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BP: $10 billion could be $15B Walker: Heavy oil could be half of Alaska North Slope production by 2030 Kristen Nelson Petroleum News Editor-in-Chief
BP is eyeing a very long-term future in Alaska, looking at building for the next 50 years, Angus Walker, commercial vice president for BP Exploration (Alaska), told the Resource Development Council’s annual conference in Anchorage Nov. 18.
BP “wants to use in excess of $10 billion of our capital to create a long-term business in Alaska,” and that $10 billion could be $15 billion, “depending on how things work out,” Walker said.
The $10 billion, he said, “is how much we need to invest in our Alaskan business over the next 10 years in order to build the foundations for a business that will remain strong and sustainable for the next 50 years.”
The company’s capital budget for Alaska for 2005 is $700 million, split evenly between the North Slope and investments in infrastructure. The company also continues to spend about $800 million to maintain and operate existing facilities.
“BP is, and will continue to be, the largest private-sector investor in the state of Alaska,” he said. Move away from exploration In 2003, Walker said, BP decided to “focus on the known resource base … near to our existing infrastructure.” That decision, he said, was based on the company’s track record: “we were finding six times as much oil and gas in and around our existing fields and infrastructure as we were through exploration.”
The company’s goals in Alaska, he said, are to maximize recovery of light oil, increase production of heavy or viscous oil reduce costs so the company can compete for capital and commercialize North Slope gas.
“The prize we are chasing is enormous: close to 6 billion barrels equivalent of already discovered oil and gas in BP’s Alaska portfolio. Next to Russia, Alaska is the single largest source of known oil and gas resources in BP’s portfolio.”
But, Walker said, the challenges to develop that resource are “enormous.” Less than one-third of the 6 billion barrels “is currently proven and economic to produce,” he said. Light oil largest component, viscous oil a different challenge Light oil is the largest component of BP’s Alaska portfolio, and has accounted for most of the 14 billion barrels produced from the North Slope over 27 years. Among light oil reserves added by the industry over the last three decades are some 4 billion barrels at Prudhoe Bay alone, Walker said.
Challenges to commercialize remaining light oil are “daunting,” he said: with smaller targets farther away.
Viscous or heavy oil is “another multi-billion-barrel resource,” Walker said, but “we’re only just beginning to unlock its potential.”
Currently less than one out of every five barrels of viscous oil in BP’s portfolio is “proven and capable of being produced today.” This oil is shallow, cold, thick and it doesn’t flow readily to the surface.
“Unprecedented collaboration between North Slope producers and quantum leaps in drilling technology have breathed new life into our efforts to commercialize viscous.” A few years ago, he said, it was a challenge to make a viscous well produce a thousand barrels a day. “Today we have more than 20 wells that each have produced more than a thousand barrels for more than a year.”
BP drilled the first quadrilateral well on the North Slope earlier this year, “with five miles of reservoir penetration,” and the next well, he said, will have five laterals, individual reservoir penetrations. Viscous challenge moving to the surface “So now the challenge of producing viscous is moving to the surface,” Walker said, with sand flowing to the surface with the oil and filling separation vessels. That sand, he said, “must be removed, ground up and re-injected.” In addition, viscous fluids are “more difficult to process and our facilities were designed for light oil and are struggling with viscous.”
BP is looking at “adding heat and chemicals to lower viscosity, and help blend viscous oil with light oil. And we’re currently evaluating whether we need to build a completely new processing facility designed specifically for viscous oil.”
Viscous oil will be more expensive to develop than light oil, he said, and there are challenges, but if the industry is successful, “we predict that by 2030, almost half of the oil flowing down Taps could be viscous.” Costs, natural gas BP is “making great progress” in transforming its costs in Alaska, Walker said, “but it is truly a formidable task, considering that the industry (on the North Slope) was developed on 2 million barrels a day, rather than the current reality of 1 million barrels a day.”
Part of this cost reduction is the $250 million electrification of the trans-Alaska pipeline by Alyeska Pipeline Service Co. that “will help position the pipeline to meet the operational challenges” of the future. BP’s $1 billion investment in four double-hulled tankers “will significantly reduce our shipping costs.”
“And every dollar that we save, without compromising safety, the environment or operational integrity, enhances our ability to compete for investment and on the state’s side, increases state tax and royalty revenues by creating higher wellhead value.”
Commercialization of North Slope gas, which accounts for roughly one-third of BP’s Alaska portfolio, is “one of the largest undeveloped resources in our global portfolio,” Walker said.
Bringing that gas to market will be one of “the most expensive projects undertaken in history” and the project is not without risks. Federal legislation was “a very important milestone,” he said. Still needed are a “clear, efficient regulatory process in Canada” and a fiscal contract with the state of Alaska. Oil and gas interdependent And, he said, “the long-term health of our oil industry is dependent on the development of North Slope gas, as similarly, the gas project is dependent on the health of the oil business. Gas sales and a healthy oil business are inseparable. They will both use much of the same infrastructure and facilities.”
BP hopes that, if all of the issues can be resolved, “North Slope gas could be flowing to market in 10 years.”
BP “has an ambitious strategy and vision for Alaska, and the resources and determination to make it a reality,” Walker said.
But BP “can’t do it alone,” he said, “and we will continue to require the help, and to work closely with, the state, the borough, our partners, the contracting industry and many of the agencies,” both state and federal. “Investments are our lifeline to the future and Alaskan investments must be able to generate returns that are competitive with investment opportunities around the world, or the capital will simply go elsewhere.”
And, he added, that is true whether oil is “$50 a barrel, $20 a barrel or $10 a barrel.”
And costs, based on operating in the Arctic, shipping through an 800-mile pipeline, and a 2,000-mile ocean voyage to market, “all make Alaska one of the most expensive places in the world to produce oil.”
BP is working to reduce its costs, “but business climate in Alaska plays a crucial role in our ability to compete for investments,” and tax increases will not attract needed capital.
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