple the amount on the AFE. I have seen such cases and most cases could have been avoided.

Adequate planning will reduce the stress level of the operator and, perhaps, even eliminate the fear factor, totally, that is usually connected with operating in Alaska. This allows for the pursuit and acquisition of the bigger rewards that are present and available in Alaska.

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