Providing coverage of Alaska and northern Canada's oil and gas industry
December 2017

Vol. 22, No. 49 Week of December 03, 2017

Promising situation for Alaska oil & gas

DNR commissioner reflects on recent uptick in oil production and potential for future oil and gas development on the North Slope

Alan Bailey

Petroleum News

In an upbeat talk on Nov. 15 during the Resource Development Council’s annual conference, Alaska Department of Natural Resources Commissioner Andy Mack provided his insights into a recent increase in North Slope oil production and the potential for more production in the future. Mack also commented that he sees the export of natural gas from the North Slope as being important in the future of Alaska’s oil industry.

Mack complemented the DNR team that manages what he characterized as a world-class resource base in the state. He also praised the “tremendous effort” that the oil industry has made in upping oil production from the North Slope fields.

Reversing a trend

On June 30, 2015, following a consistent track record of a 5 percent annual decline in North Slope oil production, daily North Slope production stood at about 500,000 barrels per day, Mack said. However, by the end of June the following year production had risen to an average of 514,000 bpd. At the end of June, 2017, the figure had reached 524,000 bpd. And indications since June are that the production has continued the same climbing trend, he said.

Following that initial uptick in 2016 DNR decided not to comment until a more consistent trend could be established. However, as the climb in production persisted in the following year, the agency made an amendment to its production forecast in the spring of 2017. An evaluation of what was happening then led to a rework of the state’s 10-year production forecast, resulting in a prediction of a production level of just under 500,000 bpd, with the possibility of nearly 600,000 bpd, as far into the future as 2027.

Almost across the board, companies have been exceeding their own expectations, using re-invested dollars and ingenuity to produce more. It is remarkable, for example, that production has increased at Prudhoe Bay, Mack said.

“We can’t say enough about the efforts of industry and we can’t be more excited about what we’re seeing,” he said.

Future opportunities

DNR has been spending a great deal of time trying to understand the future opportunities for oil production, both considering production from state lands and considering opportunities in federal territory, Mack said.

On state lands, a number of developments are being planned or are underway. For example, ConocoPhillips has announced that production has begun at its 1H NEWS development in the Kuparuk River field, and planned development in the Pikka unit, near the Colville Delta, could result in a major production uptick.

“We want to push the permits there to achieve production there as quickly as possible,” Mack said in reference to the Pikka development, commenting that the payday for the state does not arrive until royalties appear from oil production.

For federal land, Gov. Walker sent a letter to Interior Secretary Ryan Zinke, prior to Zinke’s visit to Alaska in May, requesting a re-opening of the management plan for the National Petroleum Reserve-Alaska.

“We think there are some opportunities that are not available in the current plan,” Mack said.

Although the state is very excited about the upcoming NPR-A lease sale, the present management plan only allows leasing in around half of the reserve’s 23 million acres.

“We think there are some areas that are not as sensitive to wildlife and subsistence concerns that should be opened up,” Mack said. “We’re working through that and taking a very active role.”

The state is also playing an active role in current efforts to open the coastal plain of the Arctic National Wildlife Refuge for oil and gas exploration, he said.

The outer continental shelf

In a current court case the state is also supporting the federal administration in its defense of President Trump’s order cancelling President Obama’s withdrawal of the Chukchi Sea and much of the Beaufort Sea from future oil and gas leasing. In addition to the Arctic outer continental shelf being a region where it is possible to conduct business safely, development in the region is extremely important to the state, Mack said. And the Outer Continental Shelf Lands Act gives the state of Alaska a financial and legal interest in the more nearshore areas of the OCS, through, for example, the Liberty field that Hilcorp plans to develop in federal waters.

While the offshore Northstar field straddles both state and federal waters, Liberty will be the first field entirely on federal lands of the Arctic OCS and a model project, by which other projects on the federal OCS will be judged, Mack said.

“It is a very strong project that has been put together by a very deft team,” he said, praising the owner companies for the project, in which BP and Arctic Slope Regional Inc. are partnering with Hilcorp.

Seismic data

Mack also commented on the availability of high quality seismic data, including modern 3-D seismic, through the Division of Geological and Geophysical Services’ Geologic Materials Center. This data have been obtained from companies in conjunction with state production tax credits for the surveying. Some of the data can be tied to state leases, while other was collected from regions such as the NPR-A and the nearshore waters of the Beaufort Sea.

“We as a state are going to use that information to leverage interest in state acres,” Mack said.

Strategic infrastructure

The state administration is also taking steps to promote the construction of strategic infrastructure, especially roads, on the North Slope. Rather than the top-down approach that the state has used in the past to address this issue, this time around the state has talked to the North Slope communities and the North Slope Borough mayor, seeking community ideas and asking for opportunities to work together, Mack said. As a consequence, DNR has formulated an agreement and the Legislature has appropriated some funding, he said. Strategic infrastructure can be really helpful in supporting access to remote locations such as Smith Bay, Mack said, referencing the site of a major oil discovery by Caelus Energy.

North Slope gas

Mack also commented that an October 2015 order by the Alaska Oil and Gas Conservation Commission, approving an expanded offtake of natural gas from the Prudhoe Bay field, had represented a recognition that the economics of North Slope gas are rapidly changing. After many stops and starts for North Slope gas pipeline projects it is now time to think critically about how to take gas from Prudhoe Bay, Mack said.

“The best way to increase more oil production is to build a gas pipeline,” he said.

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