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

Providing coverage of Alaska and northern Canada's oil and gas industry
December 2002

Vol. 7, No. 49 Week of December 08, 2002

Setting a standard

Boyd outlines what Alaska must do to get back in the oil and gas game; says permitting can be fixed in much the same way access to land was fixed

Kristen Nelson

PNA Editor-in-Chief

Some of the “players” may be changing as independent oil and gas companies come to Alaska, but the state’s oil and gas “game” must work for all players and it must be competitive with the game worldwide.

And part of Alaska’s oil and gas game, the permitting part, needs to be fixed.

That was the message Ken Boyd, a former director of the state’s Division of Oil and Gas, delivered Nov. 21 as he kicked off a day-long program titled “Alaska independents and new majors” at the Resource Development Council’s annual conference.

All oil and gas companies, large and small, need three things, Boyd said: access to land, a stable tax regime and consistent and fair permitting. Companies that are not majority owners in North Slope facilities and pipeline also need a fourth thing: reasonable terms for access to existing facilities and pipelines.

“Access to land is probably the most important item on the list,” he said, and access comes in several forms, “the two most important being the ability to lease the land the and second the ability to get to the land to explore and develop once the leases are issued.”

Areawide sales

“Once a huge stumbling block, access to state lands for oil and gas leasing is no longer a problem,” Boyd said. State lands of most interest to the oil and gas industry — the North Slope, Foothills, Beaufort Sea and Cook Inlet — now fall under the areawide leasing program.

“Created about six years ago with a 60 to zero vote of the Legislature, it allows all available state lands in those areas to be offered for lease every year,” Boyd said.

The program has been very successful with the amount of land leased up dramatically compared to the previous lease sale program based on nominations by industry.

The areawide leasing program is a real step change in how the state does its leasing business, Boyd said: Under the previous nomination-style of lease sale, “the state essentially assumed it knew nothing before each lease sale. Each sale was created from scratch and this led to a slow and uncertain lease sale program.”

But the state had been holding lease sales in these areas for years, and had core knowledge about those areas, and in the areawide program, the “core knowledge then went into the best interest finding, the state’s version of an environmental impact statement. Instead of a fractured and uncertain program the state was able to have sales of all its lands in all the sale areas every year,” Boyd said.

And every year, prior to each sale, the state puts out a “call” asking for substantial new information about the sale area. If there is substantial new information, that is incorporated into the sale process as a supplement, he said. And every 10 years, the core best interest finding is updated to include the supplements.

Main risk used to be geology

So access to state lands through leasing is no longer an issue and on the fiscal side, Boyd said, the state has had a stable tax regime for about a dozen years.

That leaves permitting.

When he was in the industry, Boyd said, the main risk to companies was the geologic risk. “Where were the good rocks? How do we find them?”

And the rocks were pretty hard to find, given the technology at the time, he said.

“In the last 10 years, and especially the last five, technology has improved to the point where geologic risk continues to decrease” and companies drill fewer bad wells, so success rates have improved and the impact on the environment is less.

“Make no mistake that the earth is any less forgiving of bad science than it ever was,” Boyd said. “It’s just that the science has gotten better.” Companies still can’t predict how much oil is present, “but 3-D seismic… has become the explorer’s first choice in Alaska, both in the Arctic and in Cook Inlet. In my opinion,” he said, “3-D seismic and its associated technology really saved Alaska’s oil and gas future.”

Permitting the greatest risk

Technology is better and costs have even come down, Boyd said, so “what’s the problem?

“The problem is that permitting risk is in fact fast replacing geologic risk. We can’t make better rocks, but we can make a better permit process.”

Permitting affects all companies working in the state, he said, no matter their size: “And a reliable, sensible and efficient permit program comprised of capable, qualified, proficient and skilled permitters is essential to the continued viability of the oil and gas industry here.”

Boyd quoted Benjamin Franklin to the effect that insanity is doing things the same way over and over and expecting a different result.

“That’s the way it was with leasing and it’s the way it is with permitting,” Boyd said, and some of the same principles used to fix the leasing program in the 1990s could be used to fix permitting now. As with leasing prior to the areawide program, permitting starts from scratch for every project, even though “thousands of permits have been issued for hundreds of different projects on the slope and in Cook Inlet” and hundreds of exploration wells have been drilled.

But for most projects, “permits start from scratch each and every time, no matter that an identical project has been permitted a dozen times before.”

There’s a simple solution to at least part of the permitting problem, he said.

Hundreds of exploration wells have been drilled on the North Slope. “It would be a fairly simple process to review those wells that were previously permitted and successfully drilled. Let’s make a list of those characteristics of those projects and create a standard winter well. This could be the standard for future projects.”

When new wells are proposed that fit the same parameters, “then issue the damn permit,” Boyd said. When new projects differ substantially, the differences could be dealt with through additional mitigation.

“But the core permit for this standard well should be approved and only the substantial differences should warrant additional discussion or delay.”

This is similar, he said, to what the state did with areawide leasing.

“I suggest that the process could be applied to permitting and other parts of the oil and gas business,” Boyd said.

“The state must reexamine the permit process. It must stop looking through the wrong end of the telescope. Don’t start with the details. Fix the process first. No amount of mere wordsmithing no matter how clever or well intentioned is going to solve the problem.”

Where to start?

Three critical areas in the permitting process have been identified by the Alaska Oil and Gas Association and others, Boyd said.

“First, simply stated, the air permitting program is broken and needs to be fixed.”

There need to be reasonable timelines for permit review and issuance, permit terms need to be clear, predictable and consistent with regulations and the program should focus on areas that have environmental impact, he said.

“Reshaping this program will allow industry to conduct its activities without delay and within compliance,” Boyd said.

The oil spill discharge contingency plan program also needs attention, he said. These plans have to be renewed every three years and currently the work required for these renewals from both industry and the state is significant, “yet it does not result in meaningful improvements in environmental protection. At a bare minimum, the renewal cycle should be extended to five years,” Boyd said. Regulations also need to be clarified, he said, to facilitate preparation of plans and reduce the likelihood of litigation. “In addition, actual changes needed to the C-plan review and approval process are probably necessary and could be achieved without lowering environmental or personnel safety standards.”

The Alaska Coastal Management Program is the third area that needs attention.

In spite of recent regulation changes, the program has shortcomings, Boyd said, and “needs to establish and enforce predictable schedules to provide time-certain determinations of compliance.”

“In each of these three critical areas, the state needs to step back and fix the process first. Having a streamlined, predictable and sensible permitting program is simply in everyone’s best interest,” Boyd said.





Company execs talk about land and facilities access, taxes, permitting at RDC conference

Ken Boyd, a former director of the state’s Division of Oil and Gas, told attendees of the November Resource Development Council conference in Anchorage that oil and gas companies, large and small, need three things” access to land, a stable tax regime and consistent and fair permitting. Companies that are not majority owners in North Slope facilities and pipeline also need a fourth thing: reasonable terms for access to existing facilities and pipelines.

Following are comments from executives who work for many of Alaska’s oil and gas companies and who spoke Nov. 21 at RDC’s conference. Many spoke of access, taxes and permitting; some raised other, related issues.

ACCESS—Anadarko Petroleum Corp. has Foothills prospects a long ways from North Slope infrastructure. It takes longer to get there and is more costly to drill and the company will be testing a prototype of its mobile Arctic drilling platform on the North Slope this winter as a way to meet those challenges. “It’s got to work, it’s got to be economic, (but) we wouldn’t be investing money if we didn’t think it would have a chance … And if it works, it could decrease costs, decrease the cycle time and increase the economic prospectivity here in Alaska.” —Mark Hanley, Anadarko Petroleum Corp.

REGULATIONS—“An independent trying to operate in Alaska will face regulatory complexities and a higher cost of doing business. But we wouldn’t be here if we didn’t see opportunities and tremendous potential.” —Scott Pfoff, Aurora Gas LLC

REGULATIONS—Evergreen Resources is drilling two four-well coalbed methane pilots in the Matanuska-Susitna Borough. “We’ve drilled so far ranging from 2,600 to …3,700 feet, relatively low pressure or normal pressure, so we don’t need the same rules and regulations that are in place that make a lot of sense for high-pressure wells drilled directionally offshore or up on the North Slope. We need something that makes sense for drilling what are a modified series of water wells…” —Mark Sexton, Evergreen Resources Inc.

ACCESS—“..why we’re coming to Alaska … First and foremost is the charter agreement… that is basically the agreement that was made between producers on the North Slope and the state of Alaska agreed upon, basically said they’re going to make their facilities available to independents. They’re going to make it easier to be competitive on the North Slope. And to be that was the first indication that an independent could come up here and actually make a profit.”

—Bill Armstrong, Armstrong Resources LLC

ACCESS, GASLINE—“The next big challenge… is you’ve got to get gas off the slope. … Gas cycling at Prudhoe Bay is putting a limit on how much oil they can produce and the general perception is on the slope is … going deeper into NPR-A… even ANWR — is going to be a gassy region and… we’re going to have to figure out a way to get people up here and if people think they’re going to find gas, they’re not going to drill any wells. You’ve got to find a way to get that gas to market.”

—Bill Armstrong, Armstrong Resources LLC

EXPLORATION NOT DEAD—In the North Sea, “EnCana made the biggest discovery in the past quarter century… Buzzard field will add 75,000 bopd to existing production… This region is similar to Alaska in a lot of ways, in that the province is mature, some of the majors are scaling back exploration and the independents are coming in and making a real impact. The name Buzzard itself reflects this phenomenon in that the field represents a prospect that the majors missed and an independent found. Exploration is not dead in the North Sea, nor is it in Alaska.”

—Tom Homza, EnCana Corp.

PERMITTING, ACCESS, TAXES—“EnCana is very optimistic about the resource potential that remains in Alaska. That’s why we’re here investing: investing in land, investing in wells and investing in the community. “There are many challenges in Alaska that need to be overcome for our business to succeed here and benefit Alaskans. Many of these, such as the permitting processes, access to facilities and stable fiscal terms, will require assistance and guidance from people outside of our company. So we look forward to working cooperatively with all stakeholders towards mutual success.” —Tom Homza, EnCana Corp.

PERMITTING—“It took over four years to get the permits… to permit this project within an oil and gas development area and where the facilities were built on private land. “This shouldn’t happen. And I wish you better luck on the North Slope … “I won’t go into any detail … except to note that if the Legislature had not been in session and willing to react to these issues, there would have been another year lost in trying to get a return on the over $200 million that Forest Oil has invested in this project.” —Gary Carlson, Forest Oil Corp.

LAWSUITS—“This is not about the environment. The Trustees for Alaska in court just recently said that they object to air, boat traffic, tanker traffic that would result in new development. “This is about stopping new development. Period. “And guess who pays their salaries? You do. We pay, the taxpayer pays an average of $500,000 a year for these special interest litigants to sue the state.

“There’s something wrong with that system. It needs to change.”

—Gary Carlson, Forest Oil Corp.

ACCESS— “I’ll cover three topics: access, access and more access. 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.” —Jim Weeks, Winstar Petroleum LLC, UltaStar Exploration LLC

PERMITTING—“We looked at drilling and producing this well ourselves, but since the drill site is only 250 feet from the sandy shores of Simpson Lagoon, we would need access to Alaska Clean Seas and spill equipment to enable to get a permit. And there are huge barriers to entry to Alaska Clean Seas for companies as small as Winstar. It costs half a million dollars to join. You have to have a $200 million net worth and a $100 million real insurance policy. This precludes our joining.” —Jim Weeks, Winstar Petroleum LLC, UltaStar Exploration LLC

ALASKA’S REPUTATION—“If I were to give this talk a name I would call it recognizing the Alaska fear factor. And I say that because I personally have called on a number of qualified companies that could do business in this state and getting them past the traditional fear factors of doing business on the North Slope is my number one task.” —John “Bo” Darrah, AVCG

ENVIRONMENTALISTS—“They (independents in the Lower 48) also say things like, ‘seems to me the environmentalists are runni


Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
[email protected] --- https://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©1999-2019 All rights reserved. The content of this article and web site 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 subject to criminal and civil penalties.