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Vol. 14, No. 7 Week of February 15, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Mostly on track

Some cutbacks expected, but most long-term exploration continuing as planned

Eric Lidji

Petroleum News

Although Alaska has not been immune to cutbacks in the face of tight credit markets and low oil prices, the state has mostly avoided reductions to long-term exploration programs.

Between November 2008 and the end of January 2009, typically the first three months of the winter drilling season, the Alaska Oil and Gas Conservation Commission issued nine permits for exploration wells and 39 permits for development wells across the state.

Those numbers roughly track with recent winters. From November 2007 through January 2008, AOGCC issued six exploration well permits and 35 permits for development wells.

From November 2006 through January 2007, AOGCC issued 11 permits for exploration wells and 28 permits for development wells. From November 2005 through January 2006, it issued 11 permits for exploration wells and 46 permits for development wells.

Drilling permits don’t always lead to actual drilling, but give an indication of intent.

The biggest cutback to planned exploration work in Alaska is only indirectly tied to weak global economics. A drilling program from a four-company joint venture led by Brooks Range Petroleum Corp. has been postponed while the companies resolve a lawsuit.

Those companies have received an AOGCC drilling permit that will go unused this year.

State expects more investment

Cherie Nienhuis, acting chief economist with the state Tax Division, told the Senate Finance Committee on Feb. 5 that the state expects to spend less on tax credits this fiscal year than originally estimated, but only because of a lag in when credits get paid.

The state only pays credits to explorers not currently earning revenue in the state through production of oil or gas. Producers simply deduct credits from their regular tax payments.

Companies typically file for credits quarterly, Nienhuis said. She told Petroleum News that the next batch should arrive in late March, when companies release annual reports.

North Slope investment has increased every year since 2004, tracking an increase in oil prices and several expansions of the state tax credit program for capital expenses.

Using company estimates, the state is projecting $3 billion in capital investment in fiscal year 2010, which begins in July. That’s up from the $2.4 billion projected for this year.

Some are skeptical of that estimate.

“I don’t believe the $3 billion number is going to come out to be a realistic number in this marketplace,” said Sen. Bert Stedman, a Sitka Republican and co-chair of the committee.

Nienhuis said the number is a moving target. Low oil prices could lead to a reduction in work, but could also lead to reduced costs for labor and materials, which would lower investment without decreasing the actual amount of work being conducted in the state.

“They don’t know which way this price of oil is going to go,” Nienhuis said. “So they’re probably being conservative in what they’re reporting to us in their expenditures.”

Drilling permits keep coming

AOGCC continues to issue permits for winter work.

On Feb. 4, AOGCC approved a permit for Chevron, through its subsidiary Unocal, to drill the Panthera 21-6-9 exploration well in the White Hills prospect, south of Kuparuk.

Panthera 21-6-9 would sit on state lease ADL 390003, toward the northern end of the prospect, located in the central North Slope west of the trans-Alaska oil pipeline corridor.

Panthera 21-6-9 is one of four new White Hills well locations Chevron permitted this year. Chevron permitted 15 proposed locations for the 2007-08 winter drilling season.

The permit is the fourth issued for the program this winter. Chevron drilled three wells at White Hills last year. The company plans to use Nabors rig 106E to drill the new wells.

Chevron has said it is looking for both oil and gas at White Hills.

It is partnering on the exploration program with the French oil company Total.

On Feb. 6, AOGCC approved a permit for ConocoPhillips to drill the Pioneer No. 1 exploration well on federal lease AA-081779 in the Greater Mooses Tooth unit.

The well is one of two ConocoPhillips hopes to drill this winter in NPR-A. The other is the Grandview No. 1 well. The company received an AOGCC permit for Grandview No. 1 back in January, but is waiting for U.S. Bureau of Land Management permits on both wells.

Pioneer No. 1 would sit in the southeast corner of the unit, while Grandview No. 1 would sit in the southwest corner of the unit. Mooses Tooth is the only unit in NPR-A.

Outlining exploration plans this past fall, ConocoPhillips said the two wells would target new oil and gas accumulations, as well as expand on previous discoveries in the area.

The company plans to drill both using Doyon rig 141.

ConocoPhillips operates the unit, but Anadarko holds a 22 percent working interest.

Last October, ConocoPhillips staked four well locations in and around Mooses Tooth.

AOGCC has issued 10 drilling permits for exploration wells on the North Slope this winter, four to Chevron and Unocal, two each to ConocoPhillips and Anadarko, and one apiece to Savant Alaska, working for BP, and Brooks Range Petroleum Corp.

AOGCC also issued a permit for Aurora to drill an exploration well onshore in the Cook Inlet basin.

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