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Revenue forecast: prices up, volume down Change in production forecast due to maintenance, slower moving heavy oil, delay in projects like Point Thomson, Liberty Kristen Nelson Petroleum News Editor-in-Chief
Prices being paid for Alaska North Slope crude oil are up, Alaska Revenue Commissioner Bill Corbus said Dec. 15, but ANS production continues a decline that began in 1988.
The department’s fall revenue forecast, released Dec. 15, forecasts ANS crude oil production averaging 865,000 barrels per day for the fiscal year ending June 30, 2006, a 5.6 percent decrease from FY ’05 when production averaged 917,000 bpd. Over the next decade volumes are projected to continue to decline, averaging 800,000 bpd in 2016, which represents an annual average decline of 0.75 percent per year from FY ’06 to FY ’16.
Crude oil prices on the West Coast are projected at $57.30 per barrel for FY ’06, a 32 percent increase over $43.43 per barrel for FY ’05. ANS crude oil prices are forecast to decline to $40.95 per barrel in FY ’07. Beyond 2008, prices are forecast at $25.50 per barrel.
Corbus noted in the Fall 2005 Revenue Sources Book that while the fiscal year-to-date average price for ANS on the West Coast is more than $58 per barrel, “price instability continues.” He told the press, “three times during the last two decades the price of oil has dropped more than $15 per barrel over a seven-week period.”
Factors behind volatility of oil prices include increased global demand for oil, particularly in China, supply interruptions due to the U.S. Gulf of Mexico hurricanes, Iraqi production interruptions and changing Russian and Venezuelan oil policies. Corbus said there is also “a perception factor,” a combination of those previously noted “plus the threat of terrorism.”
The price differential between ANS crude oil delivered to the West Coast and West Texas Intermediate “has stabilized at about $2 a barrel. Last spring that price differential showed a great deal of volatility, but it has returned to historic norms,” he said.
The department has added a section on natural gas, Corbus said, and is “estimating for fiscal year 2006, $9.19 per million Btu; and for the years 2009 through 2016, we are estimating a price of $6.25 per million Btu.” Production timing The forecast updates production volume details including decreases due to unplanned disruptions, maintenance or repair work that may reduce crude oil flow.
Petroleum engineer Dudley Platt, who has worked on the production numbers for the state for 16 years, said the biggest change in production numbers from the spring forecast is in the timing of when the state gets the barrels.
Ultimately recoverable reserves (from 2005 through 2040) were forecast at about 7.25 billion barrels in the spring, Platt said. “That equivalent number for the fall is 7.15 billion barrels.”
The timing of when those barrels will be produced has changed, dropping roughly 50,000 barrels per day for the next nine or 10 fiscal years compared to volumes projected in the spring.
When a gas pipeline starts up, “2014-15-16,” then those additional barrels will begin to be recovered, Platt said. More maintenance The first reason for the change in production levels is that the state has “reevaluated the downtime associated with some of our more mature fields on the North Slope,” Platt said. Prudhoe Bay shut down 70 wells earlier in the year for maintenance work, “that’s 20,000 barrels a day through this year and well into next year,” he said.
Equipment and facilities on the North Slope are starting to show their age, “not unexpected,” and when things break they have to be fixed and that reduces production levels. There were events at the Prudhoe Bay Central Gas Facilities, Platt said, and downtime at Flow Station 2 that was associated with tying in some of the heavy oil developments that will feed into that facility.
Also affecting the production forecast is a “slightly slowed ... pace of development for the heavy oil.” The North Slope producers have done a “phenomenal job over the last five or six years on West Sak for instance,” getting 6,000 bpd out of a single five-leg well, where 20 years ago they would have been happy to get 300 bpd out of a West Sak well, he said.
Production is beginning from the J-pad heavy oil development, with some oil starting to come on there, but “they’ve just slowed it down” to reevaluate reservoir performance. “Same thing’s happening at the Schrader Bluff field at Milne Point; same thing’s happened at the fairly sizeable Orion satellite field in western Prudhoe Bay.”
Platt characterized this as the companies digesting some of the new information they’re getting from those fields. Also delays in project startups The production forecast has also dropped because of delays in estimates of when some projects will come online.
Point Thomson has been delayed two and a half years because the project changed from gas cycling to gas sales and “70,000 barrels a day of condensate just moved from 2011 to sometime beyond that,” which also defers 30,000 bpd of “oil that’s associated with satellite fields in the vicinity of the Point Thomson field.” There will also be an overall production impact: “Relative to the gas cycling project you’re not going to get as much gas condensates” produced from Point Thomson, he said.
Platt said he also was more conservative with Liberty, moving startup from that field out three-quarters of a year.
The department is also forecasting a change in Cook Inlet production, a 16 percent drop in FY ’05 from 23,000 bpd in the spring forecast, to 19,000 bpd. The North Slope drop for FY ’05 is only 0.3 percent, 920,000 bpd to 917,000 bpd, but is steeper in succeeding fiscal years, 5 percent for FY ’06, 7.5 percent for FY ’07 and 9.8 percent for FY ’08.
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