Alaska’s oil and gas resource basins are entering a new and exciting period.
Assuming that Shell receives the necessary permits, a significant round of exploration drilling is likely to commence on the Arctic Outer Continental Shelf this summer.
In addition, a variety of companies - from small independents to large companies both familiar and new to Alaska - are forging ahead with significant projects in new fields and legacy fields.
We see an upsurge in exploration and development activity under way on the North Slope as well as in Cook Inlet.
With oil prices in a sustained slump, it is gratifying to see these projects continuing to move forward and companies applying for new production units on the North Slope and Cook Inlet. From a geologic and engineering standpoint, the work currently under way in Alaska puts us in a new and more complex period of development in our oil and gas basins.
As the incoming commissioner for the Alaska Department of Natural Resources, I’m excited to see so much of our untapped oil and gas potential - some of it previously thought to be non-economic or non-producible - receiving attention from explorers and investors around the world.
There are many vivid examples of this, including:
*Between January 2013 and March 2015, 59 new wells were completed in Cook Inlet by seven operators. Twenty-five of these were completed as gas wells, averaging nearly one gas well per month during this time frame.
*In the past three years, Repsol has drilled 10 oil exploration wells on lands west of Kuparuk, and has recently applied for a large unit to allow it to move forward with developing multiple reservoirs.
*This winter, following a royalty modification, Caelus Energy sanctioned its Nuna project, committing significant capital resources to bring this low-permeability reservoir into development.
Hydrocarbon resources that were passed over 30 years ago are now being developed and produced. We see this with investment in new exploration targets and new fields under development, as well as new drilling and development in the legacy fields.
The technologies enabling Nuna include advanced applications of directional drilling, hydraulic fracturing, and well completion design.
Furthermore, advances in technologies for seismic acquisition processing and analysis are yielding better insight into reservoir and source rock properties, and have increased the success rate in exploring for and delineating these resources. New oil associated with these activities increases our reserve base for the benefit of Alaskans and investors.
The North Slope of Alaska has world-class oil and gas source rocks but a limited number of high-quality reservoirs. Much of the untapped resource potential is within “second-tier” conventional reservoirs with lower porosity and permeability. Even though these reservoirs may be of lower quality than those historically developed on the North Slope, the reservoir quality is significantly superior to that of shale resource plays currently under development in the Lower 48.
The combination of this huge untapped resource, new technology and increased investment by many companies means that the future of the North Slope is bright.
Mega-projects — gas and offshore
We also see reason for optimism regarding two major exploration prizes on the North Slope - our outer continental shelf and North Slope gas.
A report recently delivered by the National Petroleum Council to U.S. Secretary of Energy Ernest Moniz recognized the important role that Alaska’s Arctic will play in securing domestic energy supplies when the Lower 48 shale revolution plays out. The NPC noted that the U.S. Arctic Outer Continental Shelf is estimated to have 48 billion barrels of oil-equivalent, with more than 90 percent of this in less than 100 meters of water. Despite this vast resource potential, the only U.S. Arctic OCS development to date is the Northstar field, which straddles state and federal waters.
It took 22 years to develop Northstar. It also will take many years to advance other major OCS oil targets - such as Shell’s Chukchi Sea Burger prospect - from exploration to development. But the National Petroleum Council advises that we should pursue this exploration now because the energy supplies from Arctic Alaska will sustain the United States when Lower 48 production is projected to be in decline.
The stakes are high and the prize is great for renewed exploration in the OCS.
But the same can be said for our efforts in Alaska regarding large-scale natural gas commercialization.
In the year ahead, Alaskans will be closely watching the efforts by the State of Alaska and North Slope producers to advance a large-scale North Slope gas project.
The gas at Prudhoe and Point Thomson is a mega-resource that has yet to be fully committed to development. Point Thomson alone contains approximately 25 percent of the North Slope’s discovered, remaining gas.
Focusing on large-scale LNG exports, the State of Alaska is negotiating with the North Slope leaseholders and engaging with Asian buyers to maximize the value of the gas on State lands for many generations of Alaskans. Right now, the state is pursuing the Alaska LNG Project as well as taking a new look at a backup plan for a gasline if the big project falters.
My department is heavily engaged in the Alaska LNG Project negotiations and is seeking to make the best choices for Alaskans regarding the management of our gas resources.
The LNG project is now in pre-FEED. Moving to FEED will require us to continue the robust dialog between all of the negotiating parties and continue sharing large amounts of technical information needed to make critical decisions.
With large-scale gas commercialization moving forward, it is important to remember that the North Slope is blessed with much additional undiscovered and unleased gas - notably in the North Slope Foothills and the National Petroleum Reserve-Alaska. The U.S. Geological Survey estimates that Alaska’s Arctic has more than 200 trillion cubic feet of undiscovered conventional natural gas. This offers significant opportunities for new entrants to acquire acreage in highly prospective portions of the basin.
With all of this work under way in Alaska’s resource basins, I see a bright future for explorers and the nation and global energy markets that will benefit from their innovation and hard work.
In closing, I’d like to remind all explorers and investors that the State of Alaska will hold its annual oil and gas lease sale for Cook Inlet on May 6 and will hold its annual North Slope, Foothills, and Beaufort Sea areawide lease sales next fall.
For more information on our lease sales, please visit http://dog.dnr.alaska.gov.
