Pumping Up TAPS: Fastest source: legacy fields

BP, Conoco operated oil fields have 4.2 billion barrels of oil left in producing units

Kay Cashman

Petroleum News

There are approximately 4.2 billion barrels of recoverable oil in northern Alaska’s legacy fields — specifically those fields that are currently producing oil and operated by BP and ConocoPhillips.

Fields operated by those two companies represent about 98 percent of all current oil production from the North Slope. (For simplicity’s sake, in this article the “North Slope” includes all oil fields north of the Brooks Range in Alaska, including offshore pools.)

Heavy oil and oil from source rocks is not in included in the 4.2 billion barrels, but some lighter viscous oil, already in production, is included with conventional crude.

A 4.2 billion barrel field qualifies as a super-giant by world standards, and would be the second largest field in Alaska.

The number came from remaining recoverable oil reserves based on the sum of Alaska Department Revenue forecasted production from 2010 through 2050 — based on year-end 2006 reporting, which is bound to be more accurate than forecasts from later years because it reflects very few of the cutbacks BP and ConocoPhillips have made as a result of Alaska’s production tax.

It also does not include Badami, which was operated by BP in 2007 but in warm shut down. Today Badami is operated by Savant. Nor does it include any Alpine West oil from the National Petroleum Reserve-Alaska, because the State of Alaska has very little control as to when that oil can be accessed. It does include Northstar because it’s in production, but excludes Liberty because it is not in production — and is in federal waters.

Because the legacy operators and their partners invested in technologies such as horizontal drilling, miscible gas injection and gas cap water injection their recovery rates at Prudhoe, Kuparuk, Alpine and others fields are between 50 and 60 percent, as compared to a 35 percent average worldwide.

With continued investments in new technology, that percentage can only rise.

But continued investment — i.e. increasing amounts of oil in the trans-Alaska oil pipeline — the two companies say, will not happen from their fields without passage of Gov. Sean Parnell’s legislation to reform the state’s production tax. (House Bill 110 passed the House not the Senate; SB 49 will be up for discussion when the Alaska Legislature convenes in January).

More important, enough of the 4.2 billion barrels can be quickly drilled and put in the pipeline to level out North Slope production — probably before explorers Repsol, Brooks Range Petroleum, UltraStar and ASRC Energy can get most of their fields online.

Also to be considered is the fact that not all the explorers will find fields which justify standalone production facilities: Some will need to get BP or ConocoPhillips to allow them to use existing facilities in legacy fields.

Or perhaps truckable/portable production skids, which are being considered by several companies, will work, along with new production facilities that can be shared.

Observations, arguments, promises

• Alaska’s current oil tax system is the biggest impediment to getting more oil into the trans-Alaska oil pipeline —Trond-Erik Johansen, president of ConocoPhillips Alaska, and Claire Fitzpatrick, chief financial officer for the Alaska region and senior vice president of BP Exploration (Alaska).

• The “easy oil” has been drilled. The sweet spots were drilled when the fields were developed — when you put them online, they produced a lot of oil. There is a lot of light oil left on the North Slope, but it’s not as easily accessible. And while early water production was low, 3 million barrels a day of water are now being produced: “We’re more a water production company than an oil production company,” and that water has to be managed. —Johansen

• In many parts of the Prudhoe Bay field liquids production is constrained by the volume of gas being produced. Gas partial processing would remove a production bottleneck so that more oil could be produced. I Pad and a gas partial processing project represent an investment of about $2 billion; investments BP will not make without the tax breaks in HB 110. —John Minge, president of BP Exploration (Alaska) Inc.

• Some of the investments BP has held off sanctioning in its fields have had enough work done on them that they are ready for consideration when the investment climate becomes more competitive. Among those are I Pad development at Prudhoe Bay; western region development at Prudhoe; S pad expansion with low salinity water flooding; and Sag River reservoir development at Milne Point. If those projects had moved forward over the past four years, the projected 25 percent decline between 2011 and 2020 “would be essentially flat.” —Fitzpatrick

• Using inflation-adjusted figures, relative drilling costs in the early wells in Kuparuk, West Sak and Tarn cost about $2-4 million a well and took about 10 to 15 days to drill. Today it costs four times as much and it takes four times as long, because wells are no longer vertical or near vertical, but are horizontal. And those wells produce less. —Johansen

• There will be “significant investments in infrastructure and pipeline upgrades,” but capital spending on activities that produce more oil, such as drilling and pad expansion, are “limited or on hold” without tax changes. —Fitzpatrick

• Production has dropped more than 140,000 barrels per day since ACES passed. —Fitzpatrick

• I Pad alone will result in drilling some 50 new wells to access about 80 million barrels of additional reserves. That is … like finding another small oilfield. BP does not lack opportunities in a new fiscal environment. —Minge

• ConocoPhillips is prepared to spend $5 billion over the next three to five years to generate 90,000 barrels per day if the governor’s tax bill becomes law. —Jim Mulva, ConocoPhillips chairman and CEO

• In the Lower 48, oil production grew 3 percent from 2003 to 2010; Alaska production declined 36 percent over the same period. —Johansen

• Oil at $50 a barrel in 2008 doesn’t compare to similar prices in 2005 because “the fundamental cost of our business has changed.” Producing a barrel of oil in the Arctic costs between $25-50 today (early 2010). —former ConocoPhillips Alaska President Jim Bowles

• In previous exploration activities BP identified more than 5 billion barrels of resources. These resources can be unlocked with a competitive fiscal policy. —Minge

• BP recently approved two seismic acquisition programs, one at Milne Point and one at Point McIntyre, “in anticipation that the tax law will change.” The seismic will be shot in 2012 and 2013, cost $100 million, and yield “at least 20 to 40 extra wells, if governor’s tax bill is passed.” —Minge