AOGA: Kudos to Juneau

Alaska oil industry thanks administration, Legislature, for work this year

Kristen Nelson

Petroleum News Editor-in-Chief

Last year when the Alaska Oil and Gas Association hosted the annual AOGA-Anchorage Chamber of Commerce luncheon the audience included candidates for state office. And AOGA member companies told that audience, “there were two things that were necessary to keep Alaska competitive: that was permit reform and fiscal certainty,” Judy Brady, the association’s executive director, said at this year’s luncheon.

What those elected did this year in Juneau, Brady said June 16, is “probably the most amazing breakthrough in permit reform in this state in at least 20 years. It was an amazing, amazing breakthrough.

“It’s probably one of the toughest sessions that I’ve ever seen. It was also very strong and important for fiscal certainty. These are the things that are going to make a difference,” Brady said.

Future not certain

Alaskans need to promote a positive investment climate, he said, including access to the right acreage: “Elimination of key portions of the main exploration fairway by non leasing or overly restrictive lease stipulations will deprive Alaska of future production, jobs and revenue,” he said.

That positive climate also includes “reasonable and cost-effective regulations and permitting. This past legislative session the governor introduced several bills that protect the environment while streamlining the permitting process. … Judy’s already mentioned that it was one of the most significant if not the most significant change in the regulatory environment we’ve seen up here in decades.

“… These bills are all positive bills which the Legislature passed. … And thank you to the governor and Legislature for making that happen.”

Meyers said there is great development potential in Alaska (see related story on page A9), but warned that what Alaska does in the next few years “will dictate the future of oil and gas development in this state for the next decades. It will determine whether the future is one of new discoveries, new jobs, new state revenue, or alternatively a future in which we continue to manage a mature oil province as it continues through decline.”

Permitting a plus, need longer season

Bergeron said he had experience of the value of permit streamlining. He said shortly after he arrived in Alaska last year he asked for a flow chart of the permitting process: “it looked like it was just a big circle; we never did know where we were going.”

He characterized Alaska permitting as “the most complicated alphabet soup type of permitting that I’ve seen anywhere that I’ve worked. We talked to people up here and they couldn’t tell us, this is how you go about getting a well permitted. So streamlining the process is very important to us.”

The exploration incentives passed this year should help on the economic side, he said, but: “I must also point out as a newcomer that these incentives that were passed may not do as much to bring new key players to that area as much as it will to help people that are currently already producing in Alaska.”

Bergeron said there are still a lot of challenges, and he thinks the Legislature and the administration have a lot left to do.

“The most troublesome challenge we see as an industry is the short operational window for exploration on the North Slope,” he said. The tundra travel period seems to get shorter every year, and federal, state and local agencies need to work with industry “to extend this drilling season.”

A particular challenge in the National Petroleum Reserve-Alaska is the lack of infrastructure, Bergeron said: “There’s not much out past Alpine now and really the only base of operations that people can look at is Deadhorse.” Because of that, exploration and development costs are “dramatically higher than what we’ve seen in the past,” he said.

Cook Inlet success

In November, Carlson said, at the Resource Development Council’s annual conference, “I suggested that the state could improve their resource development environment in Alaska by taking the following steps: one was to eliminate the public interest litigant reimbursement program. Another was to hold special … interest litigants financially accountable for the lawsuits that minimize the judicial review to permitted projects” and a third was to fix or eliminate the Alaska Coastal Management Program.

“I want to commend and congratulate the governor, his staff and the legislators … for their accomplishments over the past six months in dealing with these problems and improving Alaska competitive edge,” Carlson said.

“The public interest litigant reimbursement program has been abolished. And special interest groups that have been opposing responsible development will now be held financially accountable for their frivolous lawsuits.”

And the Alaska coastal management process “has been greatly improved” through both legislation and the actions of the commissioner of the Department of Environmental Conservation.

He noted other positive changes: centralizing of resource development permitting under the Department of Natural Resources and changes which made permit requirements for coalbed methane drilling “fit for purpose.”

He also noted reduced royalties on declining Cook Inlet oil fields, the “clarified royalty burdens on gas being supplied to value-adding plants like the Agrium fertilizer plant” and tax credits for natural gas drilling in Cook Inlet and elsewhere in the state.

“It will now be up to industry and venture capitalists to act on these opportunities,” Carlson said.

“I think the governor can sincerely say today that the state is open for business.”

More production?

In addition, he said, the administration made “made tough budget decisions necessary to reduce government spending that will improve the state’s fiscal soundness.”

The reauthorization of the stranded gas development act will “improve the longer term prospects of the state’s budget and the economy,” he said.

“Establishing a state stable fiscal framework is one of the key actions necessary to address an ANS gas pipeline. On behalf of the management team at ExxonMobil, I’d like to offer my thanks to Gov. Murkowski, his administration and members of the 23rd Alaska Legislature for the progress made. Please know that we appreciate the conviction to follow through on pledges made to improve the investment climate in Alaska,” Williams said. But the goal of all of this was increased production, he said, and state officials are beginning to ask when that will happen. “And I really wish I had the answer to that question because quite frankly my management back in Houston’s asking the same thing,” Williams said. “And the state officials are asking much more politely.”

It takes a long time to bring on new production, he said, and significant investment is required. In Alaska, where logistical factors are important, it can take even longer.

Projects under way in which ExxonMobil has an interest include offsetting the natural decline at Prudhoe Bay, where field owners are continuing to invest in growth opportunities.

“One reason we’re able to do this is the success BP and its contractors have had in reducing drilling costs through application of new technologies,” Williams said. At Prudhoe, that is primarily coiled tubing drilling.

Another Prudhoe opportunity is smaller satellite fields, including Orion, where development is expected to begin later this year. Satellite development, he said, “has been encouraged by the severance tax policies implemented back in the late 1980s. This is a really good example of a pro-development policy decision which has had a tangible impact on the state’s oil production, well over a decade later.”

ExxonMobil is still studying a project affected by North Slope logistics — Point Thomson. Williams said it “contains a world-class natural gas resource” but the gas won’t be developed until there is a way to move it off the North Slope. Because of logistics, he said, ExxonMobil is studying a gas injection project which “would generate liquid condensates sales ahead of gas sales.”

There are cost and technical challenges at Point Thomson, he said, and ExxonMobil hasn’t yet identified a viable project. A final decision on development is expected sometime next year, he said.

125 wells at Prudhoe

“That’s what it takes just to keep production flat — or in our case this year we’re increasing modestly,” he said.

The remaining resource is huge, he said: “Alaska has the largest single supply of oil and gas reserves” in BP’s portfolio.

The viscous potential is billions of barrels, he said, more than 250 million barrels at Prudhoe Bay satellite field Orion, where development is beginning. Just recently, Marshall said, the first well at Orion “came in at over 5,000 barrels a day initial rate.”

The combination of drilling technologies and production technologies, he said, start to make a reality of what didn’t look possible three or four years ago.

The gas potential is also huge, he said, with 35 trillion cubic feet of known reserves.

But those reserves “still need billions of dollars of investment to transform that potential into production,” Marshall said. And Alaska opportunities have to compete for funding with opportunities around the world.

“To continue to invest, we need confidence in a strong and a stable oil business in order to move forward with a multi-billion dollar gas pipeline. It’s BP’s view that the two are intricately intertwined.”

Steps taken in the 23rd Legislature were significant, Marshall said, and he thanked legislators, the administration and organizations like AOGA, the Resource Development Council and the Alaska Support Industry Alliance for help “in moving forward the reform of streamlining of the coastal management program, the C plan extensions and the air permitting process.”

Marshall described those as “very, very encouraging first steps.”

And, he said, the reauthorization of the Alaska Stranded Gas Development Act provides “an important foundation on which we can get together and determine a way forward in this state for the gas line.”