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What’s ahead for Alaska oil and gas industry?
Highlights from the annual Alaska Oil and Gas Association-Anchorage Chamber of Commerce luncheon June 14 with predictions of what the industry could look like in the state in 2014 (full story will be in June 27 issue). Rebecca Watson “As I look into my crystal ball for 2014, I see us building on the successful sale we had in the National Petroleum Reserve-Alaska,” said Assistant Secretary of the Interior Rebecca Watson. She predicted “continued sales,” production from NPR-A Alpine satellites, and “Northstar entering its second decade of production, Liberty oil flowing down the pipeline.”
Like President Bush, the Department of the Interior believes “that energy production and environmental protection are not competing priorities. We think they’re dual aspects of a single purpose — and that is to live well and wisely upon the earth,” she said. So along with increasing oil and gas development in Alaska, Watson said, the future for Alaska includes “birds continuing to nest, caribou herds migrating freely and the North Slope residents continuing to hunt successfully.” Frank Murkowski Alaska Gov. Frank Murkowski said he expects to see a gas pipeline in operation by 2014, and thinks the potential is “very strong” for spur lines to Valdez and Southcentral, and said he thinks “that you will see the state participating in the gas pipeline as an equity owner” of up to 12.5 percent, equal to state royalty gas.
On the oil side, the governor said, companies producing in the state “need to reinvest more of their profits in the state.”
He predicted “a major discovery on the Alaska Peninsula,” and also “a major discovery offshore of ANWR, which will require the Department of Interior to drill ANWR to prove from whose reserves” the oil is being pumped.
“I also predict major discoveries in NPR-A, and then we’ll be looking at boosting the oil flow through Taps, instead of merely holding it steady. Ken Sheffield Ken Sheffield, president of Pioneer Natural Resources Alaska, said he predicts “modest step-out exploration with increasing participation from the independent companies” on the central North Slope, “paced westward expansion with infrastructure” in NPR-A, low activity for the OCS and frontier basins — while the future of the Arctic National Wildlife Refuge is “in the hands of politicians. …”
On the far-fetched side of the agenda, Sheffield said that if “operators achieve a significant capital cost reduction,” if “we have a period of sustain higher oil prices” and Alaska “initiates additional tax and royalty incentives” to spur development, “you could see greatly increased exploration activity, and an influx of independent operators.”
Exploration wells in the state, currently some 10 to 15 a year, could increase “up to 40 or 50 wells a year.” John Barnes John Barnes, Alaska asset team manager for Marathon Oil, noted the Cook Inlet only has some 10 years of natural gas supply left.
“The Cook Inlet needs a step change in natural gas exploration and development activity,” he said. Companies need some certainties to make investments, he said, and while companies understand subsurface risk, accept commodity price risk and work to control project risk, Barnes said he believes “regulatory and tax uncertainties” are now “the most notable risk companies face in Alaska.”
If these uncertainties can be resolved, and “if sufficient exploration occurs, and sufficient success is achieved, enough gas may be found to meet local utility and industrial demands,” he said, but it will require a higher price for natural gas to attract capital. Steve Marshall Steve Marshall, president of BP Exploration (Alaska), talked about the success BP has had with viscous oil development at Milne Point and Orion, where “the latest well … was a quad-lateral, with four wells going off it” and “26,000 feet of reservoir contact — five miles in one well.”
As for the future, the industry today is producing 50,000 bpd of viscous oil from the North Slope. “We see potential for that to triple by 2014, or maybe more.” That will require an investment of some $10 billion, he said.
The industry is looking for technology to improve viscous production, he said, but capital remains an issue because of the high operating costs in Alaska, and because “capital flows to the investments with the greatest returns.”
BP will continue to work the technology challenges, Marshall said, and future successes in that area will impact what North Slope activity is like in 10 years. But that future activity, he said, “depends just as much on decisions being made today in Juneau.” Kevin Meyers Kevin Meyers, president and CEO, ConocoPhillips Alaska, said the potential of a gas pipeline is what is most exciting to Alaskans. The 4.5 billion cubic feet a day of natural gas coming off the North Slope will be the equivalent of 700,000 barrels per day of crude oil, he said, and “will open up a whole new business for us here in Alaska,” the business of looking for natural gas.
But the financial commitment remains huge, he said, with the tariff estimated to cost shippers about $10 million a day.
ConocoPhillips is working on federal fiscal legislation, and federal enabling legislation is also required, he said, as is cost cutting and a fiscal contract with the state of Alaska.
But Alaska’s fiscal gap is also an issue… if the state raises taxes, he said, “it will mean less investment, fewer jobs, less production, a poorer economy — and in the long run, less revenues for the state.”
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