The Producers 2014: Changing landscapes and the evolution of producers, investors
Bill Barron Director of the Division of Oil and Gas Alaska Department of Natural R
Optimism in Alaska’s oil and gas industry is bringing an influx of capital investment into the many units and oil fields on state-leased lands. Companies are working to improve production and bring development opportunities forward. With new drill rigs on the North Slope and the expansion of infrastructure, these companies are working to stem the decline of production, draw more oil from existing fields and begin producing from new fields. Activities and plans are moving ahead to expand into the National Petroleum Reserve-Alaska which will bring the first new oil from federal lands to the Trans-Alaska Pipeline System since the development of Northstar. Likewise, North Slope natural gas is in play as the Alaska Liquefied Natural Gas project moves forward with alignment between the major North Slope gas owners and the state with support for the project signed into law. In Cook Inlet, natural gas and oil production continues to increase as new wells are drilled, wells are reworked and infrastructure improved. And, with success from exploration, new wells are producing.
The Division of Oil and Gas is working closely with industry to increase production from state lands and stem the decline. We are doing this in a changing landscape where business models are different. No longer is it just the major oil companies with known publicly traded information, but private oil companies and investment groups joining to develop oil and gas projects or acquire currently producing assets on state-leased land. Being responsive requires a dedicated team of state land managers, scientists, engineers and economists to review the proposed development or acquiring of assets so that the purpose of leasing the land, to produce oil and gas, remains the number one priority.
The growth of limited liability corporations in the Alaska oil and gas industry reflects how the industry is maintaining flexibility in its portfolio and mitigating financial risk by limiting the liability to parent companies through local entities. This trend is creating new challenges for the division in making decisions that are in the best interest of the state or will not adversely affect the state’s interest as required by statute. As the composition of the operators, working interest owners and investors change, the division is working to find the best approach that allows development to move forward.
Asset transfers and new players With new oil companies and investors, asset transfers are drawing a lot of attention, whether from large producers to smaller producers, as with BP to Hilcorp on the North Slope, privately held companies to publicly traded companies, like Armstrong Energy to Miller Energy’s subsidiary Cook Inlet Energy LLC, or from operating companies like Pioneer Natural Resources Alaska to Caelus Energy Alaska LLC. Partnerships amongst new players are increasing as small oil and gas companies team up with investors to bring projects to production. Thyssen Petroleum Corp. acquired investor assets from Brooks Range Petroleum Corp., allowing Thyssen to enter Alaska’s oil and gas fields. To further this development, the Alaska Industrial Development and Export Authority and Charisma Energy Services have joined together to finance and develop the new Mustang Operating Center 1 project by providing the processing facility for production. These investments in Alaska, either through asset transfers or financing, underscore new energy and interest in Alaska’s oil and gas resources. And it shows confidence as mature fields are managed and new smaller prospects developed and brought to production.
Increased work for knowledgeable service companies Increased oil field activity in Cook Inlet and the North Slope has helped revive the service companies building oil industry infrastructure, maintaining oil and gas field operations and expanding the North Slope infrastructure. The Alaska Rail Marine saw almost a 30 percent increase in pipe and materials being railed from tidewater to Fairbanks for refurbishing and expanding pipelines and infrastructure on the North Slope and supporting field maintenance. New drill rigs are reworking wells and further developing existing fields. In Cook Inlet, materials for a new pipeline and the new Furie platform are ready for installation in 2015. Similarly, Hilcorp is moving forward on increasing compression in the Cook Inlet Gas Gathering System. All this reflects a strong interest by producers in having knowledgeable service companies expanding infrastructure.
Overall, the focus and activities under way in Alaska reflect a stimulating resurgence of interest, and expectation of success, both in Alaska’s legacy fields and in new areas of development. The interest and investment we are seeing in Alaska’s oil and gas shows that strong companies with solid investment plans are succeeding in our state.
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