02/05/2024 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Pikka Project Update | |
| HB257 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 257 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 5, 2024
1:02 p.m.
MEMBERS PRESENT
Representative Tom McKay, Chair
Representative George Rauscher, Vice Chair
Representative Thomas Baker
Representative Kevin McCabe
Representative Dan Saddler
Representative Stanley Wright
Representative Jennie Armstrong
Representative Donna Mears
Representative Maxine Dibert
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION(S): PIKKA PROJECT UPDATE BY SANTOS
- HEARD
HOUSE BILL NO. 257
"An Act requiring the Department of Natural Resources to make
Cook Inlet seismic survey data available to certain persons; and
providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 257
SHORT TITLE: COOK INLET SEISMIC DATA
SPONSOR(s): REPRESENTATIVE(s) MCKAY
01/16/24 (H) PREFILE RELEASED 1/12/24
01/16/24 (H) READ THE FIRST TIME - REFERRALS
01/16/24 (H) RES
02/05/24 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
JOE BALASH, Senior Vice President
External Affairs
Santos Ltd
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation, titled
"Pikka Project Update."
TREVOR JEPSEN, Staff
Representative Tom McKay
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Gave a PowerPoint presentation on HB 257,
on behalf of Representative McKay, prime sponsor.
JOHN CROWTHER, Deputy Commissioner
Office of the Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
257.
ACTION NARRATIVE
1:02:46 PM
CHAIR MCKAY called the House Resources Standing Committee
meeting to order at 1:02 p.m. Representatives Armstrong,
McCabe, Rauscher, Johnson, Mears, Wright and Baker were present
at the call to order. Representatives Dibert and Saddler
arrived as the meeting was in progress.
^PRESENTATION(S): Pikka Project Update
PRESENTATION(S): Pikka Project Update
1:03:48 PM
CHAIR MCKAY announced that the first order of business would be
the Pikka Project Update presentation.
1:04:38 PM
JOE BALASH, Senior Vice President, External Affairs, Santos Ltd,
provided a PowerPoint presentation, titled "Pikka Project
Update" [hard copy included in the committee packet].
1:05:08 PM
MR. BALASH provided some background information about Santos Ltd
("Santos"), which is headquartered in Adelaid, Australia.
Santos is primarily a gas company and one of the largest
domestic gas suppliers in Australia and a leading liquified
natural gas (LNG) provider for the Asia Pacific region. Santos
merged with Oil Search in 2021 and has 4,000 employees
worldwide. In Alaska, Santos is a 51 percent owner of the Pikka
Oil Field ("Pikka") and is partnered with Repsol, which owns 49
percent. The current Alaska workforce has 259 positions and is
expected to grow to 430 by the end of 2024. Santos will move
into a downtown Anchorage office later this year. Pikka was
discovered in 2013 and is a significantly sized oil field. The
acreage of Pikka is on state land. He noted the benefits of
community support through development and infrastructure
opportunities. He mentioned that 82 percent of the Santos team
for the Pikka project has come from within Alaska.
1:09:52 PM
MR. BALASH showed a map of the Pikka project on slide 3. During
the exploration season in 2020, discoveries were made which led
to the formation of the Quokka and Horseshoe units. There are
work plans to further develop and promote those resources.
Phase 1 of Pikka will develop more than 900 million barrels.
1:11:39 PM
MR. BALASH moved to slide 4, titled "Pikka Phase 1 Maximizes
High Reservoir Quality," which showed the well layout for the
Nanushuk Drill sites A, B, and C. Pikka Phase 1 targets the
heart of the Nanushuk "2/3 reservoirs." The pink colored dots
on the map represent wells that have appraised the oil
accumulation and have indicated excellent resource density.
1:13:11 PM
MR. BALASH moved to slide 5, titled "Bringing Pikka to Life,"
and said that it is expected to cost $2.6 billion to reach first
oil. Major contracting was completed and issued purchase orders
were awarded under contracts that totaled more than $2 billion.
Upgrades were made to the NB-D rig in winter of 2022-2023.
Drilling began in June 2023. Five wells were completed by the
end of 2023; the sixth well is underway and permitting for the
next well was received recently. In total there will be 45
wells. The depth of the accumulation is relatively shallow, and
the drill site was moved further inland away from the Colville
River due to concerns from residents and stake holders. The
move has resulted in drilling at a steep angle, which is a
challenging consideration. It is expected that 80,000 barrels
per day (BPD) will be produced and brought through the Trans-
Alaska Pipeline System. As an impact of production, it is
estimated that there will be a $1.15 per barrel increase in the
first 10 years. Every barrel on the slope will become more
valuable when production is undertaken.
1:17:55 PM
MR. BALASH continued with slide 6, "Local Content and
Contribution," and described a long-term land use agreement with
Kuukpik Corporation ("Kuukpik"). The agreement provides
subsistence preservation and open access for subsistence
representatives with close cooperation and transparency on
planned activities to minimize impacts. He described the Pikka
Phase 1 spend through November 2023, half of which included
materials obtained from outside Alaska. Moving forward, Alaska
Native and non-Native vendors will receive more business. For
Phase 1, it is estimated that $7 billion will be paid to the
state treasury through taxes and royalties. A portion of
royalties from Phase 1 are payable to Arctic Slope Regional
Corporations and are subject to 7I under Alaska Native Claims
Settlement Act (ANCSA) and are shared with other regional and
village corporations and will benefit every ANCSA shareholder in
Alaska.
1:23:32 PM
MR. BALASH moved to slide 7, titled "Facilities Design &
Logistics Approach." He explained that the production facility
is being constructed with prefabricated modules from Western
Canada and trucked to the North Slope. This approach saves
about $200 million. The ability to traverse the Dalton Highway
is critical to the success of this project and the Department of
Transportation & Public Facilities (DOT&PF) is aware. As of
December 31, 2023, the project is 37 percent complete, which is
on time and on budget. First oil is projected to be in the
second quarter of 2026.
MR. BALASH mentioned that weather conditions have been a
significant challenge and have restricted vehicle traffic to
critical or emergency traffic only. The safety of the workforce
and contractors is paramount.
1:29:02 PM
MR. BALASH explained how the Nanushuk Processing Facility would
be constructed on slide 8, "Nanushuk Processing Facility (NPF).
He described the increased efficiency of the "off-the-shelf"
truck-able design. He noted the successful partnership with
Joint Pipeline Crafts Council to hire their contractors and
other workforce.
1:32:09 PM
MR. BALASH moved to slide 9, titled "Beyond Phase 1," which
showed a depiction of the Phase 2 production facility, which
mirrors Phase 1 and utilizes two 40,000 barrel per day units per
phase. Drill sites for A and C have already been permitted,
gravel needs to be laid, pipelines need to be extended, and
capacity of the production facility needs to increase to move
from 80,000 barrels per day to 160,000 barrels per day.
1:33:46 PM
MR. BALASH moved to slide 10, "Significant, Long-Term Supply
Portfolio." He noted the Quokka and Horseshoe units that have
work plans. He referred to a graph that demonstrated that cash
flow from phase 1 will be robust and is based on potential from
geologist analysis.
1:35:16 PM
MR. BALASH, in response to committee questions, answered that
Phase 2 would be paid for by abundant cashflows from Phase 1.
Each subsequent phase would be funded by the previous phase and
would continue to pay back dividends to the corporate center and
shareholders. He noted that if there is a demand for
hydrocarbons, the state and federal government maintain a
reasonable regulatory and fiscal climate, and there remains a
level playing field among competitors, Pikka would take positive
investment action every 3-4 years. The graph represents 20 to
possibly 30 years. Mr. Balash answered that equipment was
procured from Canada because the company was well-established,
and Santos needed reliable products from a manufacturer with a
track record. Alaska vendors and contractors are utilized
wherever possible and profitable. He mentioned that there is a
minor amount of associated natural gas at Pikka, which is fully
utilized as part of oil recovery efforts. Water alternating gas
(WAG) is injected to fully sweep the reservoir of rock to
recover as much of the oil resource as possible.
1:40:58 PM
MR. BALASH moved to slide 11, titled "Alaska" and explained how
Santos describes Alaska to investors in Australia. Alaska is
described as a world class resource with tier 1 jurisdiction and
significant optionality. Alaska has significant reserves and
resources that will generate significant free cashflow and can
self-fund future phases and fund returns to shareholders.
Alaska leverages significant infrastructure in place and has an
operational team with significant North Slope experience. There
is a stable regulatory environment and supportive stakeholders.
Overall, Alaska is an attractive place for Santos to invest
capital. Together with Repsol, Santos is bringing in $3 billion
to Alaska's economy in new capital.
1:42:45 PM
MR. BALASH, in response to committee questions, said at the end
of 2023, 98 percent of people hired were Alaska residents. Many
positions are in Anchorage. Up on the North Slope, most workers
are hired by Santos' contractors and Santos doesn't have
information about the residency of those workers. He noted that
significant efforts have been made to hire locally first by some
contractors. Mr. Balash described Santos' core values as a safe
workplace that applies to employees and the environment. Santos
works with Kuukpik to provide transparency in activities. He
mentioned Santos' corporate commitment to achieve net-zero
emissions by 2040. Santos is utilizing turbines to generate
electricity which will cut down on other emissions. Santos is
committed to offset remaining emissions through nature-based
offsets with an Alaska Native corporation through a forest
management project. In the long term, Santos is working on
carbon capture technology.
1:49:18 PM
MR. BALASH, in response to committee questions, said Santos is
watching the Department of Natural Resources closely regarding
future carbon off-set opportunities. Santos has a goal to own
the offset projects to ensure the lowest cost offset possible.
Net-zero emissions is a requirement of Santos' shareholders and
CEOs. He explained the difference between different classes of
wells and offered to follow up with more information.
1:53:53 PM
CHAIR MCKAY explained, in response to Representative Mears'
question, that carbon dioxide is corrosive. Class-six wells
need stainless steel or possibly chrome tubulars, where normal
class-two wells have carbon steel tubulars and are not
appropriate for carbon dioxide storage because of corrosion.
1:54:13 PM
MR. BALASH, in response to committee questions, said that Pikka
was discovered in 2013 by Repsol. The development of drilling
technology for horizontal stimulation has changed what is
economic today versus what might have been economic 40 years
ago. He suggested that markets and technology change, while
rocks remain the same. The ability to gather multiple seismic
shoots has added to the understanding of the geology and the
opportunities in the North Slope. There were tax incentives
back in 2013 that encouraged exploration in Alaska. High
exploration costs in the North Slope have hindered development.
Access to gravel and ice roads is critical. Mr. Balash
explained that Quokka is on state land leases and Horseshoe has
12 federal land leases. Oil within the Horseshoe region will be
reached from the state lands. Permits will be necessary to meet
requirements.
2:02:31 PM
CHAIR MCKAY thanked Mr. Balash for his presentation.
2:02:57 PM
The committee took an at-ease from 2:03 p.m. to 2:05 p.m.
HB 257-COOK INLET SEISMIC DATA
2:05:35 PM
CHAIR MCKAY announced that the final order of business would be
HOUSE BILL NO. 257, "An Act requiring the Department of Natural
Resources to make Cook Inlet seismic survey data available to
certain persons; and providing for an effective date."
CHAIR MCKAY, as prime sponsor, presented HB 257. He shared the
sponsor statement [included in the committee packet], which read
as follows [original punctuation provided]:
As Alaska State Legislators, we are all committed to
unlocking the vast potential of Cook Inlet for gas
exploration and drilling. One way we can do this is by
attempting to broaden access to state-owned seismic
survey data. This legislation aims to enhance data
access, allowing a wider range of experts and industry
players to explore the geological intricacies of Cook
Inlet. By making seismic data more accessible, we hope
to stimulate interest and investment from new players
in the energy sector. Our goal is to enhance energy
security, support economic development, and ensure the
sustainable management of Alaska's natural resources.
This bill represents a pivotal step toward realizing
the untapped potential of Cook Inlet, encouraging
innovation, and fostering a competitive energy market.
2:07:49 PM
TREVOR JEPSEN, Staff, Representative Tom McKay, Alaska State
Legislature, on behalf of Representative McKay, prime sponsor,
gave a PowerPoint presentation on HB 257 [hard copy included in
the committee packet]. He provided an overview of seismic data,
which is a tool used by the oil and gas industry to map
geological structures with sound waves. Typically, procuring
this specialized data costs anywhere from a few million dollars
to tens or hundreds of millions. Despite state-owned seismic
data being offered at a fraction of the cost for acquisition, it
still serves as a barrier for exploration. HB 257 would require
the Department of Natural Resources (DNR) to distribute state-
owned seismic data to qualified persons at no charge. The goal
of the legislation is to attract new players and industry
professionals to Cook Inlet where gas production is predicted to
decrease in the near future costing the state hundreds of
millions in infrastructure investment and resulting in
significantly higher energy prices for rate payers.
2:14:27 PM
CHAIR MCKAY explained that the bill is limited to Cook Inlet to
spur exploration and development in the area.
2:14:58 PM
REPRESENTATIVE MCCABE sought to confirm that the data is stored
at the Geological Materials Center (GMC).
MR. JEPSEN answered yes.
2:15:20 PM
REPRESENTATIVE SADDLER requested the citation for the seismic
tax credits.
MR. JEPSEN responded AS 43.55.025(a)(2) and AS 43.55.025(f)(2).
He concluded the presentation with a report on seismic sales in
Cook Inlet and a brief sectional analysis.
2:19:28 PM
JOHN CROWTHER, Deputy Commissioner, Office of the Commissioner,
Department of Natural Resources (DNR), said the DNR fiscal note
captures existing funds from data sales that were covering the
operational costs of the program as designated program receipt.
The fiscal note also reflects an anticipated increased interest
in the data sets, which would result in increased operational
costs.
2:21:37 PM
REPRESENTATIVE SADDLER sought clarification of page 2, line 17
of the bill.
MR. CROWTHER said there are different land ownership types in
Cook Inlet. Historically, the owner of proprietary data may be
an exploration company.
REPRESENTATIVE SADDLER asked for the percentage of the Cook
Inlet basin that's privately owned.
MR. CROWTHER said he did not have a precise number; nonetheless,
two land ownership patterns are relevant on a macro scale:
Alaska Native Corporations pursuant to the Alaska Native Claims
Settlement Act (ANCSA) and small private land ownership types.
He stated that Cook Inlet has the most complex land ownership
pattern.
2:24:26 PM
REPRESENTATIVE SADDLER questioned the likelihood that this
proposal would be prevented under the confidentiality provisions
of subparagraph (A) on page 2, lines 15-17.
2:24:57 PM
MR. CROWTHER clarified that current law obligates DNR to modify
the datasets by extracting restricted data before public
disclosure. He added that all the data available for sale or
publication has already gone through that process.
2:25:48 PM
REPRESENTATIVE MEARS shared her understanding that the larger
concern for development is the timeliness of the data release.
MR. CROWTHER recalled that legislators were concerned about
promptly publishing the data as soon as the confidentiality
period expire. He said DNR has been working to revise its
processes and accelerate the publication timeframes.
REPRESENTATIVE MEARS asked whether the bill would affect the
timeliness of the data release.
MR. CROWTHER said DNR does not anticipate a delay in timeframe
if the bill were to pass. He noted that all of this information
is available on DNR's website and all of the seismic tax credit
data that's eligible for release is available for public access.
2:30:06 PM
CHAIR MCKAY announced that HB 257 was held over.
2:30:46 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:30 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 20240205 HRES Pikka Project Update - PDF.pdf |
HRES 2/5/2024 1:00:00 PM |
|
| HB0257A.pdf |
HRES 2/5/2024 1:00:00 PM |
HB 257 |
| HB 257 - Sponsor Statement Version A.pdf |
HRES 2/5/2024 1:00:00 PM |
HB 257 |
| HB 257 - Sectional Analysis Version A.pdf |
HRES 2/5/2024 1:00:00 PM |
HB 257 |
| HB 257 - Fiscal Note 1 - DNR.pdf |
HRES 2/5/2024 1:00:00 PM |
HB 257 |
| HB 257 - DNR Seismic Sales by Sector and Region - 2018 to 2023.pdf |
HRES 2/5/2024 1:00:00 PM |
HB 257 |
| HB 257 - DNR Cook Inlet Seismic Sales Summary - 2018 to 2023.pdf |
HRES 2/5/2024 1:00:00 PM |
HB 257 |
| HB 257 - Presentation Version A.pdf |
HRES 2/5/2024 1:00:00 PM |
HB 257 |