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THE INDEPENDENTS 2003: Dispelling the ‘Alaska Fear Factor’
Mark Myers Alaska Division of Oil and Gas Director
I share the view with many explorationists that Alaska has the highest potential in North America for giant onshore and near-shore oil and gas discoveries. The facts speak for themselves that the North Slope is in a class of its own with respect to hydrocarbon generation and migration.
Alaska’s natural gas potential is also likely to be world class. For example, historically most North Slope oil exploration wells have encountered respectable shows of gas. With the exception of Cook Inlet, no other basin within the state has undergone significant exploration for gas. Basic geologic data and the few wells present in many of Alaska’s onshore basins suggest all the elements for substantial gas accumulations are present.
Despite all this potential, historically only a small portion of the energy industry has been active in Alaska.
Why? Some call it the “Alaska Fear Factor.”
The fear factor contains multiple perceived and real issues including; difficult, lengthy and uncertain permitting processes, lack of access to high potential areas, lack of access to well and seismic data, high drilling costs, difficult working environment, lack of access to equipment and production facilities, and long distances and high transportation costs to market.
Fear factor being addressed now The good news is that while none of us are in control of the weather or plate tectonics, many of the other concerns have been or are actively being addressed by innovative companies and government agencies that want to see exploration and development go forward.
Let’s take the factors one at a time, first permitting.
The state of Alaska has made great strides in streamlining its permitting process by placing many previously scattered functions within the Department of Natural Resources. Agencies including DNR, the Alaska Oil and Gas Conservation Commission and the Department of Environmental Conservation are coordinating and assisting each other to a much larger extent than previously. The improved permitting process along with high quality applications is bearing fruit.
North Slope gets new operators, all independents For example, last winter two new explorers to the North Slope, Pioneer Natural Resources and Armstrong Resources rapidly permitted, drilled and tested three wells off ice islands in the Beaufort Sea.
Additionally, EnCana drilled in deeper water with the SDC, and Winstar Petroleum completed a directional well from onshore to an offshore exploratory drilling location.
Prior to last year none of these companies had operated a well in Alaska, let alone one in the historically difficult to permit Beaufort Sea.
Access to land escalating Access to high potential land is dramatically improving. The state has proposed a 2005 lease sale for onshore and state waters on the Alaska Peninsula; the Bureau of Land Management is considering opening up a much larger portion of the National Petroleum Reserve-Alaska to leasing; and the Minerals Management Service has restarted its offshore leasing program.
Efforts are continuing on all fronts to open up the 1002 portion of ANWR to leasing.
Finally, the state currently has issued five exploration licenses and a sixth solicitation is in process north of Bristol Bay.
Access to data increasing Access to data is improving.
For example, soon you will be able to directly download well log curves from publicly available wells off the web from AOGCC and you can currently download accurate maps of all oil and gas units in the state from the Division of Oil and Gas website.
Finally, in order to encourage the acquisition of new seismic data, the state will pay for 40 percent of the cost through a severance tax credit (If the data is shot outside of existing units).
Substantial exploration tax credit available In order to lower the cost of exploration drilling, the state now offers up to a 40 percent severance tax credit for exploration wells.
More importantly, innovative companies are finding ways to dramatically lower exploration costs and increase the length of the exploration season. For example, Pelican Hills and Evergreen Resources are employing both smaller cost — effective rigs and Anadarko’s Arctic Platform should offer great efficiencies on the North Slope.
Also, DNR is working with industry to extend the tundra travel season.
Access to infrastructure improving Access to existing production facilities and the higher cost of transportation are clearly works still in progress.
As production from the Prudhoe/Kuparuk area continues to decline, excess capacity in some facilities should dramatically increase. This process alone should lead to better commercial terms for satellite field producers.
Operational changes to the Trans-Alaska Pipeline System in the future should lower tariffs and it is expected that the expiration of the TAPS tariff settlement in 2009 will also dramatically reduce the tariff for future production.
Alaska is working hard to encourage a dramatic increase in exploration drilling. Dispelling the “Alaska Fear Factor” paradigm is critical to this goal.
It is very encouraging to see the growing list of high quality independents that have invested in Alaska in the last several years. We believe that you are the vanguard of a reinvigorated industry within our state.
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