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Vol. 10, No. 21 Week of May 22, 2005
Providing coverage of Alaska and northern Canada's oil and gas industry

Secrets to North Slope permitting

Communication, operations in charge, simplicity, plagiarism played part in success Armstrong and its partners have had in permitting Alaska exploration and development projects

Kay Cashman

Petroleum News Publisher & Managing Editor

When asked why Armstrong and its partners have been so successful in getting a standalone production facility and four exploration projects with 11 wells permitted in a timely fashion on Alaska’s North Slope over the last three years, Stu Gustafson credited a number of things, but at the top of his list is the time he and contractor Bob Britch spent working with state, federal and local agencies before they formally applied for permits.

Britch owns Anchorage-based Northern Consulting and works with Gustafson, an Armstrong Alaska vice president. The two men have overseen most North Slope permitting for Armstrong partners Kerr-McGee and Pioneer Natural Resources, including the Oooguruk, Nikaitchuq, Tuvaaq and Ataruq exploration wells and the Ataruq and Nikaitchuq standalone production projects. The Nikaitchuq development process involves a rezone which is still in the works; the Ataruq development was permitted in approximately 100 days, although that did not include converting the exploration spill plan to a production spill plan. (An Alaska Department of Environmental Conservation regulator said a spill plan conversion takes approximately two months and could have been handled in the 100-day period it took to get the rest of the Ataruq permits, which suggests the well and sidetrack drilled at Ataruq late this winter may not have tested commercial.)

Ataruq, expected to produce in the neighborhood of 15,000 barrels of oil per day, was small compared to Nikaitchuq which Kerr-McGee officials have said is expected to yield 60,000 barrels per day, but Ataruq was significant in that its was the first standalone development project permitted by an independent oil company on the North Slope — and it was permitted in a reasonable amount of time with a minimum amount of paperwork.

Pre-pre-permitting meetings essential

“When I first started doing permitting up here for Exxon in the ‘70s, I would have said that half the problems, the hold-ups, were the fault of the agencies and half the part of the companies. Today, I’d say 95 percent were the fault of the companies,” Gustafson said in an interview in late April 2005.

“I believe if the applicants listen to the lead regulators — i.e. the experts — and listen closely, most of the problems would go away,” he said. “My advice: Go to the regulators. They know what will work and what won’t. And go early. Say ‘here is what I want to do and how I think I’d like to go about it. Am I doing it right?’ And they will tell you.”

Pre-permitting meetings are required by many agencies, but even when they are not required, Gustafson thinks they are important.

“Even before the pre-permitting meetings you should be talking to the lead agencies,” he said.

Operations should be in charge

A mistake Gustafson sees companies making is putting non-operational types in charge of permitting.

“Companies would do a whole lot better if they left their landmen and biologists and environmental scientists at home and had their drilling or project operations people handle the public process,” he said.

The operations people should be engaged early-on in putting together the plan for permitting. “They should participate through the public process because if someone asks a question, they can answer it right then and there. Otherwise a biologist or landman has to say, ‘I’ll get back to you.’ You can lose a month right there,” Gustafson said in an earlier 2005 interview.

“Bob Britch is an engineer. He knows how to drill wells, build pipelines; he knows what it takes to build a project. … If operations people are explaining the project to regulators it generates a sense of confidence with the regulators because the operations people know what they’re talking about, and it’s obvious.”

Gustafson’s comments jive with a common problem state, federal and North Slope Borough regulators identified for Petroleum News in first quarter interviews for “Dispelling the Alaska Fear Factor: A guide to Alaska’s oil and gas basins and business environment.” The problem was the challenge of getting questions answered about a proposed project from applicants, a process that can stop the permitting clock. Regulators from all three governmental groups said that simple questions are often answered with multiple pages that obviously take a lot of staff time to construct and sometimes miss the point of the questions.

“Communication is the key to timely permitting. And maybe a little humility,” Gustafson said in the late April interview when asked about the above problem voiced by regulators. “If you don’t understand a question, get on the phone and call the regulator. Don’t throw a lot of staff time at it until you do.”

Stay away from the “consulting model”

This brought up one of Gustafson’s chief gripes. “I suspect it’s job security for some of these people. Or maybe they just don’t realize there is an easier way to do it. But keep the paperwork simple. Most of the companies permitting projects in Alaska get carried away with their paperwork.

“Our operations plan for Ataruq, a complete standalone production facility, is 15 pages. … If you’ve got someone creating a lot of paperwork they’re making a job for themselves, not a project for you. Why write a novel when a short story will do?”

“I call it the consulting model. There is whole lot of money to be made working on the problem, if you’re not part of the solution,” Gustafson said.

For newcomers to Alaska, “it’s more important to know who not to talk to than to know who to talk to,” he said. “A lot of consultants set themselves up as experts. Talk to more than one. And talk to the lead agencies. … Look at their files and see who generates the least paperwork, the ones that make it look easy,” Gustafson said.

“For the good ones permitting should be simple because if they’ve been doing this for 20 years and their job isn’t simple, you’ve got the wrong people.”

Plagiarism appropriate

Another key to Armstrong and its partners permitting success is plagiarism.

“Why should the regulatory process be reinvented every time? The operations for our offshore wells were pretty much the same, well to well,” he said. “The same is true for other areas onshore. … The only things that generally change are, say, the length of an ice road or subsistence activity might be different and you have to address those things. But in most cases you can essentially re-use an application package that has been permitted before, change the things that are different, including the names and locations, and use it. There is no reason to reinvent the process each time; and why rewrite the whole short story?”

Gustafson’s comments are similar to those made by former state Oil and Gas Division Director Ken Boyd, who says permitting in Alaska can be fixed in much the same way the state fixed access to state lands eight years ago with its switch to areawide lease sales for those parts of Alaska of most interest to the oil and gas industry — the North Slope, Foothills, Beaufort Sea, Cook Inlet and, most recently, the Alaska Peninsula (Bristol Bay).

Areawide permitting?

Under the previous nomination-style of lease sale, “the state essentially assumed it knew nothing before each lease sale. Each sale was created from scratch and this led to a slow and uncertain lease sale program,” Boyd said in a 2002 interview with Petroleum News, which sounds very much like Gustafson’s description of how most companies approach permitting.

But the state had been holding lease sales in these oil and gas prone areas for years, and had core knowledge about the areas. In the areawide program, the “core knowledge then went into the best interest finding, the state’s version of an environmental impact statement. Instead of a fractured and uncertain program the state was able to have sales of all its lands in all the sale areas every year,” Boyd said.

And every year, prior to each sale, the state puts out a “call” asking for substantial new information about the sale area. If there is substantial new information, it is incorporated into the lease sale process as a supplement, he said. And every 10 years, the core best interest finding is updated to include the supplements.

Boyd quoted Benjamin Franklin to the effect that insanity is doing things the same way over and over and expecting a different result.

“That’s the way it was with leasing and it’s the way it is with permitting.” Boyd said some of the same principles used to fix the leasing program in the 1990s could be used to fix permitting now. As with leasing prior to the areawide program, permitting starts from scratch for every project, even though “thousands of permits have been issued for hundreds of different projects on the slope and in Cook Inlet.”

But for most projects, “permits start from scratch each and every time, no matter that an identical project has been permitted a dozen times before,” Boyd said.

There is a simple solution, he said, mirroring Gustafson’s plagiarism suggestion. Hundreds of exploration wells have been drilled on the North Slope, Boyd said. “It would be a fairly simple process to review those wells that were previously permitted and successfully drilled. Let’s make a list of those characteristics of those projects and create a standard winter well. This could be the standard for future projects.”

When new wells are proposed that fit the same parameters, “then issue the damn permit,” Boyd said. When new projects differ substantially, the differences could be dealt with through additional mitigation.

“But the core permit for this standard well should be approved and only the substantial differences should warrant additional discussion or delay,” Boyd said.

Production plan ready

Gustafson had one last piece of advice to impart: “Exploration is not sport fishing; you’re not doing it for fun, so when you apply for exploration permits you should have your production concept plan in hand.

“For us it was coming up with the ‘pipe in a pipe’ and ‘production in a tank’ concepts because in offshore subsistence use areas the (North Slope) borough wanted us to prove to them we were not going to spill a drop of oil. They knew if we hit oil we were going to want to develop, so I proposed those concepts. But if I had been a landman, it wouldn’t have happened,” he said.

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