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Vol. 16, No. 20 Week of May 15, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

BOEMRE publishes revised Arctic OCS oil, gas resource assessment

As part of a cycle of five yearly assessments of U.S. outer continental shelf oil and gas resources, the Bureau of Ocean Energy Management, Regulation and Enforcement has published a new assessment of undiscovered oil and gas under the Alaska OCS. BOEMRE announced the results of the new assessment on May 9 at the annual meeting of the Pacific Section, American Association of Petroleum Geologists in Anchorage.

Lynn Anderson from BOEMRE told the AAPG meeting that, with no new wells having been drilled in the Alaska OCS since the agency’s last assessment in 2006, the estimates of oil and gas volumes technically recoverable using conventional methods have remained unchanged since that previous assessment. However, high and rising oil prices coupled with some refinements to BOEMRE’s economic model have resulted in an increase in the estimates of economically recoverable oil volumes, the volumes that oil companies might be able to viably produce.

Most in the Arctic

The vast majority of Alaska’s undiscovered OCS oil and gas endowment is thought to lie in the Arctic, under the waters of the Beaufort and Chukchi Seas.

At an assumed oil price of $110 per barrel BOEMRE’s estimates of economically recoverable oil are now 6.32 billion barrels for the Beaufort Sea and 11.50 billion barrels for the Chukchi Sea, with the corresponding numbers for natural gas at a price of $7.83 per thousand cubic feet being 11.61 trillion cubic feet for the Beaufort Sea and 38.53 tcf for the Chukchi Sea. In 2006 the oil estimates at the then prevailing oil price of $60 per barrel were 5.97 billion barrels for the Beaufort Sea and 8.38 billion barrels for the Chukchi Sea. The corresponding 2006 gas estimates at a gas price of $9.07 per thousand cubic feet were 15.94 tcf for the Beaufort Sea and 34.43 tcf for the Chukchi Sea.

The volumes of oil and gas thought to be technically recoverable are substantially higher than the economically recoverable estimates, with a mean estimate of 8.22 billion technically recoverable barrels of oil under the Beaufort Sea and a mean estimate of 15.38 billion barrels of technically recoverable oil under the Chukchi Sea. These estimates, essentially the result of aggregating estimated resource volumes in potential prospects in a series of oil and gas plays, are subject to major uncertainty, especially given the low number of wells drilled in these high-potential oil and gas regions: BOEMRE thinks that there is a 90 percent probability of the volume of oil being between 0.41 billion barrels and 23.24 billion barrels under the Beaufort Sea and between 2.32 billion barrels and 40.08 billion barrels under the Chukchi.

The corresponding volumes for undiscovered technically recoverable natural gas are a mean of 27.65 tcf under the Beaufort Sea and a mean of 76.77 tcf under the Chukchi Sea. The range of uncertainty for the Beaufort Sea is 0.65 tcf to 72.18 tcf, while the range of uncertainty for the Chukchi Sea is 10.32 tcf to 209.53 tcf.

Changes in assumptions

Because of various necessary assumptions about factors such as future drilling costs, future field development costs and the future prices of oil and gas, assessments of economically recoverable resources tend to change over time, along with changes in those assumptions and the changing world and national economy. For this new assessment BOEMRE has significantly escalated its estimates of oil and gas development costs, with the construction of major new pipelines for transporting products to market being major cost factors. The agency used known costs in producing provinces such as the North Sea to scale its Alaska OCS cost estimates. However, unlike in its 2006 assessment, the agency has factored into its model the likelihood that early developments on the OCS would incur especially high drilling costs, with the incremental costs of further exploration and development becoming somewhat lower.

Although this development life cycle approach to cost estimation has softened the impact of the rising costs of labor and materials since 2006 in BOEMRE’s economic model, rising costs would still result in a substantial drop in economically recoverable resource volumes were the oil price to remain around $60 per barrel, as assumed in 2006. However, BOEMRE is now using the $110 per barrel price as a base assumption.

If oil companies succeed in discovering the oil and gas that BOEMRE thinks exist in the Alaska Arctic OCS, industry should be able to viably develop about 64 percent of the technically recoverable resources at the $110 oil price and at a price of $7.83 per thousand cubic feet for gas, BOEMRE says.

—Alan Bailey

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