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Attracting explorers is state of Alaska’s No. 1 goal, Myers says State Division of Oil and Gas chief sees making the North Slope more “user friendly” and more technical data available as key to luring explorers to Alaska Kristen Nelson Petroleum News Editor-in-Chief
More and more North Slope production is coming from new fields and satellites in major fields, Alaska Division of Oil and Gas Director Mark Myers told the Alaska House Special Committee on Oil and Gas Jan. 18.
Keeping production up requires more discoveries, so the Murkowski administration “has put a tremendous amount of effort on trying to increase exploration activities,” Myers said. And you have to start seven to 10 years out before the oil flows from a new field, he said, although sometimes production can happen in two to three years from a satellite.
The first step is exploration: “you need a significant investment in risk capital, in exploration.
“And in order to get that amount of capital you clearly need a large number of companies, you can’t do it with simply one or two companies… So it’s been a strong goal to increase the amount of exploration capital through new investors in Alaska.”
The new investors have come, he said, noting 10 independent companies bidding at the state’s fall lease sale.
Looking at national and international trends, future exploration will be done by “large to medium and in some cases small-sized independent companies,” he said. This year average Myers said exploration activities on the North Slope have been “fairly average for the last few years.” This year ConocoPhillips Alaska will drill far out in the National Petroleum Reserve-Alaska, “real expensive wells in the Kokoda area,” he said, and a satellite extension exploration well in the Alpine area at Iapetus.
Armstrong will drill at Two Bits on the west side of Kuparuk, he said, and Kerr-McGee will do “significant delineation and exploration” offshore the Milne Point area.
Pioneer Natural Resources and its partners are continuing “to try to commercialize the discovery that they made a couple of years ago offshore…”
The “diversity of new explorers” is encouraging, Myers said, with “the first of those explorers going into the pre-development activities that we hope will lead to actual production … from these new fields, so I would say we’re in year three or four of this longer-term trend of trying to convert exploration into production and trying to bring more money and more competition to the slope to bring that capital in.” Some elephants lurking The North Slope has the geology needed to attract companies, Myers said. There “may be some elephants lurking” in NPR-A and on the coastal plain of the Arctic National Wildlife Refuge and offshore, the Beaufort Sea and the Chukchi Sea, “have a huge resource potential both on the oil and gas side.”
What can the state do to attract capital? You have to decide, he told the committee, if the state’s “fiscal and royalty structure (is) out of whack or not.” You’ll get a hundred different opinions, he said, but “I think if you look objectively at it we’re getting a good group of independents.”
The first thing the state can do, he said, “is to get more technical data out there.” The independents, he said, don’t have the resources of the majors, and the state “has lots of effort going on in getting information out.” Eliminate commercial barriers Then, he said, “the North Slope has to be user friendly.”
The state has been working on that, he said, and there are new investors coming to the slope.
The next stage, he said, is developing discoveries. “How do you eliminate commercial barriers? The first thing is we have to do better on the North Slope on shared facility access.”
As production declines from the major fields, he said, capacity opens up at existing facilities.
“The companies that own those facilities are quite honestly not investing at the level you need to fill those facilities, to increase that production, to get back to the 2 million barrels per day.”
But negotiating access is “commercially difficult,” he said, because “the new guy wants to get it as cheap as possible and the guy with the facility wants to extract as much commercial value” as possible, which “has lead to a loggerhead, quite honestly, in a lot of these processes.”
What is needed, Myers said, is “an environment where there’s greater confidence that new discoveries can get into the facilities, at the same time recognizing those facilities were built and designed by people and they deserve a reasonable rate of return on those facilities.”
Commercial impediments on the North Slope, he said, include “some that are internal to the commercial structure itself, some that are regulatory and some that are taxation issues.” Gas will aid exploration There is also the problem that gas can’t be moved off the slope.
“In most basins that are fairly mature there’s outlets for both oil and gas, and as basins mature and the size of the oil prize goes down, historically, gas has played a much bigger role, particularly in those basins that have a tremendous supply of gas.
“We believe we have just an incredible supply of gas here in Alaska,” Myers said. To my knowledge, he said, every exploration well drilled on the North Slope has encountered gas, and farther south, the Foothills of the Brooks Range are expected to be dominated by gas.
The other advantage of gas production, he said, is that when oil production gets very low, gas production will support North Slope infrastructure, allowing oil to be produced longer.
And on the exploration side, when companies look at the risk of drilling a prospect, since oil is the only hydrocarbon that can now be commercialized on the North Slope, you can’t credit the possibility of gas toward probability of success at a prospect, Myers said. “You dramatically increase the economics of any given prospect if you have a way to commercialize the gas, which gets them to drill more wells.” What’s ahead for exploration Gas hydrates are an undeveloped resource on the North Slope, Myers said, and the state and the Department of Energy are going to propose additional funding to continue federal funding for hydrate research “so that we can actually get to the production testing phase.” Studies so far, he said, indicate that gas hydrates within the existing Milne Point-Prudhoe Bay area “could be produced at economic rates,” and if that could be demonstrated through production testing, some gas hydrates on the North Slope could be added to gas reserves, reducing reserve risks for a gas pipeline.
Myers also said lighter weight rigs are being proposed by several independent companies for North Slope use. Companies are also discussing other ideas to reduce North Slope costs that he wasn’t at liberty to share with the committee. State looking at building staging areas The administration, he said, is looking at what else it can do, such as “potentially building staging areas in the foothills” where equipment could be over-wintered, “increasing testing time and potentially lowering exploration costs.”
And in the Bristol Bay-Alaska Peninsula area, where the state plans a lease sale this fall, the preliminary best interest finding should be out by the end of January, Myers said.
“We have seen an increased amount of industry interest” in the Bristol Bay-Alaska Peninsula sale area, he said. Shell and Petro-Canada have had field parties out in the area of the upcoming sale, and Myers said that while he couldn’t give their names, other companies have also shown interest.
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