Bristol Bay road considered

Road could spur oil-gas extraction, end fish reliance; LNG facility possible

Ellen Lockyer

Petroleum News Contributing Writer

Alaska’s state administration is pushing forward with a plan that could result in exploitation of hundreds of millions of barrels of oil. Gov. Frank Murkowski said July 10 that the state is considering building a road along the Alaska Peninsula the 180 or so miles from King Salmon to Chignik to access hydrocarbon-rich state and Native corporation lands. Murkowski said the road will be constructed with the proceeds of a state oil and gas lease sale tentatively scheduled for the peninsula in 2005.

An agreement between the state and the Bristol Bay Native Corp. requires the state to hold annual areawide lease sales in the region as soon as possible. Murkowski said the area under consideration is a “jewel that has been sitting idle for 30 years.”

Murkowski said building the road from King Salmon to Chignik would open to exploration potentially rich oil and gas fields along the shores of Bristol Bay.

The cost of the gravel road is estimated to be $285 million dollars. The governor said the state anticipates paying for the road with $263 million dollars in bids that is projected to come in with the 2005 oil and gas lease sale. The road would include five major bridges and four maintenance facilities.

“This road concept brings the villages together,” the governor said. “It means more opportunities for the villages ... and we think it’s the right thing for rural Alaska.”

The governor said the state has known about the Bristol Bay basin’s oil and gas potential for some time.

“There was substantial exploration — about 25 or 26 wells were drilled over there in the ‘70s, but opposition by the local people simply put it on the shelf. That opposition has changed.”

Murkowski said the road would provide a deepwater port on the peninsula and give access to properties that would be attractive for oil and gas leases.

“We feel there is enough revenue potential from the sale of the leases to more than pay for the road.” Murkowski said. “It’s the most exciting and significant new event in the oil patch.”

Area could rival ANWR

“We’ve been looking at it because there was a lot of local interest,” Myers said.

“And we started to revisit the geologic potential, and discovered that it’s very good in the area. There’s known oil shoals and oil seeps, and one well that had encountered oil in the offshore. The state also has a very good land position in the (Bristol Bay) basin, on the shore portion. So we can offer an onshore sale with a sizeable amount of acreage. We have over 3 million acres in the basin of onshore state land and BBNC also has a good land position,” Myers said.

He said 2-D seismic data from the 1970s is being re-examined by the state at the request of the Bristol Bay Native Corp. Although the last well was drilled there in 1985, Myers said the area’s potential is bound to generate substantial interest from industry.

“We believe, outside of ANWR, it’s really one of the truly under-explored onshore areas in North America with high potential left,” he said. “We think the oil potential is in the hundreds of millions of barrels and the gas in the multiple trillions of cubic feet range. So a sizeable amount of gas and a significant amount of oil potential. Again, you don’t know until you truly drill.”

Myers points out that energy needs have changed since the 1980s.

“Certainly, when they were looking at the area in the 1970s and the mid-’80s, they were looking for oil potential exclusively, not gas,” he said. “But we think, because of its onshore position near tidewater, and with the need for gas in North America and other areas, it may be well positioned for a liquefied natural gas project.”

The state expects to spend next year on geologic evaluations to determine the basin’s actual potential. Murkowski said the aim is to spur oil development in the area to relieve the dependence on dwindling salmon runs.

“Jobs are what it’s all about,” the governor said.

A number of obstacles could dampen enthusiasm for a Bristol Bay leasing program. A state best interest finding is not complete. And the state is negotiating with the Bristol Bay Native Corp. on royalties for the oil and gas.

President must make decision to remove OCS ban

The president would have to rescind the executive order which put the moratorium in place, and Congress would have to remove language from the Interior budget bill that stops funding for new leasing activity in the area under moratorium.

“This is not a departmental decision. This is a presidential decision,” Cacy said.

According to Murkowski, there’s reason to believe that if the strength of support for Bristol Bay leasing is such “we could administratively lift that moratorium.”

Cacy said the MMS’s next five-year program does not go into effect until 2007. Even if all the federal conditions were met in lifting the moratorium, Bristol Bay oil and gas will not be available any time soon.

Three types of lease offerings in the works

Kristen Nelson

Petroleum News editor-in-chief

Tom Hawkins, senior vice president and chief operating officer of Bristol Bay Native Corp., said at a July 11 press conference that the corporation has favored oil and gas drilling onshore since 1992, but local communities have opposed it until recently. The change in other groups made the difference, he said. He attributed that change of attitude to “economic realities, the high cost of energy, the fact that the fishing has been less than superb for the last five or six years.”

The Native corporation went to the state to discuss pursuing leasing jointly and the resulting memorandum of understanding, Hawkins said, “provides an orderly process for BBNC and the Department of Natural Resources to work together over the next couple of years to assemble information and understand the ownership of land and make sure that we can offer the most complete package of opportunities to the industry in the lease sale.”

The area includes 3.5 million acres of state-controlled mineral estate and 3.1 million acres of Bristol Bay region-controlled mineral estate.

Area has been open to shallow gas leasing

“The most aggressive seekers of shallow gas in our region are the local electrical co-ops” in Naknek and Dillingham, Hawkins said. They are “the groups, in at least our region, that are enthused about prospecting for shallow gas resources.”

The next step, said Alaska Division of Oil and Gas Director Mark Myers, is for the state to offer a portion of the area as an exploration license, which could occur next year. That would be the more northerly portion of the basin which is believed to be gas prone. Gas found in that area would be closer to communities for local fuel use and the state can go out more quickly with a license proposal than it can with a conventional sale, he said.

That would give industry time to shoot and evaluate 3-D seismic before an areawide sale, proposed for 2005. Any new seismic shot in the area, Myers noted, would be eligible for a 40 percent severance tax credit as provided by Senate Bill 185, passed by the Alaska Legislature this year.

“The more southerly area is oil prone and that would be the areawide sale,” he said.

The state issued a mineral closing order July 10 in preparation for a proposed Bristol Bay competitive oil and gas lease sale. That order prevents applications for shallow natural gas leases or exploration license proposals within the area to be covered by the proposed competitive oil and gas lease sale. The order must be approved by the Legislature in its next regular session or it expires.

Similarities to Cook Inlet basin

“There are a lot of advantages to this area,” he said: “known oil and gas, some reservoir rock, good shows, enough geologic data.” Myers said companies really haven’t looked at the area in 15 to 20 years, and “there isn’t going to be a working knowledge left.” He said the area has two things going for it: the opportunity to tie up a sizeable land position at tidewater and the fact that there’s known oil and gas in the basin.

The governor said the state believes that in the long term, “this area has the potential of being a major portion of Alaska’s oil province,” while in the short term, “because we have seen oil and gas shows out there … there may be some shallow gas that could be recovered, relatively inexpensively, and utilized for local use, to lower costs.”