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Where from here for NS? At the start of 2014 Alaska’s oil production decline remains a prime concern Alan Bailey Petroleum News
As 2014 gets under way the Alaska oil industry, showing its age but still having potential for the future, is evolving in response to aging oil fields, the need for new oil resources and changing world oil and gas markets.
The biggest single issue facing both the industry and the state is declining North Slope oil production, a factor that creates a headache for a state dependent on oil revenues and oil jobs. This headache extends to the operators of the trans-Alaska pipeline, the line that ships oil from the North Slope and forms Alaska’s main economic artery: The slowing of oil flow through the line is creating technical problems associated with the cooling of the oil and increasing wax deposition in the line. Steps being taken to, for example, heat the oil on its way down the line can prolong the pipeline’s life but add to oil transportation costs.
Prudhoe and Kuparuk More than 35 years after oil first started flowing to market from the giant Prudhoe Bay field, and with the huge Kuparuk River field coming on line a few years later, these two fields remain at the fulcrum of oil production from the North Slope, underpinning the economics of the North Slope oil industry and the trans-Alaska pipeline.
Other active fields in and around the central North Slope are more modest in size and, while making significant contributions to North Slope production, are also in decline. These fields consist of Niakuk; Milne Point; Endicott; Lisburne; Alpine and its satellite fields; Point McIntyre; and Badami, as well as various small satellite fields to Prudhoe Bay and Kuparuk. In the shallow nearshore waters of the Beaufort Sea are the Northstar, Oooguruk and Nikaitchuq fields.
The core product from all of these fields continues to be the valuable light oil that triggered the original field development. And, with substantial volumes of the original light oil in place already produced, field operators are using a variety of techniques to push the envelope for the recovery of light oil from the fields, thus prolonging field life for years into the future.
In addition to light oil, BP and ConocoPhillips have been developing viscous oil — oil with the consistency of syrup — from a reservoir formation above that of the main Prudhoe Bay and Kuparuk reservoirs. Development of this resource requires sophisticated horizontal drilling, to maximize the length of a well bore in contact with the reservoir.
At a yet shallower level lie billions of barrels of heavy oil — oil that is too viscous to flow unaided down a pipeline. In April 2011 BP brought on line a $100 million heavy oil production test facility on a surface well pad in the Milne Point field. The company experienced some success in production testing but mothballed the facility in 2013. In December 2013 a BP official said that the company had not yet figured out a viable way to produce the heavy oil, but that it was still working on the problem, moving in the direction of eventual heavy oil development.
Other possibilities in the Prudhoe Bay field include the full development of an underdeveloped region in the extreme west of the field and some new development in a relatively thin reservoir above the main Prudhoe Bay reservoir.
Tax reform But, with any new development in aging oil fields such as Prudhoe Bay and Kuparuk requiring expensive development techniques, the oil companies have been arguing that reform of state oil production tax is essential in assuring the business viability of new North Slope developments. And, to encourage the development of more North Slope oil, and hence to stem the decline in oil production, in 2013 the Alaska Legislature did pass tax reform in Senate Bill 21. Critics of this legislation claim that North Slope oil production is profitable and that the tax reform is actually a tax giveaway to the oil companies. A citizen’s initiative to repeal Senate Bill 21 is scheduled to be put to Alaska voters in August.
Meantime BP and ConocoPhillips have announced funding for new projects in the Prudhoe Bay and Kuparuk River fields — the companies say that corporate approval of this funding has resulted from the passage of Senate Bill 21. BP has announced a 16-well development program for 2014 and 2015, with the ultimate possibility of 200 new wells and 200 million barrels of new oil production. ConocoPhillips has brought in an additional drilling rig for use in the Kuparuk field, is bringing a further rig to the field and has announced plans for the development of a new drilling site on the southwest flank of the Kuparuk River unit.
Other fields Caelus Energy, the company in the process of taking over the Oooguruk field from Pioneer Natural Resources, the field’s current operator, has said that it plans to move forward with the development of a new oil pool in the Oooguruk unit. Eni Petroleum, operator of the Nikaitchuq field, says it is evaluating an expansion of that field.
Savant Alaska has been making valiant efforts to stimulate production in the Badami field while also drilling nearby oil prospects, seeking other sources of production.
And, attracted by the possibility of developing new modest-sized oil fields close to the existing North Slope oil infrastructure, Brooks Range Petroleum and Repsol have been conducting exploration in the central North Slope: Brooks Range is moving ahead with the development of a small oil field in its Mustang project.
Some distance to the east of the central North Slope, ExxonMobil is developing Point Thomson, a huge field containing a mixture of natural gas and condensate. The concept behind this technically challenging project is to deliver a modest-sized stream of condensate for mixing with oil from other fields for delivery by pipeline to the trans-Alaska pipeline. Condensate consists of a mixture of hydrocarbons, lighter than those found in typical crude oil but heavier than natural gas.
Other possibilities So, what other possibilities are there for the development of new oil resources, in particular the major resources needed to really turn around the overall oil production decline in northern Alaska?
At the eastern end of the North Slope, the coastal plain of the Arctic National Wildlife Refuge, an area thought to be highly prospective for oil and gas, has long been the subject of controversy relating to environmental concerns and seems set to remain off limits to the oil industry for the foreseeable future. To the west, ConocoPhillips has been pursuing a policy of stepping out incrementally from its Alpine field in the Colville River Delta into the northeastern corner of the National Petroleum Reserve-Alaska, or NPR-A, a 23 million acre region of federal land encompassing much of the western North Slope and the western Brooks Range foothills. To the south of the North Slope, Linc Energy is hoping to develop a known oil field at Umiat.
Following a lengthy permitting delay, ConocoPhillips is now moving ahead with its NPR-A strategy, with the so-called CD-5 development, the first oil field to be developed in NPR-A. The company plans to develop another NPR-A oil pool to the west of CD-5 and to conduct further exploration drilling nearby.
NPR-A The Bureau of Land Management, the federal agency that administers NPR-A, has published a new plan for the reserve, placing much of the coastal section of the reserve off limits to exploration. With this section of the reserve lying over a major structure related to the oil fields of the central North Slope, some people have expressed frustration at the closure of what they see as the most prospective area of NPR-A. But, using results from a recent NPR-A oil and gas assessment conducted by the U.S. Geological Survey, BLM says that the more central part of the reserve, which remains open for exploration, is likely to contain a preponderance of undiscovered NPR-A oil.
Viable development of an oil field in the remote territory of this more central area would presumably require the discovery of a huge oil resource. An alternative development approach would be an incremental development of the oil infrastructure into central NPR-A, developing a field at a time, along the lines of what ConocoPhillips is doing in the northeast. But an incremental step out of this type would presumably take many years to accomplish.
Beaufort and Chukchi seas The outer continental shelves of the Beaufort and Chukchi seas offer some enticing possibilities for the discovery and development of new oil resources. The Beaufort Sea is known to hold some modest sized oil pools — BP has been trying to develop one of these pools, the Liberty field, for several years. After a failed project involving the drilling of ultra-extended reach development wells from the Endicott surface infrastructure, the company’s latest concept is development from an artificial island.
Shell has been pursuing an exploration program in the Beaufort and Chukchi seas since 2005. In 2012 the company drilled the top-hole section of a single well in the Beaufort and a similar top-hole section of a well in the Chukchi. Following issues arising from the 2012 drilling project, Shell now hopes to drill again in the Chukchi in 2014 but has no immediate plans to return to the Beaufort. ConocoPhillips and Statoil also have Chukchi Sea exploration programs but have placed these programs on hold at present.
Shell anticipates shipping Chukchi oil to market through a pipeline to be constructed across NPR-A to the northern end of the trans-Alaska pipeline. But, assuming this happens, Chukchi oil will not bring near-term relief to declining oil throughput in the trans-Alaska line — Shell’s CEO has said that his company anticipates finding major oil resources in the Chukchi but that it will likely be at least 2025 before oil will start flowing to market from the region.
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