|
Meet Alaska hears 40-year history, projections, concerns for future
The history of the oil and gas industry in Alaska and what might lie ahead were topics the Alaska Support Industry Alliance heard addressed at its annual Meet Alaska conference Jan. 13 in Anchorage.
Two of the speakers represented two of the North Slope’s biggest companies; a third view came from a geophysicist who has worked for independents and for the state of Alaska.
The policy impact Oil has been flowing down the trans-Alaska oil pipeline for 40 years this year and Damian Bilbao, vice president commercial ventures for BP Exploration (Alaska) addressed how the next 40 years can be enabled.
BP, operator of Prudhoe Bay, the North Slope’s largest field, remains committed to Alaska, is proud of its legacy and believes there is still a lot of resource to play for, Bilbao said. By some estimates, he said, there are more than 70 billion barrels to go after on state and federal lands on the North Slope.
Bilbao emphasized the impact of policy on investment, noting that while global and Lower 48 investment spiked beginning in 2009, Alaska investment was flat.
(The state passed a new oil tax, ACES, Alaska’s Clear and Equitable Share, in late 2007. But as oil prices spiked, ACES, which had not been modeled at high oil prices, made the state temporarily wealthy - while investment went elsewhere. ACES was replaced with Senate Bill 21 in 2013, but that failed to model very low oil prices, which occurred after the price began to drop in 2015.)
At low prices, such as the $43 per barrel price in the Department of Revenue’s 2016 Fall Forecast, the state makes $7 per barrel in royalty and taxes, Bilbao said, while the cost to produce a barrel of North Slope oil - operating, capital and transportation - is $48 per barrel, putting producers $12 in the hole per barrel.
He showed a Wood Mackenzie chart projecting the cost of producing the incremental oil supply in 2025, with 8 million barrels per day of liquids production worldwide costing less to develop than Alaska’s resources, and only 4 million bpd costing more to produce, a challenge for the state.
As Alaska policy develops, BP will be looking at four things, Bilbao said: Does the policy encourage more oil down the trans-Alaska oil pipeline? Does it extend the life of the backbone fields on the North Slope, Prudhoe and Kuparuk? Does it encourage more independents to look for oil and gas? And it is a policy which doesn’t pick winners and losers, something which BP believes leads to unintended consequences, Bilbao said.
Investment and innovation Corri Feige is a geophysicist with 30 years of experience, 20 years of that in Alaska, where she worked for independent oil and gas companies. Most recently she was director of the Alaska Division of Oil and Gas, a position she left in August.
Feige talked about what moved the state’s industry for 40 years, and what would make 40 more years happen, with a focus on investment and innovation.
While discovery of the Swanson River field in Cook Inlet in 1957 resulted in statehood, the 1960s made the state’s dreams come true, she said, from infrastructure development and more discoveries in Cook Inlet to the discovery of Prudhoe Bay, followed by Kuparuk and Milne Point, and the $900 million North Slope lease sale.
Investment drives Alaska innovation, she said, and innovation continues today, with production technologies, enhanced oil recovery, drilling technology, well completions and new plays and discoveries.
These innovations are based on investments made just before the oil price decline and that innovation will drive the next 40 years, Feige said. The state had a single oil and gas tax program from 1977 to 2006, she said and under that program, ELF, industry withstood catastrophic price collapse and grew when price recovered, she said.
But in the last 10 years there have been four tax changes, each requiring project economics to be recalculated, and for investment bankers that creates 100 percent risk, Feige said.
If the state’s vision is 40 more years of vibrant industry, a stable, business-minded fiscal policy is necessary: the state needs to chase the vision not the money, Feige said.
The image of Alaska currently is that it’s a risky climate, she said, and a course correction is required to ease uncertainty. Unpaid tax credits are a particular concern, she said, and holding them hostage could mean that as the price recovery commences Alaska will miss opportunities because money won’t come here.
On an optimistic note, Feige said she believes the state will make the needed course correction.
Exxon and gas investment ExxonMobil’s Steve Butt, senior vice president for Alaska gas and formerly AKLNG project manager, reviewed Exxon’s history in Alaska with a focus on gas commercialization. ExxonMobil, he said, is the largest owner of discovered gas on the North Slope, holding 36 percent of Prudhoe Bay and 62 percent of Point Thomson.
The company has access to significant resources, Butt said, and has made multiple attempts to commercialize that gas, working with the state through the years, including under the Stranded Gas Development Act, under the Alaska Gas Inducement Act and most recently under Senate Bill 138 on the Alaska LNG Project.
Butt reviewed principles for success of a large project: a gated process for project development and a focus on alignment, risk and cost.
Point Thomson is the first move to large-scale gas development, he said, with the field currently producing 11,000-plus barrels per day of condensate, and cycling more than 200 million cubic feet per day of gas. Point Thomson was completed under budget and on schedule, Butt said, with an investment of some $4 billion, 62 percent funded by ExxonMobil.
For AKLNG, which is moving to a state-run project, a gated process was used, along with industry best practices and an integrated “best player plays” team.
The work done on costs for AKLNG reached the low end of the $45 billion to $65 billion range, he said, but at the end the cost of supply was not competitive, which means the project wouldn’t pass the next gas.
ExxonMobil recommended pausing and working on reducing costs, but that wasn’t acceptable to the state, Butt said. The state sees an opportunity to reduce the cost of supply with tax exempt status and low-cost financing, and ExxonMobil supports the state, he said, because it wants the project to succeed and is providing access to all pre-FEED work at no cost, with extensive technical, regulatory handover work complete.
The company never requested any payment and completed several agreements by year end.
Butt said he thinks there is a path forward, including wellhead sale of gas. He said next steps require providing the Alaska Gasline Development Corp. with access to Alaska LNG LLC assets - the land purchased at Nikiski for the LNG facility; coming to a mutual agreement on bilateral wellhead gas sales; and durable and predictable terms, including fiscals, to underpin required upstream investments.
- KRISTEN NELSON
|
