Legislature(2011 - 2012)BUTROVICH 205
04/08/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB49 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 49 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 49-PRODUCTION TAX ON OIL AND GAS
CO-CHAIR PASKVAN announced the business before the committee
would be to consider the merits of SB 49 learning from Cathy
Foerster, Commissioner of the Alaska Oil and Gas Conservation
Commission (AOGCC). The AOGCC mission is in part "To protect the
public interest in exploration and development of Alaska's
valuable oil and gas resources" and to "ensure greater ultimate
recovery of those ... resources." Commissioner Brian Butcher was
asked to attend to respond to questions directed to the
Department of Revenue and Kevin Banks would be available via
teleconference to respond to questions directed to the
Department of Natural Resources (DNR).
3:48:04 PM
CATHY FORESTER, Engineering Commissioner, Alaska Oil and Gas
Conservation Commission (AOGCC), introduced herself and noted
that she asked AOGCC Commissioner Dan Seamount to attend the
hearing via teleconference.
3:49:34 PM
SENATOR WIELECHOWSKI joined the committee.
MS. FOERSTER explained that because of the common feeling that
oil price is the primary driver behind decisions relating to oil
and gas expenditures, most of the charts in the presentation
will have permitting, exploration, drilling, and workover
activities superimposed on graphs depicting an oil price or
trend.
She displayed a graph depicting the first purchase price for
U.S. crude oil from 1950 to 2010 and noted that oil price
information older than the mid-1970s was surprising difficult to
find. The curve reflects the nominal price paid to the operating
company when the produced oil was metered and then removed from
the lease or lease sales. She noted that the graph was available
online from the U.S. Energy Information Agency.
The page 4 graph depicted West Coast spot prices for North Slope
crude from 1995 to 2010. She noted that the shorter term look
was probably more germane. The page 5 graph showed the U.S. and
North Slope price forecasts in the background to illustrate that
prices were very close over the shorter term.
3:52:23 PM
SENATOR FRENCH said he recently read an article in the Petroleum
News that pointed out that for the last several months North
Slope Crude had brought a premium for over the average U.S.
price, which is contrary to the normal history of prices. He
asked if that price premium had come to her attention.
MS. FOERSTER replied she wasn't aware of that.
CO-CHAIR WAGONER added that he's not sure why but Alaska crude
was $120 last night and today the West Coast price was $110.
That represents roughly an 8 percent difference.
SENATOR FRENCH said the article pointed out that for several
months Alaska Crude had been as much as $10 over West Texas
Intermediate. This is highly unusual and has something to do
with a supply glut in the Midwest and tighter supplies on the
West Coast.
3:54:22 PM
SENATOR STEDMAN reminded the committee that the issue of West
Texas not being the benchmark was discussed last year.
MS. FOERSTER said the next chart shows world events that
correspond to pronounced changes in crude oil prices from 1970
to 2010. She noted that this graph introduces a third price
trend, the U.S. price in real dollars, and suggested it's
helpful to be reminded of the difference between real and
nominal over time. She pointed out that in 1986 pandemonium set
in after Saudi Arabia abandoned the role of swing producer.
She said the graph on page 7 shows Alaska oil and gas activity
from 1950 to 2010. The number of drilling permits issued by the
AOGCC is superimposed over the U.S. nominal price. She explained
that from the late 1950s to the late 1960s oil and gas activity
in Alaska occurred predominantly in the Cook Inlet Basin, and
about 1968 on that work took a backseat to exploration and
development on the North Slope. The spike in the number of
permits between 1977 and 1985 reflects the emphasis on
developing the Prudhoe Bay, Kuparuk, and Milne Point oil fields.
The abrupt drop in the number of approved permits from 1985-1987
probably reflects the abrupt drop in oil price caused when Saudi
Arabia abandoned its price-controlling, swing producer role.
In the time period from the late 1980s to present day activity
has been affected by continued development of Prudhoe Bay and
Kuparuk as well as exploration and development in the satellite
fields within the Prudhoe Bay and Kuparuk units and new fields
like Alpine, Fjord, Nanuq, Oooguruk, and Niakuk. In 1995 the
Kuparuk owners reached alignment on satellites and that's when
those fields started to come on. It wasn't possible to move
forward without commercial agreement among the owners on how to
divide the costs and spoils of those developments. The severe
dip in activity in 1999 reflects that the wellhead price for
Alaska Crude dropped to about $9 per barrel. That was also the
year that both BP and Arco were busy buying and being bought so
a lot of effort was spend on activity other than drilling.
3:57:34 PM
MS. FOERSTER said the graph on page 8 adds a curve depicting the
number of active wells in the state. It illustrates that the
number of wells has grown steadily since the late 1960s. She
explained that active wells must be inspected by AOGCC field
personnel and anything that has not been plugged and abandoned
is considered active. She noted that the legacy wells in the
NPRA were not included.
SENATOR FRENCH said he assumes that these are not all oil wells.
MS. FOERSTER responded that's correct and some aren't properly
abandoned so AOGCC has to keep an eye on them.
SENATOR FRENCH asked how many actually are oil wells.
MS. FOERSTER replied she didn't know but she'd find out and get
back with the information.
SENATOR WIELECHOWSKI asked if she had a sense of what percent of
the leases were active.
MS. FOERSTER suggested that Mr. Banks with the Department of
Natural Resources (DNR) could better answer the question. She
noted that he was available now or he could follow up later at
the committee's discretion.
CO-CHAIR PASKVAN voiced a preference for Ms. Foerster to finish
the presentation.
MS. FOERSTER pointed out that while Alaska currently has over
4,600 active wells, that number is small compared to other
states. For example, Texas has over 300,000 active wells,
California has over 60,000, and New York has about 12,000. The
reason for the disparity is that the Lower 48 states have been
developing their oil and gas resource for a lot longer than
Alaska and they don't have the access issues that Alaska has so
they are able to exploit all their basins. She noted that Mr.
Seamount likes to point out that Alaska has exploited just 2 of
approximately 20 basins in the state.
SENATOR WIELECHOWSKI asked her to expand her discussion of why
Alaska has so many fewer wells than other producing states when
it's one of the leading producers of oil in the country.
MS. FOEFSTER pointed out that there's been production going on
in Texas for over 100 years and oil wells are everywhere,
whereas Alaska has oil wells on just the North Slope and in Cook
Inlet, which doesn't represent much of the state's land mass.
That being said, the average production rate in Alaska is about
150 BB/day while the average production rate for Texas wells is
less than 10 BB/day. This reflects Texas's long production
history and the large number of "stripper wells" in operation.
Because production costs are relatively low, somebody is making
money from those wells eking out a barrel here and there.
SENATOR WIELECHOWSKI noted that over the last decade the number
of rigs consistently working in Alaska has been just 10 or 11
while other states have had much higher counts. He asked if
there's a correlation between rig counts and production.
MS. FOERSTER said the rig count in the Lower 48 is fairly
constant, but because of the transportation infrastructure those
rigs have the ability to move from state-to-state over the
course of a season. Alaska isn't connected to that
infrastructure so it's expensive to move a rig up here and it
has to be made "Alaska-ready" before it can be put to work.
4:03:25 PM
MS. FOERSTER said the next graph overlays the 130 some active
oil and gas reservoirs onto the previous graph. She mentioned
that the number of wells has grown steadily and that the AOGCC
is responsible for monitoring and regulating each of them.
She next displayed a timeline showing when the major oil
producing fields on the North Slope were developed. A red star
depicts the time of initial discovery, a gold bar shows the
period of initial development leading to production and a green
bar represents the start of regular production. In some cases
development began almost immediately and for a variety of
reasons there was a lapse of several years or even decades in
other cases. One reason for delay is that technology sometimes
didn't exist to make the play viable. The West Sak pool in the
Kuparuk River field is a good example of this. A pilot well in
the 1980s was unsuccessful, but now that horizontal and multi-
lateral technologies exist that type of well can produce enough
to be commercially viable. Ugnu-Kuparuk is another example; in
this case, viscous oil technology is just now developing.
SENATOR FRENCH asked if she knew the circumstances of the
Kuparuk River field. More than a decade lapsed between discovery
and the beginning of production and it's now the second largest
oil field in North America.
MS. FOERSTER said her understanding is that the operators that
developed Prudhoe Bay also put money into Kuparuk but their time
and money first went to develop the larger Prudhoe Bay field.
She provided several more reasons that development of a field
may take time. The pool may be too small to justify stand-alone
facilities and it's either too far from existing infrastructure
or there isn't yet a commercial agreement with the owners of the
nearby infrastructure. Also, a small pool may be underlain by a
bigger pool and the operator may wisely decide to product the
small pool on the way out. For example, Tabasco overlies the
Kuparuk reservoir and the Brookian is underlain by the Point
Thomson reservoir.
4:07:09 PM
SENATOR PASKVAN returned attention to page 9 that shows the
steady increase in the number of active oil and gas reservoirs
and asked what that means to Alaskans.
MS. FOERSTER replied that gradual but steady increase is a
normal way for a good oil basin like the Cook Inlet or the North
Slope to develop. Time and money is spent building
infrastructure to get the "big elephant" and over time the
smaller operators come in and work commercial agreements with
the large owners.
SENATOR FRENCH asked if she would take a few minutes to talk
about what the AOGCC does and a little of her background since
the entire state is captivated by both current and future
activity on the North Slope.
MS. FOERSTER explained that the Alaska Oil and Gas Conservation
Commission (AOGCC) is charged with preventing waste of
hydrocarbon resources, with encouraging greater ultimate
recovery of those resources, with protecting the correlative
rights of the owners of those resources, with protecting the
fresh ground waters during drilling and production operations,
and with assuring the safety of the people working in those
fields during the operations under the AOGCC purview. The AOGCC
recently has been given other responsibilities, but for the
purposes of the discussion today those are the core
responsibilities. There are three commissioners; statute
requires one commissioner to be a petroleum geologist, one to be
a petroleum engineer, and one to be a member with relevant
experience to the oil and gas industry. That position currently
is filled by an attorney whose experience is extensive.
SENATOR FRENCH asked which position she filled and how long she
had served on the commission.
MS. FOERSTER replied she's the petroleum engineer and she's
served for about six years. Before this she had many years in
the industry.
SENATOR STEVENS noted that the Governor recently announced a
goal of one million barrels [of oil production per day through
the Trans Alaska Pipeline System (TAPS) within 10 years] and
asked if that volume is a concern.
4:11:23 PM
MS. FOERSTER replied she tries not to worry about things that
are beyond her control but she believes that Alaska has good
operators that are doing a good job of developing the resource.
If the Legislature developed new ways to incentivize additional
exploration and production, AOGCC would help implement those
ideas. She stated that production does decline in a mature basin
and it's her belief that unless the [federal] government
releases more land, there probably aren't any easy answers for
increasing volume in the pipeline to a million barrels or
higher.
SENATOR STEVENS asked if AOGCC had a goal of "the maximum volume
possible."
MS. FOERSTER replied anything is possible but unless the federal
government opens new areas, another Prudhoe Bay is unlikely. She
said later in the presentation she'd show some production graphs
that illustrate about what it takes to make increments in the
line.
SENATOR WIELECHOWSKI asked if it was the role of AOGCC or DNR to
manage the resource.
MS. FOERSTER replied it's the operator's role to manage the
resource. AOGCC's role is to assure that the management results
in the greater ultimate recovery without waste.
SENATOR WIELECHOWSKI asked if it was her understanding that oil
production could be increased in the Prudhoe Bay, Kuparuk, and
Alpine fields if more gas was injected into the wells.
MS. FOERSTER explained that facilities have only so much fluid
handling capacity and when a mature field produces more water
and gas there is less room for oil to come through. At that
point the only way to produce more oil is to increase the gas
handling or water handling facilities. She said that later in
the presentation the production graphs for Prudhoe will show
that when the gas handling capacity was increased, the result
was an increase in the oil rate. But that's not cheap, so there
has to be sufficient bang for the buck to justify the buck. She
suggested that's a question to discuss with the operator, not
AOGCC.
CO-CHAIR PASKVAN asked her to explain to the listening public
what she means when she uses the term "mature field."
MS. FOERSTER said she is referring primarily to Prudhoe Bay and
Kuparuk. Those are the mother lode and both have been in
production since the late 1970s or early 1980s. She continued to
explain that in the early years, when Prudhoe was a black oil
field, the operators recognized the need to maintain reservoir
pressure. Typically that's done by reinjecting gas and water.
Prudhoe didn't produce a lot of gas and water so the operators
treated seawater and injected that for pressure maintenance. She
said that as a field matures the pressure drops a little bit and
more and more of the production is the injected gas and water.
4:17:13 PM
SENATOR WIELECHOWSKI said his understanding of the announcement
yesterday by Mr. Mulva, [Chair and CEO of ConocoPhillips,] was
that one proposal was to build facilities to help reinject gas
to increase pressure and produce more oil. He asked if that was
her understanding.
MS. FOERSTER replied she hadn't talked to anyone at
ConocoPhillips, but she suspects that Mr. Malva was talking
about additional gas handling capacity and additional
compression to reinject the gas. They've done this before and
there is a bang for that buck, she said.
SENATOR WIELECHOWSKI said he's trying to figure out at what
point an operator has to be told to do that in order to extract
more of the resource and avoid a potential waste situation.
MS. FOERSTER responded the DNR or the governor can talk to the
operator about doing any number of things, but according to the
assistant attorney general, an operator can't be forced to do
anything it can't make money doing. If an operator is doing
something that is going to reduce the ultimate recovery or put
any recovery at risk, then the AOGCC would step in to stop the
activity or to suggest doing it another way.
CO-CHAIR PASKVAN asked Ms. Foerster to continue the
presentation.
MS. FOERSTER reminded the committee that she was discussing the
reasons why there can be a time gap between discovery and
production. Another reason might be that the reservoir isn't
competitive with other projects the operator has going.
Northstar, for example, had a high cost and low return and the
operators could invest elsewhere and make more money. Sometimes
an operator has bigger fish to fry and lets a project drop and
somebody else picks it up. Oooguruk is an example of that.
Another reason might be that the co-owners can't agree on
whether or how to develop the resource. The agreements among the
owners might not be in place to even allow the development as
with the Kuparuk satellites. Permitting could also be the hold
up; CD-5 at Alpine is an example of that. Another possible hold
up is litigation. A lot of things make it complicated and for
whatever reason it can take a long time to get a North Slope
field into production.
MS FOERSTER displayed a graph of Alaska's average daily oil and
NGL production rate by year from 1960 to 2010 and said she likes
to state the obvious; Prudhoe Bay and Kuparuk enabled the
infrastructure on the North Slope. In the 1960s and early 1970s
there was just Cook Inlet. Prudhoe Bay came on in the late 1970s
followed by Kuparuk and Milne Point in the 1980s. A production
spike at Prudhoe Bay in the late 1980s occurred when the
pressure and other benefits from water flooding in enhanced oil
recovery (EOR) kicked in. Small bumps in the declining
production occurred at Prudhoe Bay in 1990 and 1993 when GHX-1
and GHX-2 (gas handling expansion) were completed. She noted
that those are the kinds of projects that enable the operator to
do more with the gas that they're getting more of.
4:23:36 PM
The steep production decline of the 1990s was slowed by a
miscible injection expansion (MIX) project, which allowed the
operator to do more gas cap water injection (GCWI) and EOR. This
was done to augment the pressure support of the gas cap to
prepare for a gas cap blowdown.
The production dip in 2006 was likely due to the shutdown that
resulted from the pipeline leaks, but once production resumed
the performance was the same as before the shutdown. Similar to
Prudhoe Bay, Kuparuk benefited from EOR in the late 1990s. She
noted that Endicott, Lisburne, Point McIntyre as well as the
Prudhoe and Kuparuk satellites were discovered during the major
field development of Prudhoe Bay and Kuparuk but had to wait on
alignment of ownership and other issues before development could
go forward.
MS. FOERSTER pointed out that the production decline stopped for
a short time from 2000-2003 when the 700 million barrel Alpine
field and the 200 million barrel Northstar field came on. At
that time Alpine was the largest discovery in the last ten years
in the U.S. She opined that an Alpine would need to be
discovered every three years in order to stem the current
decline and maintain status quo.
SENATOR WIELECHOWSKI mentioned a bill under consideration to
encourage a gas-to-liquids plant on the North Slope and asked
what impact could be expected in the form of enhanced oil
recovery from the CO spinoff from a GTL plant of, say 70,000
2
barrels.
MS. FOERSTER replied the impact would be negative until such
time that Prudhoe Bay is ready for blowdown. In fact, it might
create a bigger problem than the intended solution. At Prudhoe
Bay the gas that comes out of the reservoir is needed for
pressure maintenance and a lot of that gas and the NGLs that
come from it are used right there or in other fields on the
North Slope.
4:26:13 PM
SENATOR WIELECHOWSKI asked if 2.7 bcf offtake hadn't already
been authorized. He recalled testimony during AGIA that AOGCC
though it could be ready to authorize significantly more than
that.
MS. FOERSTER reminded him that during that same testimony she
said it was easy for the AOGCC to say that because a pipeline
was 10 years away, but if a pipeline magically appeared the
AOGCC would likely convene an emergency hearing and take that
allowable away.
SENATOR WIELECHOWSKI asked if it was possible to take 2.7
bcf/day right now and 4 bcf/day in the future.
MS. FOERSTER replied there will be a time in the future to do
either, but not today.
4:27:46 PM
CO-CHAIR PASKVAN asked her to expand on that answer.
MS. FOERSTER responded it will likely be 7-10 years before AOGCC
will feel comfortable with a major gas sale from the North
Slope.
SENATOR WIELECHOWSKI questioned why AOGCC authorized 2.7 bcf
offtake if it didn't feel it was possible to do.
MS. FOERSTER replied that authorization was granted in the late
1970s or early 1980s and she didn't know what the people on the
commission were thinking at that time. She reminded the
committee that several years ago the current commissioners
ordered a study after which they convened a hearing and
determined that because there was no way for the gas to go
anywhere until the pipeline was built, there was no reason to
remove the allowable. She reiterated that the commission went on
record saying that if the good fairy magically made a pipeline
appear the commission would convene an emergency hearing.
CO-CHAIR PASKVAN asked Ms. Foerster to continue the
presentation.
4:28:58 PM
MS. FOERSTER displayed a graph and explained that embedded in
each wedge for the particular field is all the development
drilling and workover activity that is essential to maintaining
the production rate and slowing decline from the fields.
The next chart is the same as the previous with the addition of
oil price forecasts in the background. She said Alaska has been
fortunate that in recent years the continued decline in North
Slope production volume has been offset by increases in the
price of oil.
The pie chart on page 13 shows the kinds of wells and the number
of each kind that were drilled throughout Alaska in 2010. She
acknowledged that the numbers may be off by one or two because
reports are sometimes late even though the AOGCC requires
operators to report within 30 days of completing a well.
She said that according to AOGCC records, a total of 183 wells
were drilled in 2010; 168 were on the North Slope, 12 in Cook
Inlet, and 3 in other parts of the state. On the North Slope 125
were oil producers, 39 were service wells (i.e. miscible
injectant, water injection), and 4 were exploratory wells. In
Cook Inlet 4 wells were gas producers, 3 were exploratory wells
looking for gas, 3 were exploratory wells looking for
underground coal gasification, and 2 were exploring for
geothermal. The three wells that were drilled elsewhere in the
state were all looking for geothermal. Alternate energy wells
totaled 8.
4:30:26 PM
CO-CHAIR WAGONER asked where the coal wells were drilled.
MS. FOERSTER replied they were the CERI (Colorado Energy
Research Institute) underground coal gasification wells.
The chart on page 14 shows the timing of prominent discoveries
on the North Slope going back to 1950. The U.S. price of oil is
in the background.
She said the next chart shows the number of exploratory wells
targeting conventional oil or gas that were drilled on the North
Slope from 1996-2010. The columns are superimposed atop the oil
price graph. The wells that were drilled over more than one
calendar year were counted only in the year that the operator
completed the activity.
CO-CHAIR PASKVAN asked if Alaskans should be alarmed that the
chart shows that just 4 exploratory wells were drilled on the
North Slope in 2010.
MS. FOERSTER pointed to other low years and suggested that
sustained low production would be cause for alarm, not a low
year here and there. There are a number of reasons for a low
year not the least of which is that operators could be busy with
new developments. For example, Pioneer and E&I have their hands
full developing Oooguruk and Nakiachuk.
SENATOR WIELECHOWSKI asked if the same rigs are used for
exploratory wells as for development wells.
MS. FOERSTER replied it's a yes and no answer. Some rigs are
solely dedicated to exploratory drilling and lay down when the
exploratory season is over; some rigs can move from place-to-
place and some can't; and some exploratory wells require extra
capability and therefore a special rig. For example, a rig that
might drill a shallow well to the west of Kuparuk couldn't drill
a Point Thomson well.
4:34:41 PM
She said the next chart shows the same price trend that's on the
previous slide and the same columns but they're subdivided by
operator. This visual illustrates that in the earlier years the
exploratory drilling was done by ConocoPhillips, its
predecessor, and BP. After 2000, BP's activity slowed and
ConocoPhillips' activity has been up and down. In 2004 and
beyond new operators began to show up, which is typical of a
mature basin. But, she cautioned, some smaller operators
shouldn't be welcome in the state. She used the analogy of a
lion - representing Exxon or BP - killing and feeding on a
wildebeest. The birds - representing the Pioneers and E&Is -
move in next followed eventually by the worms. Right now Alaska
is attracting a lot of birds, and what it doesn't want is the
worms, she said.
4:37:03 PM
MS. FOERSTER displayed a chart depicting the number of
development and service wells and wellbores targeting oil and
gas that were drilled on the North Slope from 1950-2010. The
legacy wells that were drilled in the NPRA between to 1940s and
1980s were not included. The U.S. nominal price of oil is
displayed in the background. She observed that any number of
conclusions could be drawn from the data. One could be that the
increases in activity conform to increases in price, but that
only holds until 2004. Another conclusion could be that the
spikes and dips in activity correlate with major field
developments. She pointed to Prudhoe Bay and Kuparuk in the
1970s and 1980s and then to the satellites and Alpine. Other
conclusions could also be drawn demonstrating that statistics
can be used to prove anything.
She said the next chart also illustrates the development and
service wells and wellbores targeting oil and gas drilled on the
North Slope, but the date range was narrowed to the most recent
15 years, 1996-2010. The U.S. nominal price of oil was again in
the background. Just as before, she said, any number of
conclusions could be drawn, but none were overly obvious.
4:38:54 PM
CO-CHAIR PASKVAN asked her to explain to the listening public
the meaning and purpose of a "development well."
MS. FOERSTER explained that there are two or three kinds of
wells that an operator drills during exploration and
development. The first kind is the exploration well, which
includes dry holes. Once a find is made, delineation wells are
drilled, which are still typically classified as exploration
wells. These step-outs tell the size and geology of the
reservoir including fluid properties that the operator needs to
know in order to determine whether or not the find is large
enough to develop. The foregoing pre-development wells often are
throw-away wells that are drilled cheaply and less robustly and
wouldn't be allowed to be used as a development well. Once the
operator finishes gathering the date the wells are plugged and
abandoned. Occasionally the delineation wells are built robust
enough to be used as a development well.
The third kind of wells are the development service wells. They
are used to produce the oil or gas, to reinject gas into the gas
cap, and dispose of water and EOR fluids.
CO-CHAIR PASKVAN asked if the depiction on page 18 was common or
typical of a mature field.
MS. FOERSTER replied the chart not only shows what would be seen
in a mature basin where the big field is mature but also the
little fields that have come on since the early 1990s. These
include the Prudhoe satellites, the Kuparuk satellites, Point
McIntyre, Alpine, Northstar, Oooguruk, and Nikaitchuq.
SENATOR WIELECHOWSKI asked if, because of improved technology,
164 wells in 2010 produce as much oil as 165 wells in 2005
MS. FOERSTER replied a well drilled in 2010 may have greater
capability than a well drilled in 1995 because of improved
technology. For example, a vertical West Sak well wasn't
commercial in the pilot years of the 1980s, but horizontal
drilling opened a lot bigger component of flow into the
reservoir. That was a step change in technology and the ability
to drill multi-laterals was another step change because that
made it possible to take the one well bore at the surface and
drill additional well bores off of it fingering out down hole.
CO-CHAIR PASKVAN asked approximately when technology for both
horizontal drilling and multi-lateral drilling was first used.
MS. FOERSTER replied horizontal drilling technology was used in
the West Sak about year 2000.
SENATOR WIELECHOWSKI asked if she knew if development and
service wells were capital costs and operating costs, and if she
knew roughly the average cost per well.
MS. FOERSTER replied she didn't have a good number for the total
cost for drilling a well but it probably varies depending on the
type. A replacement well probably isn't a capital cost, but
upgrading or getting new reserves might be a capital cost. She
said her general sense is that capital costs tend to be for
getting new reserves or improvements, whereas fixing and
replacing things generally tend be operating costs.
She said the chart on page 19 is the same as the previous chart,
but the columns are subdivided to indicate the number of
wellbores by operating company. Again, the price of oil is in
the background.
SENATOR FRENCH observed that the graph on page 19 shows that BP
and ConocoPhillips were very active on the North Slope over the
last 15 years, whereas ExxonMobil didn't show much drilling
activity during that timeframe. He asked if ExxonMobil owned
about 20 percent of Prudhoe Bay.
MS. FOERSTER clarified that the color segments on the bars
represent operatorship of the wells, not ownership. The only
area where ExxonMobil is the operator is Pt. Thomson.
SENATOR WIELECHOWSKI asked if one party has veto power when a
new well is drilled or if all the parties have to have signed
separate agreements.
MS. FOERSTER replied every operating agreement is different and
they change over time. Typically, a majority of the owners have
to agree, but it's a contract so it's whatever the people making
the contract want it to be.
CO-CHAIR PASKVAN asked her to continue.
4:49:29 PM
MS. FOERSTER said the chart on page 20 shows the same
information as the previous chart, but for just the wells BP
drilled. It reflects an overall Slope-wide decrease in activity
since 2005. She suggested asking BP what the numbers mean
because she couldn't find an answer.
The next chart shows the same information for the ConocoPhillips
operated wells. There was a decrease in drilling activity in the
West Sak and Alpine in 2004-2008, and then an increase in 2010
due to the increase in multi-lateral wells at Kuparuk.
SENATOR WIELECHOWSKI noted that the 2010 data was reported as of
March 1, 2011 and asked what the deadline was for reporting the
wells.
MS. FOERSTER replied AOGCC likes to receive a report within 30
of completing a well.
The next chart shows the actual footage drilled for all wells
and wellbores on the North Slope from 1996-2010. The price of
gas is shown in the background. Green depicts development wells,
blue depicts service wells, and yellow depicts exploratory
wells. There were no stratigraphic wells drilled during this
time. She drew attention to the dip in 1999 and explained that
was the year that BP and Arco were busy buying and being bought.
4:52:07 PM
The chart on page 23 shows the number of active drilling and
workover rigs for each quarter from 2005-2010. The West Coast
Spot price curve is in the background. She explained that a
drilling rig is used to make a new open hole or set casing in a
new hole and a workover rig is used to fix broken or
underperforming wells. Some rigs can be used for both drilling
and workovers and either type can be used to complete a new
well. The next two charts show the same information, first for
active drilling rigs and next for workover rigs.
MS. FOERSTER said the next two charts were inspired by some of
the questions Senator Paskvan asked in earlier hearings. The
first one shows the portion of the workovers that were
attributed to production enhancement from 2003-2010. These are
things that help a well produce more. The red segments show
perforation work, which enhances production. The green segments
show chemical and mechanical stimulation work. Scale build up in
the wellbore area can diminish production and the remedy might
be to pump acid into the wellbore and reservoir. Hydraulic
fracturing is another type of stimulation. The blue segments
show workovers to isolate water or gas; the idea is to plug off
things that don't bring money.
SENATOR FRENCH asked her to confirm that it's possible to do a
workover on a well and that's not drilling a well.
MS. FOERSTER agreed that a workover is one thing and drilling is
another.
SENATOR FRENCH asked her to confirm that a workover can
significantly increase production. Perforations, for example,
can give access to a whole new zone.
MS. FOERSTER agreed that adding perforations can give access to
a whole new zone or an untapped part of a zone. She noted that
one of the biggest workover bangs is hydraulic fracturing.
SENATOR FRENCH asked if it's fair to say that the level of
activity in 2010 was above average over the last eight years.
MS. FOERSTER opined that the production enhancement activity in
2010 was very healthy. Continuing, she said the purple segment
shows work to convert wells from injectors to producers or
producers to injectors. The immediate rate drops when a producer
well is converted to an injector well but the EOR impact
provides a big bang.
The chart on page 27 depicts specific types of maintenance and
repair workover activity on North Slope wells from 2003-2010.
The red segments depict tubing and casing repair work. As metal
corrodes, holes develop resulting in losses in mechanical
integrity. The AOGCC does not allow producers to produce wells
that don't have mechanical integrity; the producer has to either
shut the well in and secure it or fix it. The green segment
depicts pump repairs or replacement; many wells have down-hole
electric submersible pumps, and if one breaks the pipe has to be
removed. The blue segments depict scale or corrosion inhibition
work. She described the purple segment as a hodgepodge of
miscellaneous things.
4:57:16 PM
CO-CHAIR PASKVAN asked if the major increase in repairs in 2006
and after was related to the spill at Prudhoe.
MS. FOERSTER replied the events related to the spill were
surface infrastructure repairs. The chart represents down-hole
maintenance and repair. The only correlation is that both the
surface facilities and the down-hole facilities are getting old.
She noted that there was a lot of scale and corrosion inhibitor
work done in 2009 and that preventative work might save money
over time.
CO-CHAIR PASKVAN asked what takeaway message the last two charts
convey.
MS. FOERSTER said she likes to draw an analogy to the way
somebody treats their car. They either take their car back to
the shop when something needs to be fixed or they park it along
the road when something breaks and they walk away. Walking away
bodes poorly for the car. These slides show the operators are
still taking the car to the shop to be fixed and even putting in
a new radio or new seat covers. This shows they're doing
enhancement activities as well as repairs. They're not about to
give up on the car and park it by the side of the road.
MS. FOERSTER observed that the graphs reflect healthy work being
done on a mature field.
SENATOR WIELECHOWSKI asked how job intensive workover activity
is versus development wells versus exploratory wells.
MS. FOERSTER replied they are all job intensive, but remote
exploration is even more so. Even a simple workover can be very
labor intensive because every procedure that's performed on a
well has several jobs associated with it.
CO-CHAIR PASKVAN asked what she sees as the future of production
on the North Slope.
MS. FOERSTER replied the lion is still chewing on the
wildebeest. Unless another wildebeest walks by and he grabs it,
the lion will fill and go away and the jackals, hyenas,
vultures, and crows will stay and nibble on smaller things.
That's as far down the chain as she wants to go. New
opportunities probably don't exist in this playground so it's a
good thing the lion is still here, she stated.
CO-CHAIR PASKVAN thanked the AOGCC and Ms. Foerster in
particular.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AOGCC Presentation to SEN RES_4-8-2011.ppt |
SRES 4/8/2011 3:30:00 PM |
|
| AOGCC_CHARTS_Workovers_for_each_Year_and_Quarter_AK_vs_ANS_W_Coast_Spot_110309.pdf |
SRES 4/8/2011 3:30:00 PM |
|
| AOGCC_CHARTS_Workovers_for_each_Year_and_Quarter_NS_vs_ANS_W_Coast_Spot_110309.pdf |
SRES 4/8/2011 3:30:00 PM |