Providing coverage of Alaska and northern Canada's oil and gas industry
February 2004

Vol. 9, No. 9 Week of February 29, 2004

Alaska on the brink

Myers says 2004 pivotal year for state’s oil and gas industry, economy

Kristen Nelson

Petroleum News Editor-in-Chief

Mark Myers, director of the Alaska Division of Oil and Gas, believes that in five or 10 years Alaskans will look back on 2004 as a pivotal year for the state’s oil and gas industry — and for its economy.

“The administration’s goal of bridging the future into resource development to provide for the basic needs of public service is a do-able thing. I think you’ll see the seeds have been planted to do just that,” Myers told an audience at the annual Pacific Rim Construction Oil Mining Expo & Conference, Feb. 19 in Anchorage.

The upside for oil and gas in Alaska is that the state is the “premier area” of North America for oil and gas, with 22 percent of U.S. reserves, he said, but on the downside, the state is far from markets, and the state’s traditional explorers — the majors, most recently the North Slope producers — are investing elsewhere in the world, looking for the next Prudhoe Bay.

And the next Prudhoe Bay, he said, isn’t likely to be found in Alaska. Alaska’s remaining oil is likely to be found in smaller fields and finding those fields will require more exploration wells.

Statewide, exploration drilling has been “a little over historical averages” in recent years, but a lot of that drilling has been gas exploration in Cook Inlet, not oil exploration on the North Slope, Myers said. The exploration incentive passed by the Alaska Legislature in 2003 that provides a substantial tax credit, up to 40 percent, for exploration drilling and seismic exploration at a distance from infrastructure, a 20 percent credit closer in, is one of the things the administration has done to try to jump-start exploration, he said.

Independents exploring now

While North Slope producer ConocoPhillips Alaska and its partners will account for much of this winter’s North Slope drilling — up to three wells in the National Petroleum Reserve-Alaska and a well on the western edge of the Kuparuk River unit — international major Total is also drilling in NPR-A and independent Kerr-McGee and its partner Armstrong Resources are drilling northwest of Milne Point in the shallow waters of the Beaufort Sea.

Last winter independent Pioneer Resources, another Armstrong partner, also drilled in the Beaufort.

“The ability to attract new exploration capital to the state is extremely important,” Myers said, as the majors move “a lot of their capital offshore to international areas where they see these large Prudhoe Bay-type potential projects.”

That, he said, has created a vacuum in Alaska. “And one of the goals the administration has is to fill that vacuum.”

The independents are filling the vacuum — both acquiring acreage and drilling wells.

“In the past,” Myers said, “the independents would typically come up and they would buy leases and they would stop… They couldn’t monetize them and move to the next stage” with exploration.

Myers said having new companies exploring in the state is a plus: “we are starting to get the new capital investment.”

But the key to economic success for the state, he said, will be for independents to take successful exploration and turn it into development.

Bristol Bay-Alaska Peninsula expected to attract independents

Myers said he expects to see independents come in when the state offers oil and gas leases in the Bristol Bay and Alaska Peninsula area in 2005.

The area was last explored in the mid-1980s, but state leases expired and the federal offshore area was put under moratorium because of concerns over the high-value fishing industry. With a slump in that industry, a concern for the local economy and a need for a local energy source, people in the Bristol Bay area came to the administration last year to ask for oil and gas leasing.

There are oil seeps in the area, Myers said, and while the basin is “very under explored,” the oil seeps prove the basin has generated oil — and gas bubbles in the oil seeps show it has also generated gas. The oil is coming from source rocks related to those that are producing oil in Cook Inlet, he said, the gas is coming from shallow coals — also similar to Cook Inlet.

The thicker area of the Bristol Bay sedimentary basin is more than 20,000 feet thick, “which is the first good sign. The second good sign is in the upper portion of the section we have very good quality reservoir rocks.”

Myers said there are positive answers to basic questions about a basin: Is there known generated oil and gas? Is there good quality reservoir rock? Are there geologic structures? Could they entrap significant quantities of oil and gas?

And other than the seeps, there is evidence of oil and gas from 26 wells drilled in the area prior to 1985.

Some of the wells were drilled very early, starting in 1903, so the technology doesn’t begin to compare with what is available today. In spite of that, those wells had “significant oil and gas shows. So with modern technology, modern seismic, modern wells, we would expect substantial oil and gas.”

Geologic data being provided

Myers said the state believes oil potential in the Bristol Bay-Alaska Peninsula is “in the hundreds of millions of barrels — potentially large enough for a commercial development — and the gas is in the multiple tcfs (trillions of cubic feet), enough, potentially for an LNG project.”

And this geology is at tidewater. “No 800-mile pipeline is required,” he said.

Myers said the state is “putting together full data packages” including geologic maps, seismic data and well data, in digital format on compact disks and “providing that to the industry at no cost.”

“We expect the target audience to be the large substantial independent companies,” he said. “This is the right sized basin for them to explore and develop.”

And the advantage those independents have is that they can move quickly.

On the North Slope, Myers said, independents have drilled prospects within two years of acquiring them.

And even in the offshore environment, “probably the hardest area to permit,” independents have gotten permits in as little as 91 days.

While Bristol Bay-Alaska Peninsula gas would be at tidewater, North Slope natural gas requires a pipeline.

Will a pipeline be built?

“We at DNR (the Alaska Department of Natural Resources) believe the project can be done economically… There are currently ongoing negotiations with both the major producers and MidAmerican,” Myers said.

“So now for the first time instead of begging for someone, we have competition in the market to see who builds this system.”

And conventional natural gas at Prudhoe Bay and Point Thomson isn’t the only source of natural gas in Alaska.

On the North Slope there are also gas hydrates, “gas in frozen condition,” and coalbed methane.

Farther south, the Foothills are believed to be gas-prone, Myers said.

And then there are the Interior basins, most drilled for oil in the 1970s and 1980s. “The geology did not look favorable for oil in most of them. It does look very favorable for gas.”

Interior gas and a North Slope pipeline

The state has issued an exploration license for the Interior Nenana basin near Fairbanks, and Andex, the company with the license, “has identified 26 different large structures and leads: very favorable geology,” Myers said.

Natural gas is now trucked into the area from Anchorage, so gas from Nenana has a local market, he said.

But what if there is a gas pipeline built from the North Slope? Would that preclude Nenana gas development?

Myers said it would not.

For example, he said, if a natural gas pipeline coming off the North Slope included gas liquids, “you could strip out the liquids for a petrochemical industry in Fairbanks, replace the gas — the voidage loss to the pipeline — with gas from the Nenana basin, and basically … the liquids would ride free on the pipeline. So there’s commercial opportunities in addition to local gas needs.”

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