Legislature(2021 - 2022)SENATE FINANCE 532
01/19/2022 09:00 AM Senate FINANCE
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| Audio | Topic |
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| Start | |
| Production Forecast: Department of Natural Resources | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
January 19, 2022
9:01 a.m.
9:01:10 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:01 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Donny Olson
Senator Natasha von Imhof
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
Senator Lyman Hoffman
ALSO PRESENT
John Crowther, Deputy Commissioner, Department of Natural
Resources; Maduabuchi Pascal Umekwe, Petroleum Reservoir
Engineer, Department of Natural Resources; Corri Feige,
Commissioner, Department of Natural Resources.
SUMMARY
PRODUCTION FORECAST: DEPARTMENT OF NATURAL RESOURCES
9:01:55 AM
AT EASE
9:05:39 AM
RECONVENED
Co-Chair Stedman discussed protocol for COVID-19. He stated
that mask-wearing would be required in the Senate Finance
Committee room until further notice. He anticipated ongoing
discussions with Legislative Council.
Co-Chair Stedman introduced his staff and discussed the
roles in his office, which included the operating budget.
Co-Chair Stedman discussed the role of Co-Chair Bishop and
his staff. He explained that Co-Chair Bishop worked on the
capital budget and legislation.
Co-Chair Stedman introduced Senator von Imhof and her
staff.
9:09:31 AM
Co-Chair Stedman introduced Senator Olson and his staff.
Co-Chair Stedman introduced Senator Wielechowski and his
staff.
Co-Chair Stedman introduced Senator Wilson and his staff.
Co-Chair Stedman introduced Senator Hoffman and his staff.
9:11:58 AM
Co-Chair Stedman introduced the Senate Finance Committee
staff. He introduced the staff from the Legislative
Information Office.
9:13:22 AM
Co-Chair Stedman explained that the committee would engage
in the budgetary process in a manner like the previous
year. The committee would take the executive branch's
submitted budgets, remove non-recurring funds and fund
adjustments to work with a base budget that would appear as
"Committee Substitute Zero." He thought it was important to
have a base document to work from to provide accuracy,
after which the committee would layer on other fund sources
such as federal funds and COVID-19 relief funds. He
discussed recurring revenue and the opportunity to
recognize a structural deficit.
Co-Chair Stedman discussed committee decorum. He reminded
that there was no eating allowed at the table, nor outside
reading materials. He commented that the current committee
had the most experienced finance staff ever assembled, in
terms of years of experience and background. He noted that
the members did not agree on all matters, and there would
be thorough discussion and analysis as the members worked
through issues.
9:16:14 AM
Co-Chair Stedman commented that there were two new
committee aides. He wanted to recognize that meetings were
for the public and the material was presented in an easily
understood format. He asserted that understanding was the
goal.
9:18:29 AM
Co-Chair Bishop commented on safety and noted that the
staff tables had been refinished and had sharp edges. He
noted the emergency exits in the room.
9:19:23 AM
Co-Chair Stedman introduced the presenters.
^PRODUCTION FORECAST: DEPARTMENT OF NATURAL RESOURCES
9:20:33 AM
JOHN CROWTHER, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, introduced himself and relayed that Corri
Feige, Commissioner, Department of Natural Resources was
also online.
9:21:00 AM
MADUABUCHI PASCAL UMEKWE, PETROLEUM RESERVOIR ENGINEER,
DEPARTMENT OF NATURAL RESOURCES, introduced himself.
9:21:32 AM
CORRI FEIGE, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
explained that the Department of Natural Resources (DNR)
she shared that the oil sector had experienced recovery
from the beginning of the global pandemic in 2020. She
stated that demand was currently ahead of supply. She noted
that Alaska crude closed just above $89/bbl the previous
day. She relayed that 2022 could see a rebound in oil
prices, which could change quickly due to the volatile
nature of the oil market. She related that at a meeting on
January 4, 2020, Oil Producing and Exporting Countries
(OPEC+) nations announced that they planned to continue
their restrained month increase in supply. She said that
the restrained approach could indicate that the idle
capacity of these nations could make it difficult to return
to production. She said that this market sentiment had
driven prices over the past few weeks. She stated that
stronger and more stable prices and increased demand was
good for Alaskas industry. She lamented that operators in
Alaska faced significant headwinds due to the current
political climate. She opined that all companies faced
pressure to exhibit capital discipline and to increase
shareholders profits and returns, that combined with
climate activism had resulted in financial barriers and
slower reinvestment in the sector. She said that even
during uncertain times, Alaska's operators were taking full
advantage in the price rise and near-term stability to
capture efficiency and production from existing assets. She
asserted that this had resulted in decline rates across
several of the states North Slope fields.
9:24:18 AM
Mr. Umekwe introduced the presentation, Fall 2021
Production Forecast.
9:25:07 AM
Mr. Umekwe looked at slide 2, "Agenda":
?Introduction
?Background:
?FY2021 in Review
?DNR Production Forecasting Approach
?Fall 2021 Forecast Results
?Summary
9:25:28 AM
Mr. Umekwe showed slide 3, "BACKGROUND: FY 2021 IN REVIEW."
Mr. Crowther referenced slide 4, "FY 2021 AS FORECASTED BY
DNR IN FALL2020: HOW DID WE DO?":
DNR forecast proved reliable for State revenue
planning, as actual FY 2021 production came in within
DNR's forecasted range.
?DNR expected case forecast was ~5% under actual
FY 2021 production
New factors to watch for that are currently shaping
the forecast horizon
Strong Environmental Social and Governance (ESG)
influences introduce a new terrain for capital
allocation decisions in the Arctic, especially
for early-stage oil projects under
development/evaluation ?Current Production:
Varied operator responses to the many phases of
the covid-19 pandemic influencing several aspects
of field management and redevelopment efforts
Mr. Umekwe looked at the bar graph entitled 'DNR FY2021
North Slope Forecast (Generated in Fall 2020)' and noted
that the black bar showed actual production. The grey bars
represented forecasts. He reported that production had
fallen within the projected range. He pointed to two of the
factors that were active in shaping the forecast strong
environmental social and governance influences and current
production due to Covid-19.
Mr. Umekwe discussed how the COVID-19 pandemic had affected
production.
9:28:59 AM
Senator von Imhof appreciated slide 4 showing the high,
middle, and low forecasts. She asked whether there was a
slide that showed how the forecasts translated to revenue
to the state at various prices.
Mr. Crowther stated he would be happy to work with the
Department of Revenue (DOR) to prepare a summary of the
information.
Co-Chair Stedman relayed that the request would be directed
to DOR. He explained that "all oil was not the same as far
as it translated to dollars into the treasury. He noted
that all oil was the same in the pipeline but there were
significant differences in price depending on where the oil
came from.
9:30:51 AM
Mr. Umekwe commented that the appendix of the Revenue
Sources Book contained a list of various oil prices.
9:31:16 AM
Mr. Umekwe turned to slide 5, "FY 2021 SUMMARY:
NORTHSLOPE":
Highlights (FY2021 vs FY2020)
?All fields are generally expected to see a year-
on-year decline
?Compared to FY2020, in FY 2021 North Slope
production increased by ~2% (~10,000 bopd)
?Increases
?GPBU: 5% production growth due to well/facility
optimization efforts
?MPU: 20% production growth due to consistent
drilling efforts
?PTU: Over 40% growth; improved facility
reliability
?Decreases
?KRU: Production essentially held flat at FY20
levels
?GMT1: Over ~50% drop. Reservoir challenges
persist
?Oooguruk: Absence of drilling since 2016
Mr. Umekwe thought slide 5 showed a snapshot of production.
He drew attention to the graph on the bottom right,
'Production Changes Across North Slope Assets (FY21 vs
FY20),' and noted the 5 percent production growth due to
significant well and facility optimization efforts.
Mr. Umekwe drew attention to the Point Thomson unit shown
on the graph and noted the transition from Exxon Mobile to
Hilcorp. He said that in the last years that Exxon ran the
unit they had made many upgrades. He said that the wells
were currently always online. He discussed the fields where
a decrease had been noted.
9:35:30 AM
Senator Wielechowski referenced Point Thomson, and thought
the state had a settlement agreement with the previous
operators. He recalled that 10,000 barrels were supposed to
be produced every day. He asked Mr. Umekwe to discuss Point
Thomson development, and whether the operators had followed
the settlement agreement.
Mr. Umekwe recalled that the goal of the agreement had been
to produce 200 million cubic feet of gas per day. He
deferred to the Alaska Oil and Gas Conservation Commission
(AOGCC).
Co-Chair Stedman asked Mr. Umekwe to get back to the
committee with more information, including more information
on the tariff structure. He discussed getting the
condensate out of Point Thompson and into Trans-Alaska
Pipeline System (TAPS) was of interest to the committee.
Mr. Crowther agreed to provide the information.
9:37:46 AM
Senator Wielechowski had a budget briefing with the
governor's office a few weeks previously. He thought that
gas that had been previously shipped and reinjected was no
longer being handled in the same manner and that oil was
now being counted toward production that had no been
previously counted as such.
Mr. Umekwe asked whether Senator Wielechowski was
referencing NGOs that had been previously moved. He
explained that over the previous two years, natural gas
liquids had been shipped from the Prudhoe Bay unit to the
Kuparuk River unit for use in enhanced oil recovery. He
relayed that that practice had stopped, and the pipeline
was now being used for the transfer of gas to use as fuel
in the Kuparuk River unit. He summarized royalties were
paid on natural gas liquids that left the Prudhoe Bay unit
because it crossed unit boundaries. He said that when the
liquid went to the Kuparuk River unit, royalties were paid
upon production. He said that the cost in the projection
was adjusted within the total revenues the operators had to
pay at the Kuparuk unit.
9:40:27 AM
Senator Wielechowski asked whether the situation caused an
increase or decrease in any of the forecast numbers.
Mr. Umekwe replied in the negative. He said that the
numbers in the source book were based on what came out of
the ground.
9:40:49 AM
Co-Chair Stedman asked Mr. Umekwe to discuss processing
facilities on the North Slope. He wondered how many
facilities there were, and which were operating at full
capacity. He asked about the reasons for increases at
Prudhoe Bay and Melanie Point and wondered whether those
gainful processes could be applicable elsewhere.
Mr. Umekwe stated that the Prudhoe Bay unit had 6
processing facilities and the Kuparuk River unit had 3. He
said that all the facilities were operational. He said that
the gains seen at the Greater Prudhoe Bay unit was the
result of the utilization of the capacity of that facility.
Co-Chair Stedman asked Mr. Umekwe to provide more
information about the processing facilities. He asked for
more information about the change in operators in Prudhoe
Bay and the benefits of enhancing processing facilities to
increase production.
9:44:10 AM
Senator Wielechowski discussed production facilities. He
had heard that Oil Search had reached out and tried to use
ConocoPhillips's facility. He wondered whether the request
had been honored.
Mr. Crowther was aware of the negotiations between
companies, as it related to sea water treatment and oil and
liquids processing. He relayed that the Pikka project, as
designed by Oil Search, included a significant processing
facility, which could add to the capacity of the western
North Slope and be beneficia to the state.
Senator Wielechowski understood there were negotiations
between companies. He wondered to what degree the
administration was participating in those negotiations. He
queried whether the legislature should encourage the
negotiations since the state would benefit from the access.
Mr. Crowther thought Senator Wielechowski had made a fair
point. He thought the commissioner would want to comment.
Co-Chair Stedman interjected that any new entrants could
build their own facility and would have to negotiate access
into other facilities.
9:46:31 AM
Commissioner Feige clarified that Oil Search had opted to
construct their own seawater treatment facility for the
Pikka Development. She said there had been issues
surrounding the chemistry of the water that could be used
for maximizing oil production out of Pikka if the water was
sourced through ConocoPhillips's existing water treatment
facility. She understood that to accommodate production in
Willow, ConocoPhillips would need to expand their Oliktok
Point seawater treatment facility. She relayed that Oil
Search had always intended to construct their own oil
processing facilities, which would be modularized in two
phases. She said the pan was to begin with 80,000/bbl per
day with a maximum of 160,000bbl/ pre day in phase two with
the second module. She related that overlapping need and
use was found with access roads that the two parties were
currently negotiating commercial arrangement for long-term
access. She said that in both the Colville and Pikka unit
cases included state resources being developed with state
leases on state land. She asserted that the administration
had the authority to engage the state should the parties
not arrive at a commercial agreement.
9:48:56 AM
Co-Chair Stedman asked Commissioner Feige to discuss how
the department monitored the time-value of money regarding
the developments.
Commissioner Feige affirmed that the time value of money
was very important. She explained that the department was
watching proposed timeline closely. She had been told that
the final investment decision (FID) was due in June 2022.
She reiterated that the department was monitoring the
access agreement closely.
9:50:14 AM
Senator von Imhof thought that the issue was timely for the
access to landlocked leases. She questioned the incentive
for available state land to be leased that was challenging
to access. She thought access was becoming a problem for
companies trying access parcels in a timely manner.
Commissioner Feige mentioned that the nuance of the
situation was because this was the first time a party was
developing a new field that was not a working interest
owner in the unit. Historically, there had been co-working
owners that had been able to work out commercial
arrangements. She furthered that even in the instance where
companies needed to utilize facilitates, a commercial
arrangement had been reached. She thought it was important
to know that there was no exclusivity in access across
state leases. She stated that the language in the leases
and unit agreements spelled out that other operators would
be able to cross because there was no exclusive use granted
to the lessor. She said that through statutes and
regulation there was a path for the state when negotiations
failed.
9:53:15 AM
Senator Wielechowski understood that typically the state
should take a "light hand" in involvement in negotiations
between private companies. He hoped the state would get
involved and encourage some sort of settlement.
Co-Chair Stedman asked Commissioner Feige to keep the
committee apprised of the situation over the following
months.
9:54:17 AM
Senator Wielechowski reference Point Thompson. He
understood that two years ago it had been determined that
three things had needed to happen at Point Thompson:
companies were to produce more than 10,000/bbl per day of
condensate oil, there was to be a major gas sale at Prudhoe
Bay and was going to be a blown down of gas at Prudhoe Bay.
He noted that none of those things had come to pass, and he
was curious why a new settlement agreement was signed.
Commissioner Feige thought Senator Wielechowski was
referencing the letter agreement signed under the previous
administration, previous DNR commissioner, and the owners
and operators of Point Thompson. She shared that the letter
agreement expanded the trigger date within the original
Point Thomson settlement agreement, which at the time was
intended to give more time for negotiation for a major gas
sale. She offered to provide a thorough update of the Point
Thompson settlement agreement.
Commissioner Feige noted that the prior developer, Exxon,
had made significant investment in high-pressure compressor
heads. She stated that the investment had led to stability
in the maximization of liquids projection. She announced
that process was over challenging technical hurdles, and
with stabilized production and a new operator the
production process had improved. She reiterated that the
department would present the committee with an update on
the project.
9:57:14 AM
Co-Chair Stedman asked that the information on Point
Thompson be consolidated into a presentation by the
department. He asserted that the state had a significant
financial stake in Point Thompson through distributed
credits. He thought Senator von Imhof and Senator
Wielechowski had brought up some good points.
9:58:39 AM
Mr. Umekwe considered slide 6, "FY 2021 SUMMARY: COOK
INLET":
Highlights (FY2021 vs FY2020)
?Oil from the Cook Inlet basin critical to the
supply of in-state refineries, as well as
yielding revenues from Royalty-in-Kind sales
?Compared to FY2020, in FY2021 Cook Inlet
production decreased by ~22% (~3000 bopd)
?All fields are generally expected to see a year-
on-year decline
?Decreases
?Redoubt Shoal & McArthur River: Fields were
taken offline in June 2020 due to pandemic-
related price crash. Fields brought back online
in September/October 2021.
Mr. Umekwe pointed to the graph on the top right of the
slide. He said that the fallout from the pandemic had
resulted in the 22 percent decrease.
Co-Chair Stedman recalled that the tax structure in Cook
Inlet terminated in 2022. He thought that the issue merited
discussion.
10:00:17 AM
Senator von Imhof was interested in whether production
would go up in 2022. She wondered about demand and supply
reserves. She questioned how production would look in the
future and if the state needed to create more demand. She
mentioned an in-state bullet line fork Makenzie Point to
Fairbanks. She wondered what the state could do to boost
production and demand in Cook Inlet so that the state would
never have to import gas.
Mr. Crowther thought Mr. Umekwe could speak to Senator von
Imhof's questions. He added that the slide was focused on
oil production from the basin.
Mr. Umekwe stated that currently the department had several
studies ongoing to better understand the basin. He said
that gas was being studies but that most of the
presentation would be based on oil
Senator von Imhof acknowledged that she had been thinking
of gas rather than oil and thought a discussion on gas
could take place later.
Co-Chair Stedman thought Department of Revenue (DOR) could
discuss the tax structure of Cook Inlet later.
10:02:40 AM
Senator Wielechowski shared concerns about declining
production. He understood that the state currently had zero
percent production taxes and zero percent royalties in Cook
Inlet, and still Anchorage had the highest natural gas
prices in North America.
Mr. Umekwe replied that the revenue sources book laid out
the tax structure for the basin. He added that prices were
publicly available.
Co-Chair Stedman thought some of the questions could be
directed to DOR. He contended that it was not a high tax
structure that was affecting the prices. He asserted that
there was no meaningful oil tax structure in Cook Inlet. He
thought that an update on Cook Inlet would be in order.
10:04:25 AM
Senator von Imhof asked if oil production stopped in Cook
Inlet whether it would affect gas production.
Mr. Umekwe replied that some of the gas would be affected.
He added that much of the gas in the inlet was independent
from oil.
10:05:15 AM
Mr. Umekwe displayed slide 7, " STATUS UPDATE OF KEY FUTURE
PROJECTS: NORTH SLOPE:
CRU Fiord West Kuparuk
Status: January 2021 6 wells planned
Status: January 2022 Extended reach drilling (Doyon
26 The Beast)
Production Rate Estimates Reaching ~20,000 BOPD
nd
CRU CD5 2 Expansion
Status: January 2021 Ongoing drilling by YE 2020
after Covid-related interruptions
Status: January 2022 Ongoing; 3 injectors drilled so
far by Nov. 2021
Production Rate Estimates Reaching over 10,000 BOPD
CRU Narwhal
Status: January 2021 N/A
Status: January 2022 First oil Dec. 2021. Produced
~1600 BOPD. More drilling expected from CD4 to total
~12 wells and full devt of 20 to 40 wells from CD8 in
~2028.
Production Rate Estimates Initial peak from single
start-up well: 1,000 to 5,000 BOPD; full peak DNR
estimates >32,000 BOPD.
GMT2
Status: January 2021 GMT2 First oil YE 2021
Status: January 2022 First oil Nov. 2021 (1,326
BOPD); 4 wells drilled by Nov 2021.
Production Rate Estimates Peak rate: 35,000 to
40,000 BOPD; 2022 update: 30,000 BOPD.
Pikka
Status: January 2021 Now planned for 2-phases; start
of production (Phase 1: 2025); To move FEED 2021; FID
& 15 percent AK divestment YE2021 through 2022.
Status: January 2022 Ongoing FEED; start of
production (Phase 1: 2025; Phase 2 FID expected by ~
2024/2025); Santos/Oil Search Merger completed.
Production Rate Estimates Peak design capacity rate,
Phase 1: 80,000 BOPD.
Willow
Status: January 2021 Plan to submit Supplemental
EIS. Record of decision achieved; FEED FID expected
YE2021. Announced first oil: 2025-2026.
Status: January 2022 Addressing AK District Court
remand; likely to target a new BLM Record of Decision
anticipated by YE2022. Construction expected to start
Q12023. First oil post 2025/2026.
Production Rate Estimates Peak rate: 130,000 BOPD
10:09:17 AM
Mr. Umekwe displayed slide 8, "DNR FALL 2021 PRODUCTION
FORECASTING APPROACH; Recap: No Change in methodology from
last year's forecast [Fall 2020 Forecast]."
10:09:40 AM
Mr. Umekwe looked at slide 9, " DNR FORECAST PROCESS:
PROJECTS/POOLS INCLUDED IN FORECAST":
?DOG performed ground-up Decline Curve forecasts for
all producing pools (Public).
Forecast of Current Production uses AOGCC
publicly available data
?~37 pools (ANS and CI), producing as of
6/30/2021
?DOG engaged with operators through DOR-arranged in-
person and written interviews
?20 projects under development/under evaluation were
considered/researched/reviewed (Confidential)
?Forecast for these projects use confidential
information from operators
?Future production from these projects were
adjusted and risked for scope of contribution,
chance of occurrence and start date
?No modifications in forecast approach between Fall
2020 and Fall 2021 forecasts
10:11:42 AM
Mr. Umekwe addressed slide 10, "CATEGORIES OF PRODUCTION:
ONGOING/CURRENT VS FUTURE PRODUCTION":
Ongoing/Current production
?Current Production (CP)
?Features and considerations:
?Well and facility uptime
?Operator spending to maintain base
production
?Reservoir management
Future production
?Projects Under Development (UD) and Under Evaluation
(UE):
?Rate contribution:
?Uncertainty in future well performance
?Uncertainty in project scope
Project occurrence and timing:
?Uncertainty in timing (incl. outright
project cancellation/deferral)
?Commerciality risk (economic,
regulatory etc)
10:13:41 AM
Co-Chair Stedman asked whether the industry reported every
six months to one year on future capital spending. He asked
for a reminder on how the interaction worked between the
department and the industry.
Mr. Umekwe explained that companies reported on capital
spending and detailed future project plans to DOR annual
basis, which DNR used in the forecast.
Co-Chair Stedman asked how far out into the future did
companies report.
Mr. Umekwe stated that the typical range of information was
10-years out.
Co-Chair Stedman asked whether it would be more accurate to
project spending trends out 6 months to 1 year, rather than
10 years.
Mr. Umekwe answered in the affirmative. He said that the
near-term provided a clearer projection.
10:15:08 AM
Senator Wielechowski asked whether there were any fields or
developments that were getting royalty relief or that had
requested royalty relief.
Co-Chair Stedman reminded that royalties were within DNR,
while other tax structures were within DOR.
Mr. Umekwe offered to provide information later.
Co-Chair Stedman asked about the interest DNR had in
requesting information pertaining to royalty relief.
Mr. Crowther agreed to provide the information.
Co-Chair Stedman explained that the royalty relief option
had been on the books for many years. He added that it was
not related to oil tax structure changes that had occurred
over the last 15 years.
10:17:18 AM
Senator Wielechowski recalled that the governor had
requested $199 million in cash credits in FY 23. He asked
whether there had been an analysis of production return on
the cash credits.
Co-Chair Stedman thought the question would be better
directed to DOR. He suggested that Mr. Umekwe or Mr.
Crowther answer the question to their capabilities.
Mr. Umekwe thought DOR could more appropriately answer the
question.
Co-Chair Stedman reminded the committee that all credits
were not equal and were targeted at different fields under
different ownerships.
10:19:18 AM
Mr. Umekwe advanced to slide 11, "MAJOR PROJECTS
[UNDEREVALUATION/DEVELOPMENT] CONSIDERED IN FALL 2021
FORECAST":
Generalized characteristics
• Projects that were not online as at end of FY2021
(data cut-off date of 6/2021)
• Higher risk factors than currently producing fields
• Known discoveries with identifiable operators
• Require major investments
Mr. Umekwe relayed that the yellow represented federal
land, pink represented Native owned land, and blue
represented state-owned land. He reiterated that not all
oil was the same, and that oil produced from different
projects in different segments of the state resulted in
different amounts of royalties and worked under different
production taxes. He said that the projects on the chart
were meant to provide an outlook over a 10-year timespan.
He said that only discoveries were considered for the
analysis.
10:21:43 AM
Co-Chair Bishop asked if Commissioner Feige had an update
on the Liberty development.
Commissioner Feige recalled that the Liberty development
sat in federal waters, and there had been a legal challenge
to the permits. The 9th Circuit Court of Appeals had made
the determination that Liberty had to go back to the
beginning of the permitting process. She agreed to check
with LAW and get back to the committee with more
information.
Co-Chair Stedman asked Commissioner Feige to include a
historical synopsis of the project.
Commissioner Feige agreed to provide the information.
10:23:45 AM
Senator Wilson asked whether the department had seen an
increase or decrease in new or ongoing projects.
Commissioner Feige relayed that the previous year the
department had seen application for 4 new units;
applications for 2 new until had been received in 2022.
Mr. Crowther commented that the map on slide 11 showed blue
outlined blocks that indicated leases that were not yet
unitized nor part of a developing field. He said that the
lease positions were new and reflected new geological
interest.
10:26:02 AM
Mr. Umekwe showed slide 13, "FALL 2021: NORTH SLOPE
ANNUALIZED FORECAST":
Short Term:
• DNR forecasts FY2022 annualized average daily
statewide production at 500 MBOPD, and North
Slope production at 492 MBOPD, with a range of
430 MBOPD and 555 MBOPD
Long term:
• Long term forecast reliability is gauged by
general ballpark comparison between DNR and
operators' aggregate forecasts. Operators' long-
term outlook falls within DNR's long term
forecast range
• Specific differences are expected and do
highlight DNR's ground-up uncertainty analysis on
all included projects
• Outlook on production assumes that operators'
plans and other project drivers stay unchanged
Co-Chair Stedman thought some of the chart on slide 13
could be reflected in the DOR revenue forecast numbers.
Mr. Umekwe agreed.
10:28:41 AM
Senator von Imhof asked Mr. Umekwe to speak to the blue
line and define operator and the overlay with the
projected numbers.
Mr. Umekwe explained that all the operators of currently
producing assets provided 10-year projections to DOR. The
department plotted the numbers in an aggregated view to
investigate the long-term and compare DNRs numbers with
those of the operator.
Senator von Imhof understood that there were written
analysis and oral interviews with operators. She summarized
that the operators told DNR their projected capital
investments, both current and future and the department
used that information to create a high, medium, and low
analysis.
Mr. Umekwe agreed.
10:30:53 AM
Senator Wielechowski observed that the operator forecasts
tended to be optimistic, and then actual production numbers
would come in lower. He pointed to the divergence in 2029
and thought that DNR was projecting 20,000 barrels more
than operators.
Mr. Umekwe directed attention to the notes below the chart:
? Comparison of DNR vs Operator Forecasts across
the same group of NS fields.
? Excludes DNR's forecasts for non-producing units;
operators' numbers in charts also excludes not-yet
producing fields.
10:32:57 AM
Senator Wielechowski asked about the anticipated projects
that would create the 20,000bbl in 2030.
Mr. Umekwe listed Pikka and Willow as projects that would
add to production numbers.
Co-Chair Stedman thought that the committee could break the
issue down into deeper detail in future discussions.
10:34:04 AM
Mr. Umekwe referenced slide 14, "ALASKA STATEWIDE OIL
PRODUCTION FORECASTFALL 2021 EXPECTED CASE and CATEGORIES
OF PRODUCTION," which showed a graph entitled 'AK Fall 2021
Production Forecast (Expected Case): Production
Categories.' The slide broke down production into different
areas. The blue section showed current production; the rust
color showed projects under development; the grey
represented projects under evaluation:
.notdef Current Production (CP) remains backbone of state
production in near and medium term
.notdef Under Development (UD) segment represents production
expected from wells drilled in FY2022
.notdef Under Evaluation (UE) begins to play a more
significant role in production in the next 5-10 years
.notdef Production outlook depends on several factors
including operators' plans, oil price, fiscal system
Mr. Umekwe relayed that the numbers from the industry were
snapshots in time and as conditioned changed, changes in
the outlook would be expected.
10:35:40 AM
Senator Wilson wondered why the numbers for the projects
under evaluation were considered in FY 22 and FY 23 on the
chart. He felt that the production from those projects
would not factor into the numbers until well after 2023.
Mr. Umekwe explained that the numbers did play a bigger
role in future projections, there would be minor, or low,
volumes in the first fiscal year.
Co-Chair Stedman noted that there was a new firm at work in
Prudhoe Bay that was doing work on enhancing the area. He
asked how DNR was taking account of the new interest in
Prudhoe Bay by Hilcorp and how would that interest impact
the chart on slide 14.
Mr. Umekwe responded that the current operator in Prudhoe
Bay saw potential in the asset. He said that during
technical conversations about plans for development,
operators described areas where opportunities existed. He
said that the numbers on the slide included year out look
at well that operators planned to drill in the next few
years. He said for DNR included the outlook within the
asset when generating projections.
10:39:25 AM
Co-Chair Stedman asked whether DNR had to increase future
expectations for Prudhoe Bay over the past few years as it
changed ownership. He asked about the marginal difference.
He thought there had been significant positive change in
Prudhoe Bay.
Mr. Umekwe thought another slide would show 5 percent
growth in Prudhoe Bay. He stated that in the first year of
the new operatorship there had been an improvement in
facilitates and infrastructure. He shared that improvement
in drilling and other operating activities were now
evident. He noted that the decline rate had also improved.
Co-Chair Stedman recalled previous decline rates of 2 and 3
percent. He thought that the decline rates had been very
predictable over the last decade. He appreciated the new
operatorship and investment and added that decline was a
natural result of an aging field.
10:41:43 AM
Senator Wielechowski did not want the state to get caught
in a future situation that resulted in the loss of
production. He pointed to the UE projects on the slide.
Mr. Crowther responded that the UD and UE categories
included large fields that were several years out and would
create a large change in the production profile. He said
that projects that were not in production or not being
drilled by June 30, 2021, would be represented in the
"under development" or "under evaluation" categories of the
graph. He stated that the category included a spectrum of
different projects.
Co-Chair Stedman asked whether the chart could be broken
down by field and project type for better risk adjustment
by the committee.
Mr. Crowther noted that some of the information was based
on confidential discussions with operators.
Co-Chair Stedman responded that the committee was aware of
the confidentiality. He suggested a new color of category
titled super-secret could be established for such
information.
10:44:08 AM
Senator Wielechowski asked whether there were any leases on
the North Slope that the department believed were not being
explored or developed for production.
Co-Chair Stedman noted that the question was controversial.
Mr. Crowther deferred to Commissioner Feige.
Commissioner Feige stated there were several leases
currently being held that had not yet commenced exploration
work. She furthered that over the previous several years
the state had injected terms into the leases that shortened
the initial primary term. She said that there had been
analysis within the department that showed an approximate
7-year timeframe from leasing to first exploration well.
She continued to explain that the primary term had been
shortened, which placed additional pressure on the
operators to prioritize the acreage and commence
exploration before the primary term. Additionally, the
state had established a significant escalation in the
annual per acre rent. She said that leasees could apply for
a waiver of the increased rent by demonstrating sufficient
work or could apply for an extension beyond the primary
term. She felt that all the new mechanisms put pressure on
companies to work the acreage in a meaningful way that led
to discovery. She did not believe that any companies were
currently warehousing any acreage.
10:47:29 AM
Senator Wielechowski wanted to see a list of operators and
what had been leased, and details on exploration,
production, and development of projects. He thought the
committee would benefit from the information. He had seen
fields that were extremely profitable, and the state was
giving out tax breaks, deductions, and credits to companies
for simply doing their job.
Commissioner Feige stated that the list of lessors was
available on DNR's Division of Oil and Gas website. She
said that she could investigate, by company, the work that
had been done on the leases.
Co-Chair Stedman asked for the commissioner's help on the
matter. He noted that newer leases had clauses to encourage
develop sooner than later. He asked about older leases.
Commissioner Feige answered affirmatively.
10:49:37 AM
Mr. Umekwe went back to slide 14 and noted that some of the
projects would include projects like the GMT2 project that
had just come online and would be included in the grey bar
beginning in 2022.
Co-Chair Stedman asked for the information to be in another
format to include 2025 and 2026. He thought this would
provide further clarity.
10:50:12 AM
Mr. Umekwe turned to slide 15, "FALL 2021 PRODUCTION
FORECAST-SUMMARY":
• DNR Forecast continues to use the best
information available to DNR/DOR, to generate
production outlook for oil fields within the
state, with a focus on generating accurate near-
term, and realistic long-term, forecasts.
• Fall 2021 Forecast is a static view on
production; DNR's outlook is updated annually
(Fall and Spring) to incorporate latest operator
plans and the State's official updated price
outlook.
• DNR's Fall 2021 outlook shows mean annual
production of approximately 500 MBOPD across much
of the outlook period, based on the current
snapshot of operators' plans.
• Production from projects under evaluation
reflects uncertainty in operators' plans towards
return to pre-pandemic activity levels, specific
project uncertainties, as well as project scope
and timing risks.
Mr. Umekwe explained that the slide was a summarization of
the presentation.
10:52:08 AM
Mr. Umekwe showed slide 16, "THANK YOU":
Thank you on behalf of the DOG Fall 2021 Production
Forecasting Core Team: John Burdick, Linda Liu, Travis
Peltier, Shaun Peterson, Chalinda Weerasinghe, Glenn
Lau, Maduabuchi Pascal Umekwe, Ph.D.
10:52:14 AM
Senator Wilson asked what the legislature could do to
assist DOR and DNR to get first oil as quickly as possible
for some of the current projects.
Mr. Crowther thought there were several pieces of
legislation that the department had introduced. He stated
there was a tremendous effort ongoing by DNR to actively
manage leases to promote development. There was a robust
effort underway through the appropriations and authority
given by the legislature. There was a very dynamic,
uncertain, and competitive global environment, which he
hoped the committee would consider.
Co-Chair Stedman thanked the presenters. He thought that a
combine meeting with DNR and DOR could be fruitful as the
legislature worked to close the structural deficit.
Co-Chair Stedman discussed housekeeping.
ADJOURNMENT
10:54:46 AM
The meeting was adjourned at 10:54 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DNR Fall 2021 Production Forecast_Senate.pdf |
SFIN 1/19/2022 9:00:00 AM |
DNR Production Forecast |
| 011922 DNR Respose to Questions 2022-01-28_Production Forecast Presentation_Response to Committee_Final.pdf |
SFIN 1/19/2022 9:00:00 AM |