An apparent sharp drop in projected Alaska oil output in the state’s most recent production forecast is due more to a change in forecast methodology than underperformance of wells and fields, officials at the state Division of Oil and Gas said.
Under the new forecast, released Dec. 14, Alaska will produce an average of 490,300 barrels per day in the current fiscal year instead of 507,100 bpd estimated in the most recent previous estimate made last spring.
The estimates also reduced expected output for next year, in Fiscal Year 2018, the 12-month period beginning July 1, from an average of 488,800 bpd 455,600 bpd in the new estimate.
The change appears mainly due to a more conservative forecasting approach used by the state Department of Natural Resources, which now handles the production forecast. Previously the Department of Revenue made the forecast through a consultant.
That practice ended last spring. The work was brought in-house and assigned to the Division of Oil and Gas within DNR, where there are state geologists and petroleum engineers with experience.
A more conservative method was also employed by the division, according to Mark Wiggins, deputy DNR commissioner. Basically, the division’s geologists and engineers used only publicly available information on producing fields available through plans of development filed with the division or data from the Alaska Oil and Gas Conservation Commission to produce estimates for decline rates of fields, Wiggins and other officials at the division said in an interview.
Under its approach, the Department of Revenue’s consultant had included some confidential information supplied by the companies.
More rigorous approach
The division has made efforts to apply a more rigorous statistical approach and to remove as much subjectivity as possible, Wiggins said, particularly for new projects that are planned but often delayed. “As an example some previous forecasts included Liberty,” an offshore development that is planned but that has been repeatedly delayed, Wiggins said.
Previously the state had always tended to overestimate production, which caught state officials and the Legislature off guard in doing budget planning. The new approach is more cautious, increasing chances that the estimate will be closer to actual field performance.
State Revenue Commissioner Randall Hoffbeck said the state expects the production decline will level out in future years because of new projects even if they are not included in the forecast.
“We are optimistic about several large developments that are not included in the forecast including the Nanushuk discovery by Armstrong Oil and Gas and a discovery at Smith Bay by Caelus Energy,” Hoffbeck said. If these projects proceed they could add 350,000 bpd, but their development will take several years.
Risk for TAPS
However, for now the Revenue Department’s long-term forecast is for North Slope production to decline to 331,000 bpd by 2026, a volume that is near to levels that could put the Trans Alaska Pipeline System at risk.
TAPS was designed to move 2 million bpd, but at levels below 500,000 bpd the pipeline can experience operating problems, Alyeska Pipeline Service Co. has said in briefings.
For Cook Inlet oil production there were no changes in the forecast. Production from the inlet is estimated at 16,100 bpd in the current fiscal year and 14,700 bpd for FY 2018, the fiscal year that begins in July.
Cook Inlet has seen a turnaround in production since 2010, when output had dropped to about 10,000 bpd, due to aggressive development activity by producers. State incentives played a significant role in the reversal of production in the inlet, but the incentive program has been dismantled due to budget constraints.
“Over the coming years we will be working hard to encourage new production,” Hoffbeck said.
