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Vol. 12, No. 32 Week of August 12, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Between now and gas line

Banks: How soon Prudhoe gas can be sold depends on unit activity in interim

Kay Cashman

Petroleum News

How soon Prudhoe Bay natural gas can be sold into a pipeline without negatively impacting oil production will be determined by what Prudhoe lessees do in the unit between now and pipeline startup, Kevin Banks told Petroleum News in recent interviews.

The state hopes to have a gas pipeline from the North Slope to Lower 48 markets up and running within 10 years. The Prudhoe Bay oil field with its 24.5 trillion cubic feet of discovered gas reserves has been viewed by industry and state officials as the field most likely to produce the first gas for a pipeline from the North Slope. Banks is part of Alaska Gov. Sarah Palin’s gas pipeline team and the acting director of the state’s Division of Oil and Gas, which is part of the Alaska Department of Natural Resources. The division manages state oil and gas acreage and, as such, is responsible for maximizing revenues to the state from petroleum exploration and production. A key factor in doing that job is making sure oil and gas development on state lands is done in a timely fashion.

“DNR’s mission is to understand, evaluate and ensure that Prudhoe Bay leaseholders work through their plans of development with an eye toward timely gas development,” Banks said, referring to the annual plans of development BP has to submit to the division for what’s referred to as the Prudhoe Bay participating areas within the unit. “The fact remains that mitigating oil losses for a major gas sale or pipeline eight to 10 years from now depends on what happens between now and then,” he said.

“The timing of gas offtake can be affected by how much, and how aggressively, the remaining liquids in the reservoir at Prudhoe Bay” are produced, he said.

Although the Alaska Oil and Gas Conservation Commission will ultimately decide when, and how much, gas can be sold into a pipeline, the division plays a key role because it has to approve BP’s annual Prudhoe Bay development plans.

Uncertainty allowed for in AGIA

Companies interested in submitting applications under the Alaska Gasline Inducement Act to build a pipeline from the North Slope to outside markets have asked how much Prudhoe gas will be available for sale, and when.

Banks said AGIA’s request for applications process “allows applicants to deal with the uncertainty of Prudhoe gas offtake.”

But, he said, “the question isn’t so much, ‘I want to have gas sales and begin offtake in eight or 10 years, how much (of what) Prudhoe has can I have?’ or ‘I want to take three and a half bcf (billion cubic feet per day) out of Prudhoe Bay, when can I do it?’ That’s not capturing the whole question that has to be asked, which is ‘What needs to be done between now and then so that I can take a certain volume of gas from Prudhoe Bay by a certain date?’”

The complexity of the gas offtake issue is why the questions the division is asking BP as operator now are important, Banks said. “As they step through their plans of development, one year at a time, we want to make sure that the development plans are consistent with a timely gas development. … I think it’s important the state should have, in its participation in the continuing development of the Prudhoe Bay unit, sufficient enough information to make sure that the companies are proceeding with a logical development strategy that is consistent with timely gas development.”

Aug. 30 deadline for next Prudhoe plan

The next plan of development for the Prudhoe Bay unit is in front of the division now. Its deadline has been extended from June 30 to Aug. 30, because to effectively determine if what BP and its partners plan to do at Prudhoe for the coming year will make a substantial gas sale possible in 2018, the division needs more information than it normally receives from BP.

Specifically, it needs the confidential reservoir modeling information BP gave AOGCC for its recent gas offtake review under Rule 9 of the Prudhoe Bay oil pool rules.

“We’re discussing with AOGCC, at the request of the companies, what arrangements we need to make to keep some of the Prudhoe Bay modeling work the companies gave AOGCC confidential as it is shared with us. We’ll be working with them over the next few weeks or so to sort that out,” Banks said.

The data BP and its Prudhoe partners gave AOGCC may, or may not be, enough information for the division to effectively “analyze their proposed plan of development,” he said. If not, the division “could choose to do its own modeling instead of relying on the results of someone else’s … model. We could use raw data from the companies to do our own model if we need to.”

Banks said he found it “interesting that this wasn’t an issue under the Stranded Gas Development Act,” the legislation under which the Murkowski administration approved the failed pipeline contract with BP, ConocoPhillips and ExxonMobil.

“It means,” Banks said, “at least in those days, that the producers regarded the issue as one they would mitigate, or manage, when the time came. Their behavior then suggested that they believed that they would manage Prudhoe Bay in a way that would make sure they received an acceptable decision on gas offtake from AOGCC.”

But under the Palin administration’s AGIA, things have changed, he said. “Now it’s an issue because someone else might be building the gas pipeline.”

Best use Prudhoe gas might be EOR

Banks also pointed out that the best use of some of the Prudhoe gas might ultimately be reinjection in oil wells to increase oil production at Prudhoe Bay and elsewhere on the North Slope.

“What’s interesting about gas offtake at Prudhoe Bay for a gas pipeline is that there is another piece in the puzzle that we have to deal with. Frankly, the best use of all the Prudhoe gas might not necessarily be to only supply a gas pipeline. … It could be used for enhanced oil recovery projects … at Prudhoe and … in different oil fields. It could be used as an energy source for hot water to recover heavy oil. Using it this way could mean a lot more oil for a lot longer time being produced from the North Slope — extend the life of TAPS for new oil discoveries…. There’s a true optimization and balancing act involved here. It’s clearly something we’re going to be keeping track of,” Banks said.

Undiscovered natural gas

What about getting gas for the pipeline from new discoveries on the North Slope, say from companies like Anadarko, which said last year it would drill a gas well on gas-prone acreage this coming winter?

“The prospecting that’s under way now outside the developed areas of the North Slope is going to have … a greater likelihood of finding gas,” Banks said in answer to that question. “I’m told that the rocks will likely be tighter in these stratigraphic plays, so you’re looking for gas and better quality oil that will flow through those formations. That’s why people talk about the new targets on the North Slope as being more gas-prone.

“At the end of the day, it’s not only the existing fields that will be running gas down this pipeline. … It’s an equation with a lot of complicated variables. But I think we can get our arms around those problems as we move forward. I truly believe there is an optimum solution for balancing oil production — long-term oil production — and gas offtake from existing legacy fields and oil and gas from new discoveries. There’s a lot of gas up there to play with.”

How much gas is there on and offshore Alaska’s North Slope?

“USGS (U.S. Geological Survey) says there’s about 100 trillion cubic feet of undiscovered, technically recoverable natural gas onshore, and MMS (U.S. Minerals Management Service) says there’s an equivalent amount offshore,” Banks said.

But the estimates are “reduced significantly” when you’re looking at economically recoverable gas, he said.

“It also depends on where you find it, how close it is to the pipeline. Some gas would be too far away and therefore not economically recoverable. MMS has talked about this in relation to gas in federal waters, because some of it, especially in the Chukchi, might not be economically recoverable if you have run it down the gas line from Prudhoe. There may have to be some kind of ‘string of pearls,’ smaller developments that can support constructing a gas line out to the Chukchi discoveries. But still, there’s a lot of gas that will be available for this gas line. It’s a good problem to have,” Banks said.

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