Legislature(2011 - 2012)BUTROVICH 205
02/26/2011 10:00 AM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Calista Region: Alternative Energy Update | |
| Presentation: Great Bear Petroleum Llc | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 26, 2011
10:01 a.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
MEMBERS ABSENT
Senator Bert Stedman
Senator Lesil McGuire
Senator Hollis French
Senator Gary Stevens
OTHER MEMBERS PRESENT
Senator Joe Thomas
Representative Paul Seaton
COMMITTEE CALENDAR
CALISTA REGION: ALTERNATIVE ENERGY UPDATE
- HEARD
PRESENTATION: GREAT BEAR PETROLEUM LLC
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ANDREW GUY, President and CEO
Calista Corporation
POSITION STATEMENT: Presented Yukon Kuskokwim Delta (YK) energy
project.
PAUL GEORGE GUY, General Manager
Kweth Inc. Village Corporation
POSITION STATEMENT: Testified as chairman of the board of
Nuvista Light and Electric Cooperative on YK energy project.
CHRISTINE KLEIN, COO
Calista Corporation
POSITION STATEMENT: Commented on Nuvista Cooperative as part of
Calista presentation on YK energy project.
ED DUNCAN, President and CEO
Great Bear Petroleum
POSITION STATEMENT: Gave presentation on Great Bear Petroleum's
unconventional oil play on the North Slope.
RYAN MOYNAGH
Vice President, Finance
CFO, Great Bear Petroleum
POSITION STATEMENT: Commented on Great Bear's financial model
for its unconventional oil play on the North Slope.
ACTION NARRATIVE
10:01:47 AM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 10:01 a.m. Present at the call to
order were Senators Wielechowski, Wagoner, and Paskvan.
10:02:27 AM
^Calista Region: Alternative Energy Update
Calista Region: Alternative Energy Update
CO-CHAIR PASKVAN announced Calista's presentation as the first
order of business.
ANDREW GUY, President and CEO, Calista Corporation, thanked the
committee for giving them an opportunity to make a presentation
on an energy project that is of great importance to the people
of the Yukon Kuskokwim Delta (YK). He explained that Calista and
regional village corporations were established by the Alaska
Native Claims Settlement Act (ANCSA) to improve the socio
economic status of the people in their respective regions and
villages. In Calista's case, accomplishing the goal in the past
40 years has primarily consisted of employment for themselves
and their descendents in their corporate headquarters and
subsidiaries based in Anchorage and around the nation. Other
benefits include scholarships, training funds, internships and
donations to village and regional entities. More recently they
have begun paying distributions to their shareholders and
elders. While these benefits are important and will continue to
be priorities for them, they understand that they can better
meet the acts obligation by engaging in activities that create
jobs for their people.
He said their region is one of the most economically depressed
areas in the state and nation coupled with a very high cost of
living - the two main factors being energy and transportation.
The village corporations in the region can become bigger
employers if they had a business plan that at least offered an
opportunity for breaking even in their business ventures. To do
this they need lower energy costs. With reasonable energy costs
their business investments have been successful. Calista has
committed to do its part.
MR. ANDREW GUY said there is a lot of concern about what will
happen in the Railbelt and Southcentral with energy supplies in
the future, but while that is important, it doesn't affect
everyone in the state. He said he was here to ask the state to
step up and do its part for rural Alaska. For the rural citizens
it is clear that diesel energy is untenable in the future. Its
cost is prohibitive and the environmental consequences of this
high carbon fuel are unacceptable. Rural Alaska must have a
different energy future if it is to have any future at all, he
said.
10:08:13 AM
PAUL GEORGE GUY, General Manager, Kweth Inc. Village
Corporation, said he also sits on the board of directors of
Calista Corporation, but that he is here today as chairman of
the board of Nuvista Light and Electric Cooperative. He has been
involved in energy matters for over 20 years beginning with
management if Kwethluk Community Power Plant and the oil and gas
retail business of Kweth Inc.
MR. GUY said that numerous energy studies have been conducted in
the Calista AVCP region over the last five decades. Studies are
important but action needs to follow once they have been
completed. In order to move the effort from study to action,
Calista and AVCP formed Nuvista Light and Electric to pour
through these prior energy studies and identify feasible
alternatives and make plans to build a new integrated region-
wide electrical system. They have examined diesel, coal, wind,
solar, natural gas, geothermal, even nuclear powered generation
options. In going through this process, Nuvista has reviewed and
considered all possible energy sources and has concluded with
public input that these options are either deficient in scale,
unacceptable from an environmental standpoint or not feasible
for supplying regional light and power. The best alternative to
emerge so far is hydro electric power generation, and they are
excited by the possibility offered by the Chikuminuk Hydro Power
Project.
He said Nuvista Light and Electric is a non-profit cooperative
organization with directors from all the major organizations in
the Calista AVCP region including the association of Village
Household Presidents and AVCP Regional Housing Authority. After
studying all different kinds of energy they found that
hydropower generation is the type of project that will best work
in their region. It's time to move beyond studying and act for
the benefit of all involved including the State of Alaska. Power
Cost Equalization (PCE) can't be the indefinite solution.
10:10:27 AM
CHRISTINE KLEIN, COO, Calista Corporation, said she is also
representing Nuvista Cooperative today. She said she would give
them a quick overview of what they found and look at some of the
energy solutions and then what their next steps are in regards
to their requests to the legislature.
She said Calista Region is 59,000 square miles, 10 percent of
the Alaska land mass, with a population of over 26,000 people.
It also contains the Wade Hampton Census area and its socio
economic challenges. Nuvista Cooperative was formed in 1995 as a
utility cooperative with a common goal of reducing electrical
costs in the region because of their very high costs. She said
they are made up of 12 different organizations, and it is
unusual for so many groups to work together. They are very proud
that they have all the major stakeholders in the region as a
part of this cooperative working to find a solution to high
energy costs.
MS. KLEIN said that currently diesel is the primary heating fuel
and runs $6.14 - $9.50 per gallon and gets delivered once a year
by barge. If there isn't enough fuel or the barge couldn't get
up river, it has to be flown in to one of the 56 villages. In
2004, 50 percent of family incomes went to home heating and that
has grown this past year to 75 percent.
She explained that currently most of the electrical generation
is done by diesel and costs $0.52 - $1.00 kWh. Many in the
region use the PCE, and while they are very appreciative of
that, they can't keep up and it's only for the first 500 kW.
10:13:07 AM
She said there are over 41 independent small diesel-powered
generators in the region and they use over 20 million gallons of
diesel a year, which is one-third of the diesel used in Alaska
for electricity generation. Most all of them have noted that
transmission lines are needed in this region to link up some of
the villages. The electrical demand for these villages around
Bethel by 2020 is expected to be 65 mW; currently it's 15 mW.
Reports have continuously found that coal, hydro power and wind
are potential feasible options and should be implemented.
10:14:47 AM
MS. KLEIN said energy and transportation are the two largest
areas of energy impact. For example, a week's supply of food
ranges from $142 in Juneau to $273 in Bethel for the same type
of food. Electrical cost projections done in 2004 indicated $.70
per kW, but unfortunately because of the rising cost of fuel
that has already gone off the charts.
She said these studies have also found that energy needs vary in
the region because it is so large and has diverse topography.
They embrace conservation, but it won't solve their problem.
Nine coastal villages have wind turbines, which have helped
tremendously with 18 kW of capacity but it is not a year-round
solution and doesn't fit the needs of other villages throughout
the region.
10:15:58 AM
Numerous areas could be connected fairly easily just because of
the proximity of villages with transmission lines. Some of the
energy alternatives that have been considered over the years
have ranged from doing nothing and continuing to use diesel all
the way to small package nuclear power plants. When each of the
different alternatives were looked at and discussed in the
communities, some were immediately taken off the table because
of fear of some of the technology. For instance, concerns over
the coal power plant in Bethel were about Black Lung.
She said there has been a lot of interest in geothermal, but
unfortunately there are only three hot springs in the region and
they are not hot enough to provide the power that would be
needed for the area other than in a very local manner.
10:17:21 AM
SENATOR WIELECHOWSKI noted the feasibility of nuclear power was
poor to none and asked if they had evaluated small scale nuclear
reactors.
MS. KLEIN replied that that idea was looked at briefly. Some
options were taken off the table because the communities were
very reactive to it and permitting for nuclear power has not
been successful in the last 30 years.
CO-CHAIR WAGONER said Galena has been working on a nuclear power
plant. He personally thought that was a great way to go, but he
wanted to know if they had asked a geothermal expert like Ormat
to look at their geothermal possibilities because you have to
drill to see if you have a feasible project with geothermal. It
can't be determined by the amount of water in a hot spring.
10:19:13 AM
MS. KLEIN answered that no drilling has been done, but it was
looked at in 1948, 1970 and 1975. She wasn't sure if it was in
the 1980 report.
CO-CHAIR WAGONER urged her to contact Bobby Evans with Ormat for
another evaluation. Ormat is the leader in the country for
geothermal.
10:20:19 AM
MS. KLEIN said after the past 40 years of 21 engineering reports
and assessments the Nuvista board and stakeholders felt that the
remaining candidates left were wind turbines, a coal power plant
and hydroelectric power. Coal had a very negative public
reaction in the Bethel area, but it would be the cheapest and
have the greatest energy capacity. Coal sources would not be
from in the region. Wind turbines are variable and would not
power the whole region, but there are 12 sites for hydro. Four
sites were considered more seriously in the past year: Kisaralik
River and the Chikuminuk Lake in the Kilbuck Mountains. The
Chikuminuk River is 118 miles east of Bethel and has been
studied several times over the last 30 years.
The latest hydro electric feasibility findings in the latest
engineering report of the four sites indicated the Kisaralik
River would not provide enough power for e Bethel and the 13
area villages year-round; however it would be a cheaper option
but there are salmon in the river. The Chikuminuk Lake option
has enough capacity to power Bethel and the area villages, and
it is 118 miles from Bethel and has no salmon (a positive in the
local peoples' perspective).
MS. KLEIN said in January, the Nuvista team and stakeholders
decided to move forward with the Bethel area sub-region plan as
well as a region-wide comprehensive plan and found that
Chikuminuk Lake as the preferred alternative for a total cost of
$483 million - a construction cost of $392 million including 118
miles of transmission lines and a design cost of $91 million. It
would meet the Bethel and 13 area villages' electrical demand
easily through 2020 and beyond.
The Kisaralik on the other hand would not meet the area demand,
but would be slightly cheaper. Any of the other three options
would require some augmentation by diesel. The estimated 20-year
cost per kWh for hydro power in the early years is generally
more, but as there is more demand the cost drops significantly.
These would be early start up costs she reminded them.
10:23:48 AM
SENATOR WIELECHOWSKI asked for the cost breakdown between
transmission lines and the actual hydro plant for the Chikuminuk
Lake project.
MS. KLEIN answered that the transmission lines range from $400
thousand to $1.2 million per mile. The estimate they have at
this time is $142 million for the transmission lines alone.
SENATOR THOMAS asked if the Kisaralik Lake is in the National
Wildlife Refuge.
MS. KLEIN answered that it's in the Yukon Delta Wilderness
Preserve; the Chikuminuk is in the Woodtikchik State Park.
SENATOR THOMAS commented that a state park is better than the
other and that must have been a consideration as far as
realistic potential for Kisaralik.
MS. KLEIN replied yes; but there will be challenges - mostly
permitting - associated with both because both are in parks.
However, she said there are mechanisms to deal with both and
both options can be done.
SENATOR THOMAS said a state park would seem like a better option
and asked if they aren't more serious about Lake Chikuminuk.
MS. KLEIN replied that option would require a legislative
amendment to the existing authorization of the Woodtikchik State
Park to allow hydro power in a state park.
10:25:56 AM
With respect to cost per capita, to give them a sense of
Railbelt versus urban, this project comes in very well, she
said. The capital projection for this project at $17,260 per
capita is surprising in the same range as a Railbelt project at
$16,200 per capita. Their next task would be to complete a
detailed engineering feasibility study that would include field
reconnaissance, surveying, initial designs and the FERC
permitting. The drainage basin for the Chikuminuk is the
smallest of the four drainage basins that would be impacted,
another positive.
10:27:12 AM
FERC licensing would cost $5.88 million and $11.75 million for
the design and site field investigations, for a total of $17.6
million. These efforts are proposed to start this next year.
Their request to the legislature, as hydro has obviously risen
to the top of many, many engineering reports at this time as the
most feasible option for this Alaskan region, is to fund the
capital request to go to the next stage of designs.
SENATOR THOMAS asked if it's a lake tap or a regular dam.
MS. KLEIN answered that this would be a lake project. It would
be a rock fill with concrete face dam - not a direct lake tap.
SENATOR THOMAS asked if there isn't enough drop to do a lake
tap.
MS. KLEIN answered that the drop isn't quite enough; the rock
and concrete face would be expected to increase the elevation by
75-100 feet.
10:29:10 AM
CO-CHAIR WAGONER went back to hydro versus nuclear and asked if
they had priced a stand-alone nuclear compared to hydro for
generating the same megawatts.
MS. KLEIN replied that she didn't recall those cost estimates
and nuclear was taken off the table really early.
CO-CHAIR WAGONER asked if it was just the fear of nuclear.
MR. ANDREW GUY answered yes; fear of nuclear and the fear of the
affect an accident would have on subsistence resources there.
REPRESENTATIVE SEATON added that Seward has been looking at a
nuclear plant after Galena Air Base left, but they didn't have
enough load. The problem is that a nuclear plant has never been
permitted or built in Alaska before.
CO-CHAIR PASKVAN acknowledged that they recognize the
challenges.
10:31:02 AM
SENATOR THOMAS said with an average cost of $8/kW it would take
34 years to pay around $400 million to displace the diesel.
MS. KLEIN replied that this project will range from $450 to $500
million.
SENATOR WIELECHOWSKI asked what the current megawatt usage is
for Bethel and the 14 villages.
MS. KLEIN replied in the 15 mW range and it's projected to be 65
mW by 2020.
SENATOR WIELECHOWSKI said that seems like an enormous growth to
happen in 9 years - more than tripling.
MS. KLEIN responded that is a very good question and she had
failed to point out that the Calista Region is one of the only
regions in the state that has been growing. They actually
projected 2 percent growth, but it has actually been closer to 3
and 4 percent depending on which years are used.
SENATOR WIELECHOWSKI asked if they are projecting new industries
being added.
MR. ANDREW GUY responded that the combination of population
growth and the kind of businesses that would crop up from it
would create more demand.
10:33:43 AM
MR. GEORGE GUY added that a couple of years ago his community
had black outs because the production kilowatts far exceeded the
kilowatt production. As a result, people were asked to shut off
their unneeded electrical appliances so they could keep power on
in the community.
CO-CHAIR PASKVAN said this discussion is a great start in
figuring out potential solutions to the Southwest Alaska energy
concerns. He said Interior Alaska is not "punished" by these
crushing costs as much as Southwest Alaska is. He thanked them
for their presentation.
10:35:32 AM
At ease from 10:35 to 10:39.
10:39:33 AM
^Presentation: Great Bear Petroleum LLC
Presentation: Great Bear Petroleum LLC
CO-CHAIR PASKVAN called the meeting back to order and welcomed
Mr. Duncan from Great Bear Petroleum to give his presentation.
ED DUNCAN, President and CEO, Great Bear Petroleum, thanked the
committee for the invitation to present his company and to
present what they believe is an unsurpassed opportunity for the
state to rebuild itself in the oil and gas energy world through
the explorations and development of unconventional resources. He
said their company is solely focused on unconventional and
solely in Alaska. They don't have a business unit anywhere else
and their intention is to prosecute their business solely on the
North Slope of Alaska.
He said that Great Bear is an interesting company; it's private
and small. It's a big company in a small company body. They are
focused on three of the most prolific world-class source rocks
in the world - that happen to lie underneath and within the
producing fields that have proven themselves so prolific over
the years: the Triassic age Shublik Formation, the Jurassic age
Kingak Formation and the Cretaceous age Hue/HRZ Formation - any
one of which individually could function as an unconventional
resource development as good in quality and regional extent as
any of the resource plays that are developed in the Lower 48.
10:43:03 AM
MR. DUNCAN said the North Slope's Brookian foredeep, in a basin
context, has what he thinks is a unique situation of having
three world-class source rocks with broad geographic spread co-
located and sharing a common burial history, all of which are
accessible in Great Bear's area of operation.
He said in a conservative case scenario, Great Bear has a very
robust, analogue-based volumetric estimation. A mid-sized case
allows the production profile for this play to remediate much of
what is wrong with the decline in the state's production base
down TAPS and also provides a basis for a clearer view of Alaska
as a potential gas resource supplier on a global scale well into
the future.
MR. DUNCAN stated they are targeting near-term oil production.
And rather than leasing and studying like a lot of companies do,
they have studied and leased. They want to accelerate their
exploitation program with geo-mechanic studies this year and
full field development tests next year. At this time next year
their plan is to be drilling their first two full production
test wells - laterals, fracs and flow-backs. They could be
selling oil into TAPS by summer 2012 - although it would be
trucked at this time.
10:44:32 AM
Today, he said, Great Bear in the context of its leasehold
surprised a lot of people. He explained that their bidding
strategy was heavily focused on science-based knowledge while
other companies' strategies are not particularly focused and are
often more like "land-grabs." Nothing is further from the truth
for Great Bear. Great Bear management knows the North Slope and
they have studied it hard. Their jobs throughout their careers
have been to identify opportunities based on good science and to
look for ways to access the material piece of what they believe
to be emerging plays.
In the context of North Alaska, their acreage position was
targeted and focused on solid science. He said a lot of modern
science is available to the industry and the state has organized
and made tremendous data bases available to the public. The USGS
has done "spectacularly good work" particularly over the last 20
years on understanding the distribution of source rocks - their
quality, their burial history, their maturation - focused on
understanding how the oil charge got to the fields they know
about - Prudhoe and Kuparuk primarily - but certainly Point
Thomson, Alpine and some of the satellite fields.
MR. DUNCAN said Great Bear knows they have a world-class
petroleum province because they are predicated on world-class
source rocks. The North Slope basin has three of them - all of
which could be unconventional. You can have great reservoirs and
no source rock; but you won't have world class reservoirs.
10:49:40 AM
He said conventional reservoirs can be clearly delineated from
subsurface well and seismic data. Unconventionals are the
opposite. Because the source rocks, in particular source rocks
in basins like the North Slope, are ubiquitous; they are
regional and extend from one side of the North Slope to the
other side - into the offshore and all the way back to the
outcrops of the frontal folds of the Brooks Range. That's the
challenge and the beauty of the play. The presence of ubiquitous
source rocks allows companies to move their business management
and development away from the day-to-day technological risk at
the geologic scale to day-to-day engineering of commercial risk.
He elaborated that if the geology is bad they can't do anything
about it; that's Mother Nature, but if the commercial or
engineering environment is a challenge, those are things they
can fix.
10:51:15 AM
He related a brief history of resource development in North
America, particularly relevant to unconventional shale gas plays
(and much later in the timeline, oil): George Mitchell, Mitchell
Energy, entrepreneurial visionary, started working the Barnett
Shale in north Texas with vertical wells in 1981. He and most of
his colleagues thought this was ludicrous. By 1991, Mitchell was
still the only company doing unconventional shale reservoir
development, but they had moved into doing horizontals
recognizing the importance of exposing more bore hole to the
formation, effectively improving productivity and recoveries.
Thirteen years later - a forever in this industry of multiple
price cycles, evolving technology like 3-D seismic - the
Fayetteville Shale, dominated by Southwestern Energy, was first
drilled and commercial flow rates of gas were developed. In the
same year the Marcellus Shale area started to evolve with
commercial rates of gas; and in 2005, the Woodfords Drill in
eastern Oklahoma; in 2008 the (gas) Haynesville Drill in
northern Louisiana.
MR. DUNCAN said that drilling, completion and stimulation
technology until 2008 could not deal with liquids production in
a frac job. In fact, when a shale source rock was fraced and
stimulated and attempted to be flowed, in a portion of the
"fairway" that was rich in liquids it stopped the play. And that
is how the plays were defined up until about mid-2008. You
drilled until you started getting too much liquid and then you
stopped.
10:54:03 AM
In 2008, a small company named Petro Hawk Energy rolled out -
using the technology that they had clearly been working on in
the background with some of the prime service providers
(Halliburton, Baker, Schlumberger and the like) - the first
commercially successful production well of oil out of Eagle Ford
Shale in south Texas.
HE said that separation of oil and gas prices facilitated more,
and continues to facilitate more, and more research on drilling
and completion technologies for oil and liquids production out
of the same resource plays that previously only had been exposed
to gas production.
He stated that the technology simply didn't exist until 2008.
This is one of the keys to Great Bear's success: only two
bidding cycles are between the time the technology became widely
known and today. They bid in the second one of those cycles.
Retrospectively they realized the state's annual lease sales
could become their worst enemy if they didn't take as much of
the "fairway" as they could. So, that's what they did, but the
probability of them holding the theory tight for another year is
probably low.
10:56:33 AM
SENATOR WIELECHOWSKI asked how confident he was that these rocks
they leased are as good as he says they are.
MR. DUNCAN answered, "Approaching certainty." He said the USGS
published a seminal paper in 2006, a joint study with Stanford
University and Schlumberger, that used every available piece of
data that could be captured at the time - virtually every well,
every core, every sidewall core, every cutting sample, every
outcrop evaluation the USGS had ever done - was incorporated
into what at the time was the largest 3-D fluid flow model ever
done of the entire basin - from the Canadian border, offshore
Chukchi Sea, to Cape Lisburne to the frontal folds outcrop of
the Brooks Range. The study was built on the back of very
quantitative geo-chemical analysis of the rocks understanding
the products generated when the rocks matured through the oil
window, products generated through the gas window and the
chemistry of the produced hydro carbons. But the focus of the
study wasn't resource play evaluation; it was to illustrate the
relative mixing of oils and the known pools. Or simply put, how
much of Prudhoe came from the Shublik, how much came from the
Kingak and how much came from the HRZ.
Great Bear took the model and flexed it differently. They took
the quantitative geo chemistry and the source rocks and
understood where those source rocks are mature today, which is
critical, and mature in the recent past, which is also critical
for predicting what portions of present day fairways are
optimally stressed for oil and optimally stressed for gas. He
wasn't particularly concerned about proving to himself that
Prudhoe is a big field; he already knew that. He was more
concerned about proving where the source rocks were still
present in the right thermal window to be exploited for a
resource play. The USGS study, if it's flexed differently, is
perfect for that. The USGS published the results of that study
very heavily; Great Bear licensed the study and that is
fundamentally what they used for their early work on the play.
11:00:44 AM
SENATOR WIELECHOWSKI asked if he knows how sweet the oil is.
MR. DUNCAN responded that the practical answer is there is no
reason for the oils to be lower quality than what is reservoired
in the known fields. There is some reason to believe the oils
will be higher quality because they are going to get them before
migration and mixing. He suggested that Shublik oils will be in
the mid to high 20s, Kingak in the 30s and HRZ oils in perhaps
the 40s - very light almost gasoline-like; but them may be even
better than that.
11:01:58 AM
MR. DUNCAN stated the technology is new and that is one of the
things that they leveraged along with high basin knowledge -
understanding the technology today and seeing the intersection
and becoming first mover. Their program on the Shublik, Kingak
and the Hue began in earnest with the leasing obviously, but the
geo-mechanical studies are scheduled for late this year and then
two full production tests are targeted for the January/April
2012 window - critical dates they are pushing hard for.
This is more than just theory, he said. It is not a question
about whether these source rocks are viable or rich. There are
100 billion barrels of oil in place between Point Thomson and
Alpine fields - that's an observation not a guess. He explained
that only about 20 percent of the oil generated out of the
source rock actually makes it to a trap; and the balance is
their target. This is what is driving the plays in Bakken, Eagle
Ford and Marcellus. They have known this for a long time, but
haven't had the technology to get it out.
11:03:57 AM
SENATOR WIELECHOWSKI asked if he is saying their lease has the
source rocks and that the oil in Prudhoe has migrated from the
source rocks where their play is.
MR. DUNCAN said, "Yes; that's correct. That's a perfect
summary."
SENATOR WIELECHOWSKI asked if he thought only 20 percent of the
oil has migrated and that there is a much larger reserve left.
MR. DUNCAN answered yes; expulsion and migration science
suggests that 80 percent oil/gas is left in place in the source
rocks. The challenge for unconventional resource play
development historically has been an engineering exploitation
challenge: what percentage of that retained hydrocarbon they can
get out at commercial rates. That is where they are right now.
They know the technology is available in Alaska; they know it
can be applied at the drilling depths where these rocks exist;
they know the thermal stress that the rocks in their acreage are
in right now and feel confident that they are optimally stressed
and ready to be exploited.
CO-CHAIR PASKVAN followed up asking what percentage of the 80
percent of resource still in source rock is technologically
recoverable in the near term.
11:06:10 AM
MR. DUNCAN answered that they base their recoveries on analogue
performance of the Eagle Ford Shale, specifically, because it is
remarkably similar in lithology and mineralogy as well as
organic richness to the Shubliks. The percentage of hydrocarbon
recovered is a moving target. Two years ago it was 3-4 percent;
now it's 5-6 percent and improving. Technology in this
particular field is moving at a spectacular pace, and it's
driven by the success of the plays like Bakken, Eagle Ford and
Marcellus. So, the exploitation, reservoir stimulation,
completion and production technologies are improving
dramatically. Great Bear is using 5-6 percent as their base
case, but their suspicion is that it will be higher than that by
the time they drill their full production test next January.
SENATOR WIELECHOWSKI asked why they hadn't heard this from the
majors - ConocoPhillips, BP and Exxon - who have been on the
North Slope for decades.
MR. DUNCAN went back to a slide of the Lower 48 10 years ago
with the names of the companies that drove the R&D behind the
scenes to make these plays viable; none of them were known at
the time. The companies that drove these technologies weren't
the majors then but they are now.
SENATOR THOMAS remarked that he didn't find that unusual,
because the same thing happened in the Fairbanks mining district
where poor miners were tromping around in the early turn of the
20th Century, chipping away at the rocks with a pick and an axe
and now Fort Knox Mine and International Tower Hills Mine are
producing millions of ounces of gold.
MR. DUNCAN agreed with his simile. He said Great Bear repurposed
a very good USGS study published in 2006 to build an
understanding of where the known source rocks are properly
thermally stressed today to provide an optimal target for oil
resource play development - and at some point in the future -
gas development.
SENATOR THOMAS asked who actually drilled in that area
previously.
MR. DUNCAN answered the USGS study incorporated every known
penetration through the Shublik into the lower-most source rocks
and some coals deep beneath the Ibishak (the primary reservoir
at Prudhoe Bay). These wells were for USGS stratographic test
wells done by Arco, BP and Texaco. About 150 base wells
penetrated the full section in and around their specific area.
Their study was heavily focused on state lands, because they
worried less about the NPRA when building the business case. So,
additional wells could be in the NPRA that he hadn't studied as
well.
11:13:30 AM
SENATOR THOMAS said approximately 100 billion barrels of
equivalency (BOE) has already been discovered just north their
acreage and asked who that lease belongs to.
MR. DUNCAN answered that would include the oil and gas in place
at Point Thomson, Prudhoe, Kuparuk, Alpine and the satellite
fields associated with those accumulations.
SENATOR WIELECHOWSKI clarified that the statement above that
says estimates of oil generated from their targeted source rocks
approaches 1 trillion BOE.
MR. DUNCAN responded yes; the study is regional and that 1
trillion is North Slope-wide, ANWR to the western edge of the
NPRA and into the offshore - oil and gas.
SENATOR WIELECHOWSKI asked if he used the 6:1 ratio for oil to
gas equivalent.
MR. DUNCAN nodded yes.
11:15:17 AM
REPRESENTATIVE SEATON asked if his estimate was for extractable
or in-place resources and if it was in their leased area.
MR. DUNCAN answered these numbers are reserve estimates on their
leasehold which is in pre-award status. Final word should be
coming out in the next month or so. The P50 reserve estimate is
on their leasehold only and only one source rock is being
developed with a specific drilling density.
MR. DUNCAN reviewed his slide of the three primary source rocks
- the Shublik, Kingak and Hue. They are well-known and well
mapped; their distribution and geo chemical characteristics have
been effectively proven. They know from various studies, not the
least of which is the USGS study, what they had already
discussed at length. These are the primary source rocks on the
North Slope. The Shublik rocks provided about 60 percent of the
oil at Prudhoe Bay and the balance came from the Kingak and the
Hue. The relative mix of oils in Kuparuk and Alpine and other
fields varies amongst the three. The richest source rock on the
North Slope and one of the richest source rocks in North America
as well as the world is the Shublik Formation, and that is their
primary target. But, he emphasized again, that they believe that
the Kingak and the Hue individually could support an
unconventional resource play development on their own. The fact
that they have three on the North Slope provides a truly
extraordinary opportunity. You don't get that in south Texas,
the Bakken or in the Marcellus.
CO-CHAIR PASKVAN asked him to explain the correlation between
the Shublik and the Triassic age in light of his illustrated
rock columns.
MR. DUNCAN explained that the Shublik is Triassic age (the
oldest), the Kingak is Jurassic age and the Hue/HRZ is
Cretaceous age (the youngest) and sets stereographically
shallowest. So, from a drilling depth perspective, they will
drill through the HRZ on the way down to the Kingak on the way
down to the Shublik.
SENATOR WIELECHOWSKI asked him for a one-minute explanation of
exactly what Kingak and Shublik are.
MR. DUNCAN replied that all three units are shales; they're
black mud stones generally. The Shublik has a higher percentage
of calcareous-like (carbonate limestone) units; always black and
organic-rich, a critical component for viable source rocks. The
Kingak is a regional black mud stone.
SENATOR WIELECHOWSKI asked if it is accurate that millions of
years ago organic matter piled up and that formed the Shublik.
MR. DUNCAN answered yes; most source rocks are the product of
conditions that allow organic material to be deposited and
preserved, which is critical. Two-hundred million years ago, the
Jurassic margin was a south-facing ocean; the coastline was to
the north of the present day coastline of north Alaska and the
ocean opened deep into the south. The margin was characterized
by upwelling, which is similar to conditions seen offshore of
California - organic-rich activity in the ocean. That material
was deposited and preserved in a very thick section that covered
a huge area - what today is seen as the entire onshore from the
east NPRA to Cape Lisburne on the west and partially into the
offshore north of the present-day coastline.
CO-CHAIR WAGONER asked if Great Bear would produce all three
zones or just the Shublik.
MR. DUNCAN replied that their initial production tests will
focus on the Shublik, but in the early stages of their
exploitation planning they will want to get a good feel for what
the Kingak and HRZ can do, as well.
11:23:24 AM
He "drilled down" into the technical case with a schematic
(slide 12) of the basin and said one of the critical things
about this basin that is so good, they believe, is the fact that
the source rocks are regional in extent. All three are located
everywhere they are looking and all three in fact share a burial
history context - how the basin developed, how the rocks were
heated, and how they were driven towards oil and gas maturity.
As the Brooks Range elevated to the south and was eroded, the
basin that formed in front of it and the filling of it is what
drove the source rocks to their thermal maturity. He said the
seismic line is extracted through Great Bear's lease hold. He
related that the HRZ and GRZ refer to the same rock unit in the
slides; it just depends on which company you worked for.
11:26:57 AM
SENATOR WIELECHOWSKI asked how putting a well into the Shublik
or the Kingak region is different from a putting a well in
Prudhoe. How much oil will flow into that well compared to a
well in Prudhoe or Kuparuk?
MR. DUNCAN replied the difference is that unconventional
reservoirs either do not or just barely flow naturally. They
require engineering stimulation in order to produce at
commercial rates. Ten years ago these rocks would have been
considered impermeable.
Prudhoe is to the right of the truncation of the Shublik and
Kingak (slide 12). The trap at Prudhoe Bay is underneath the
lower Cretaceous unconformity, which generates the angular
discordance. Prudhoe in space would be about where the GRZ plus
Hue shale label is located. Not every well in the Prudhoe and
Kuparuk units drills through the Shublik and Kingak because it's
truncated and missing by the lower cretaceous unconformity.
Interestingly, he said, interviews with many geologists that
have done well site duty over the years (the state has plenty of
them) will tell them drill the HRZ because one of its
characteristics is that "it bleeds oil." It was a curiosity in
1982, but now it's a "flag" that the unit is potentially a
viable unconventional resource development target.
11:30:05 AM
MR. DUNCAN provided maps derived from the USGS 2006 study; slide
13 was of the thermal maturity zone of the Shublik and Lower
Kingak representing the general area within which the Shublik
and the Lower Kingak are expected to be thermally stressed
optimally for oil, today - a good place to be. The green shading
across the map illustrated the "fairway." Great Bear's lease
hold was outlined in the middle of the map in the area
immediately south of Prudhoe and Kuparuk.
CO-CHAIR PASKVAN asked him to describe how the TAPS line
correlates with Great Bear's leases.
MR. DUNCAN replied that the precursor planning in the business
development plan looked at possible routes for produced
hydrocarbon and recognized the benefits of leasing adjacent to
the existing TAPS Haul Road for any number of reasons, not the
least of which is ingress and egress across their field area. At
some point it may prove helpful in the context of moving oil
into the pipeline. He noted that the TAPS and Haul Road cross
the eastern side of their leasehold position.
11:33:17 AM
SENATOR WIELECHOWSKI said it looks like they leased everything
to the south of the fairway, but what about the land to the
north and northeast of the Shublik that is out of the fairway?
Is that for access purposes?
MR. DUNCAN answered that the fairway as mapped and interpreted
by the USGS is a "bracket of thermal maturity," and Great Bear
has a slightly, but importantly, different interpretation.
CO-CHAIR PASKVAN asked if that interpretation involved
proprietary data.
MR. DUNCAN replied not necessarily proprietary data, but a
different interpretation of the data as presented.
CO-CHAIR PASKVAN said, for the listening public, that they were
looking at stratas below the surface that represent the various
unconventional oil play opportunities.
MR. DUNCAN said that is correct and the deepest target that they
will be working toward in the near future is the Shublik and
Lower Kingak that are effectively co-located and deposited on
top of one another. They are not separated by much space in a
vertical context. The Hue/HRZ is on the page 14 map and is the
shallowest interval that they will be targeting. They will drill
through the HRZ on the way down to the Shublik and will probably
get a "pretty good feeling" for what it is going to do as they
pursue the Shublik.
CO-CHAIR WAGONER asked if any of these unconventional plays in
any of the three zones is close enough to Prudhoe Bay that
perhaps one or more of the majors might explore the shale in
their areas - or is that even mature enough.
11:36:34 AM
MR. DUNCAN referred him back to the seismic line on page 12 that
shows the Shublik, their primary target, is truncated and
missing under most of the Prudhoe unit area. So, if the majors
were going to try this at all they would have to be targeting
the HRZ. He reminded them that a critical piece of this puzzle
is thermal maturity and that generally comes with depth of
burial in this basin and most of the rocks in Prudhoe are
thermally immature.
REPRESENTATIVE SEATON asked if the reason their initial play is
the Shublik is because the analysis of Prudhoe indicated that 60
percent of its materials came out of it. So that seems to be the
more productive play out of their area.
MR. DUNCAN responded that the Shublik is the "star" of the three
source rocks. That is a proven fact based on the very detailed
analytical geo chemistry and chemistry work done on Prudhoe oils
and understanding of the geo chemistry of the source rocks and
the subsurface.
11:39:42 AM
SENATOR WIELECHOWSKI asked to go back to slide 12 and asked if
the way the technology works is that they would drill down into
the Shublik region and then start going horizontally fracturing
the rock as they went along.
MR. DUNCAN replied that was correct in general.
SENATOR WIELECHOWSKI asked how far they can drill horizontally.
MR. DUNCAN replied that will depend on the rock mechanic studies
that they intend on prosecuting later this year - shallow core
holes with rock samples and detailed studies on rock
compressibility, sheer strength and things of that nature. But,
if they use the analogue as a working model they would expect
most of their laterals to be 4,000 to 6,000 feet in length.
SENATOR WIELECHOWSKI asked if drilling horizontally along the
Shublik would cause any subsidence that would impact the GRZ at
all.
MR. DUNCAN replied that he considered the potential for
mechanical compaction of the section over that thickness to be
unlikely. When extracting fluids from a rock, pore spaces are
made, but in a bulk rock volume context, it's a very small
percentage of the total bulk rock volume that would be
extracted.
11:41:34 AM
SENATOR WIELECHOWSKI asked if they are concerned about getting
into aquifers or anything of that nature in this area.
MR. DUNCAN answered that is an excellent question and technology
has gone a long way in just the last year when it comes to frac
fluid chemistry. Importantly, the companies they are dealing
with are right at the forefront of technological development,
not just the physical pumping of fluids, but also in the
chemistry of the "makeup gels." Many are FDA approved and
comparatively benign to what was seen a few short years ago, and
importantly, they are separated from the base of permafrost by
at least 5,000 feet. There is no potable water aquifer on the
North Slope and their area doesn't have any urbanization.
11:44:23 AM
MR. DUNCAN said they feel "very bullish" about all three zones,
but they will start with the Shublik initially; but all three
deserve an exploitation strategy. He wanted people to know how
important this area is. The Brookian area is at least as big as
the Marcellus Fairway in the Appalachian Basin and several
factors larger than the Eagle Ford in south Texas. From a pure
geographic perspective it's an "extraordinary circumstance."
It's important to recognize what that can eventually translate
into for Alaska as a global resource player - not competing
against North Dakota, the Eagle Ford or the Marcellus
necessarily.
11:45:04 AM
Looking at a few metrics to establish a comfort level with a
high performing analogue, Mr. Duncan said the TOC (total organic
carbon) average for the Shublik, Kingak and Hue compared
favorably with the Eagle Ford in south Texas, which by anybody's
estimation is the hottest play in North America. They believe
that individually their plays will perform as well; and
collectively there is every reason to expect a superior outcome.
SENATOR WIELECHOWSKI said Shublik has a 4 percent TOC, Kingak
has 5 percent and Hue has 4.5 percent and yet he says Shublik is
the "super star" and yet it has the lowest carbon content. Why
would that be?
MR. DUNCAN replied the Shublik has delivered most of the
hydrocarbon to Prudhoe Bay from a "kitchen" that sits underneath
their leasehold for a number of interesting reasons, one of
which could be its limestone content. Some of the vagaries of
migration theory may allow it to expel and migrate more
efficiently. It is also a very thick section. So, 150 meters at
Shublik at 4 percent is better than 50 meters at Kingak at 5
percent.
11:48:11 AM
CO-CHAIR WAGONER remarked that Great Bear is dealing with three
different zones in Alaska, but Eagle Ford has only one zone.
MR. DUNCAN responded that was correct, but Eagle Ford is a thick
zone. He went on to Great Bear's Vision saying they aim to be
the leading unconventional oil and gas producer in Alaska. Their
leasing focused very heavily on good science and they are
reasonably proximal to infrastructure as they bracket the
pipeline. They see every reason to believe that these rocks will
produce at commercial rates. They believe that effective and
efficient development of their resource base from their
leasehold alone provides a "growing and stable forecastable
energy and economic future for the State of Alaska for the next
50-plus years - effectively in the near term reversing the
state's oil production decline."
MR. DUNCAN said it's an interesting notion that can be applied
to conventional exploration and development as well, but
particularly, this is an incredibly "scalable" business. He said
their program in phase 1 has planned 200 wells per year for 15
years. That's 3,000 wells providing a peak phase 1 production
rate in excess of 300,000 barrels - and a long-term over the
horizon steady production profile of 150,000 barrels a day a
long way out. Because of the nature of this play, they are not
dealing with a combined structure with a reservoir limitation;
they are talking about a piece of geography that is 500,000
acres that in phase 1 will be drilled at 160 acre spacing. Based
on analogue they already believe that ultimately every single
one of these source rocks will be developed probably on an 80-
acre spacing. Great Bear has three. If the state needed 1
million barrels a day, the play could deliver it if the wells
were drilled. Their program is not confined by a structural
limit like at Prudhoe, Kuparuk, Point Thomson or Alpine. It's
all about drill out, the rate, and the density of the well
spacing.
SENATOR WIELECHOWSKI asked if he expects to have a total maximum
number of 3,000 wells in 15 years and about 5,000 barrels per
day from each well.
MR. DUNCAN answered not 5,000 barrels a day, but 500 barrels a
day.
SENATOR WIELECHOWSKI asked if this is so good, why they wouldn't
drill 1,000 wells in the first year. Obviously they want to test
it, but once it's working, why scale the project out over 15
years?
MR. DUNCAN answered that 200 wells a year is a lot, but it's
scalable if the capital, the development infrastructure and the
ability to move that produced oil into the pipeline are there.
They are not waiting for anything from a technology perspective
and it will be better one year from now than it is today.
SENATOR WIELECHOWSKI asked if there were some concerns about
doing this in a very cold weather environment.
MR. DUNCAN answered - no concerns. The winter temperature in
western Canada is not dramatically different than the North
Slope. Drilling and fracing technology is used on an everyday
basis in the northeast of the U.S. From a fluid flow perspective
they will have a metallurgical limitation on their equipment,
which already exists, before they will actually stop producing
because of the inability to flow fluids from the subsurface.
11:54:27 AM
REPRESENTATIVE SEATON said he appreciated their aggressive
schedule, but could they truck oil into TAPS by 2012 possibly
using existing infrastructure or does he anticipate processing
facilities on their own?
MR. DUNCAN replied initial production rates in the testing phase
don't warrant a separate production facility, either processing
or pump station. But certainly even in a phase 1 they should
consider that to effectively get the flow of oil into TAPS
unencumbered. In a few slides they would see what Great Bear
believes phases 2 and 3 may look like and what it could deliver
to the state. That's why they need to work closely with the
state to make sure the full benefit of this type of resource
play development can be had.
SENATOR WIELECHOWSKI asked what kind of investment team Great
Bear has.
11:56:49 AM
RYAN MOYNAGH, Vice President, Finance, and CFO, Great Bear
Petroleum, said to date they have embarked on an aggressive
financing strategy. The company is fully funded through proof of
concept and has a share registry that is very supportive and
provides access to very deep capital sources. But over the
course of the next year or two as they develop their technical
and operations environment, before the commerciality case of the
project is fully developed, the capital resources to develop and
prosecute this development plan will be in place.
CO-CHAIR PASKVAN asked if it's fair to say that the drilling
operation is measured in billions of dollars a year.
MR. MOYNAGH answered, "Absolutely." They are still trying to
refine the costs at this point. Alaska presents a number of
operational challenges which do not exist in the Lower 48, but
one thing they are certain of is that the costs to drill the
necessary wells will be more expensive than the in the Lower 48.
Their current rule of thumb is approximately $10 million per
well and that would necessitate a $2 billion investment per year
just in drilling expenses over the course of their program.
11:59:24 AM
MR. DUNCAN went to the map on page 19 with their vision. He said
the technical work has been done by them and others, but much of
the other work has been repurposed to support this play. It has
led them to this substantial leasehold position that they
believe provides an opportunity for the state to realize steady
production over the horizon from a single source rock
development. He described the scaling up phases:
-Phase 1: one source rock drilled at 200 wells a year
for 15 years = 3,000 wells at 160 acre spacing.
-Phase 2: same source rock, 200 wells a year but at 80
acre spacing.
-Phase 3: a second source rock at 200 wells a year for
15 years = another 3,000 wells - 9,000 total wells
drilled between full field development sanction 2013
and 2016.
He said they could grab the upward incline of their drill out,
that point where they hit 9,000 wells and drag it to the left to
accelerate the program. That tilts the production profile up and
bolts their production profile onto the existing Prudhoe,
Kuparuk, Alpine decline. They could quite conceivably rebuild
the production down TAPS to well in excess of 1 million barrels
a day. They could do that relatively quickly if the program is
accelerated.
What they have proposed is predicated on the 200 wells per year
drill out, a decrease in well spacing to 80 acres, which he
thought would ultimately happen, and adding one more source rock
to the mix (either Kingak or HRZ). Importantly, they see steady
sustainable long-term production from their acreage of nearly a
half million barrels to the state that effectively runs out over
the horizon.
CO-CHAIR WAGONER asked how many rigs they would need to drill
200 wells per year.
MR. DUNCAN answered that the performance metrics they are using
early in the program are not those that will be achieved after
they get under way. Right now from their analogue a 14,000 foot
measured depth well in the Eagle Ford (vertical and horizontal
leg) is being drilled in 21 days - extraordinary performance.
So, he believed that 200 wells a year would take at least 20
dedicated rigs, and many of them would be "new build."
12:06:22 PM
The power of the potential production profile (slide 20) he said
is self evident, not just in the near term increase of oil to
TAPS, but long term production into TAPS or a sister line since
they are proposing a serious length of time. The ability of the
state to forecast revenue forward with stable long term
production that is scalable is a powerful piece of business, he
pointed out.
Slide 21 showed a simplified project development timeline. Mr.
Duncan said that today Great Bear is actively working with their
service providers, regulatory and permitting experts, drilling
and completion experts on the prediction box, drilling their
core holes, taking rock samples, doing the rock mechanic
studies; these will be turned straight around with no lag time
into the frac design to be prosecuted in the January/April 2012
window. With good results from their full production tests in
2012 they could sanction full field development for 2013. Their
service providers are the largest in the world; they have met
with and talked through the play. Everybody is hands on,
philosophically aligned, and understands the challenges. The
reception has been extraordinary and everybody is ready to do
their part. When he looks at this play it's not so much about
how much they have to gain, but rather about how much they have
to lose if they don't pursue something like this. The volumetric
outcome will exceed the conventional exploration production
targets on the North Slope - in their opinion.
MR. DUNCAN said the easy conventional oil has been found and the
remaining large volume potential in the North Slope as with
every other basin in North America is unconventional oil and gas
and coalbed methane.
12:09:11 PM
CO-CHAIR PASKVAN asked what Alaska might expect as far as others
interested in these resource plays.
MR. DUNCAN answered their peer companies that hold acreage on
the North Slope that will be viable for this play at the very
least have become aware of it if they weren't already.
Collectively, the industry will react and move positively to get
this play under way. He also suspected that the response in the
upcoming lease sales will be a lot different than those over the
last few years.
He has been quoted in "Petroleum News" as stating that companies
that do their science well will have major leasing just as Great
Bear has. Companies that don't do their science very well will
probably look like wild-eyed speculators and then there will be
a bunch of folks in between. Fortunately, Alaska has good
players, and he was sure their peer group companies will become
active in this.
12:11:37 PM
He said Great Bear believes the ability to deliver
unconventional resources to the market rests primarily on
commercial risk, the key hurdle in any unconventional play. They
understand the geology of this play and feel confident along
with their key technology thought partners and service providers
that the technology is applicable. It's certainly available and
they see no overt reason why these unconventional resource plays
will not work.
12:12:21 PM
Significant challenges do exist and certainly the state and
industry need to work on them together. This is a play like
development of Prudhoe and Kuparuk; it requires 365-day ingress
egress. "You can't develop this play with ice road technology;
it simply will not work." Access to infrastructure, pipelines
and water disposal facilities needs to be reasonably assured.
SENATOR WIELECHOWSKI said he understands that these type of
wells require millions of gallons of water and asked if that is
true where they will get the water from.
MR. DUNCAN replied that millions of gallons of water per well is
not accurate, but it is a water intensive program. Fortunately
technology developing today allows for recycling of frac water,
which reduces water need significantly. Additionally they have
held meetings with the DNR Water Resources folks in Fairbanks
and have talked about water access and needs with virtually
every service provider that is going to be involved in this
play. They believe there are adequate water resources on the
North Slope both from the Sag River as well as surface water.
But importantly, as this play develops they may well see
accessing subsurface water from some of the brackish aquifers
not suitable for drinking or agricultural use. These water
resources may be perfectly adequate for making up their frac
fluids and that could definitely change the balance of surface
water use in this program. It's a challenge and they are working
on it.
REPRESENTATIVE SEATON said there has been prior reference to the
depth of permafrost and then a water layer that interfaces as
one gets deeper and he asked if they are considering using that.
MR. DUNCAN answered yes they have contemplated it, but they are
not actively studying it. It will be in the mix over this year
as they begin to identify reasonable water sources.
He said Alaska is a resource base that is global in scale; it's
an international oil and gas player. Access to capital, interest
in investment, activity in the state shouldn't be dependent on
competition from North Dakota. Great Bear is built around
building Alaska back to where it should be - not preoccupied
with North Dakota or other U.S. plays.
12:18:16 PM
Slide 27 showed the gas wedge and he said they believe something
similar to it will happen with unconventional oil. The shale gas
to contribute 45 percent of the U.S. supply by 2035 is a reality
and they are seeing movement like this in the oil front as well.
They believe that unconventional oil will have a similar growth
to gas. Shale gas is driving U.S. supply growth; but they know
the picture for gas in Alaska is complicated. The slide is meant
to illustrate the viability and the effectiveness of the
technology in delivering very large long live volumes of hydro
carbons out of rocks that just not too long ago were waste.
Slide 28 was a case study of the Bakken shale and its huge
impact on the economy. Great Bear's impact on Alaskan job growth
and the economy is self evident if they deliver those kinds of
volumes to the pipeline. It will be huge. They are not talking
about just truck drivers and rough necks on the Slope, but
teachers and grocery stores, Home Depots and Wal-Marts and the
like. But the performance metrics of these resource plays in the
Lower 48 are becoming well known and are spectacular - 13,000
new jobs in North Dakota created between 2005 and 2009. The
number of active wells has gone from 3,391 in 2005 to 4,190 in
2009 and they have heard recently that in the Bakken, 350 wells
per month are being completed. An average of 47 new jobs per
well are being created and at 3.6 percent it has the lowest
unemployment in the nation.
The impact of the Marcellus Shale is spectacular on slide 29 -
West Virginia and Pennsylvania - beautiful states with a long
history of oil and gas exploration and development, a lot of
coal influence in decision making, which complicates the picture
for an aggressive oil and gas development program. But the
impact on those states' economies is spectacular - $8.5 billion
in 2009 and the number of jobs created - amazing.
12:23:42 PM
MR. DUNCAN described slide 30 named "Case Study: Alaskan
Shales." It highlighted the questions and fears about this kind
of program that mostly concern infrastructure build out. Phase 1
with 3,000 wells will have a certain road and pad network
associated with them. All the other wells drilled in Phases 2
and 3 will use those same roads and pads tightening the well
space to 80 acres with laterals while exploiting one additional
source rock with not one more pad required. This allows them to
amortize the impact over a very large number of wells and to not
increase their surface footprint at all. This is a spectacular
point that they have to keep in mind when thinking about this
project. He said this action profile is based Eagle Ford
analogue performance metrics from a year and a half ago, not
plucked out of thin air. They expect better than this
performance, but he wanted to use it as a talking point for now.
CO-CHAIR WAGONER asked what level the price of oil has to be
maintained at for this project to go forward.
MR. MOYNAGH answered that the breakeven price of their project
is uncertain at this point in time. There are a number of
variables concerning the capital requirements and terms that
will be made available to them. One thing is quite obvious that
the initial stages of the project - based on $2 billion per year
for a 15 year period - will have considerable costs before the
project starts becoming self financing. Getting a feeling for
that precise number is something they are aggressively pursuing
with all the service providers. In sourcing the capital they
have to present a commercial case that is relatively attractive
vis-a-vis the other opportunities that exist in the oil and gas
sector. While they are working hard within the context of the
environment that exists at this point in time to try and make
that argument, at this point, they aren't able to present a
commercial case to their investors.
12:27:58 PM
SENATOR THOMAS asked if they estimated the number of wells
drilled per year when they found out when Doyon and Neighbors
were completing their wells.
MR. DUNCAN asked if he was talking about drill time or costs or
both.
SENATOR THOMAS replied both.
MR. DUNCAN replied that Prudhoe Bay is considerably shallower in
general. The average vertical depth of the reservoir is less
than what they are going to be dealing with, so the drill time
is less. But he said the performance metrics of the new rigs
that are being used in the Lower 48 to develop this play are
considerably better than the vintage rigs that tend to be
resident in Doyon and Neighbor stables (although the equipment
is very good for what it is purposed to do). Cost wise there is
a big difference in an 8,000 foot vertical well and a 4,000 or
6,000 lateral with a multi-stage frac. Completion work in an
unconventional play is much more expensive and engineering-
intensive than conventional completion in a standard sense that
is done in sandstone reservoirs that are in Prudhoe and Kuparuk.
SENATOR THOMAS said he supposed they not only needed an
aggressive schedule for drilling if they have potential first
delivery to TAPS in 2012, but also for convincing people. He
asked what he meant by "access to infrastructure, pipeline and
water disposal facilities" on slide 24. Did he expect some if
not all of the roads to be accomplished in partnership with the
state of Alaska or should the state provide it all with existing
companies that already have some of those facilities? That also
has a potential long lead time. How do you get there in two
years? Are they going to have joint use agreements with the
other existing parties at Prudhoe Bay?
MR. DUNCAN answered that he hit on a number of things that they
are working on. They hope the state is an active partner in
their roads to resources model. The 200 wells per year means six
tracts are being developed annually at 9 square miles per state
tract and 4 wells per square mile (36 wells per tract). So, 6
tracts per year deliver those 200 wells. It's not an explosion
of activity across the 500,000 acres; it's an "inchworm" that is
moving in a very measured way 6 tracts at a time. Initially,
they are giving heavy consideration to paralleling their early
activity adjacent to the existing TAPS Haul Road; that
facilitates ingress/egress movement of early production via
truck. The production in 2012 will be oil produced from test
wells, not full development-sanctioned development wells. In an
ideal world with great results for their early development
tests, about this time next year they will be moving with haste
to put a full field development plan in place. They are talking
to the DNR and Division of Gas about what that means as far as
pace of surface facilities, roads and build out and making sure
they have clear communication. There is plenty of room for
incorrect speculation about what the surface impact will look
like and the pace at which it will evolve when they start
talking about 3,000 wells.
12:34:11 PM
SENATOR WIELECHOWSKI said this is an exciting presentation. Five
years ago no one was talking about shale gas in the Lower 48 and
they have seen what is happening there. A DNR slide last week
indicated a 350 percent ROR for a few fields in Bakken and he
didn't think Alaska could get that because labor is higher and
we don't have the infrastructure. But Alaska can probably get
100-200 percent ROR based on modeling done in Prudhoe Bay where
BP is getting 123 percent with $80 barrel/oil.
He the state could lower its tax rate to zero and still not get
a 350 percent ROR. How does Alaska compete with those other
states because of the higher costs? He said the Governor's
proposals lowers taxes by $2 billion a year, but Great Bear
needs $2 billion and he would rather have the state invest in
that.
12:37:16 PM
MR. DUNCAN responded that they really appreciate the opportunity
to talk to them about what they perceive to be the most exciting
oil and gas exploration and development program that Alaska has
seen in a very long time. He added that their peer group
companies and conventional explorers and developers on the North
Slope have a role to play, too, but in the context of the multi-
billion barrel prize and providing material volume to TAPS that
not only addresses the viability challenge of the pipeline but
also provides a real opportunity to reverse the decline and a
steady state forecastable production rate, this is the direction
he believes the industry in the state has to - not should or
might - has to go.
REPRESENTATIVE SEATON said he was pleased to hear him say the
state of Alaska should not be just focused on competing with
another state and he asked if he heard Mr. Duncan say that
credits upfront to help with the drilling costs and reasonable
life expectancy for the duration that those credits would be
available are beneficial to them to get investment.
MR. DUNCAN replied that he didn't recall discussing the
investment credits during the presentation, but certainly
improvement in the state's fiscal regime in some form or fashion
is beneficial to Great Bear, but elements of the existing regime
present challenges in their commercial model. They are green-
field explorers and don't have a bank of production against
which they play. They are new ventures, green field drillers and
developers. They are new oil and their view of what facilitates
them executing is biased towards incentives that address the
green field exploration and new oil development.
REPRESENTATIVE SEATON said he was remembering from other
conversations and didn't mean to raise another issue and asked
if he was hearing that the roads to resources and permitting to
allow that to go forward is going to be really critical to
advancing their project.
MR. DUNCAN replied that clearly the state assisting by directly
investing or any number of other vehicles to facilitate
construction of development infrastructure is of great benefit
to them. It allows the play to be accelerated rather than creep
forward, and it's critical.
CO-CHAIR WAGONER asked how long phase 1 will take.
MR. DUNCAN replied 3,000 wells would take 15 years at 200 wells
per year.
SENATOR THOMAS asked if he knew the date of the chart derived
from Wood MacKenzie on slide 25 and where the title "Ability to
Execute" came from.
MR. DUNCAN replied the first time he saw this presented by Wood
MacKenzie was at the "Meet Alaska Conference" about one month
ago.
MR. MOYNAGH answered that the title of the slide is from Great
Bear, not Wood Mackenzie.
SENATOR WIELECHOWSKI noted for the viewing public that this
chart had Yemen, Tunisia, Libya, Egypt and Pakistan all ranked
higher than Alaska, and he didn't know how many oil companies
would want to be doing business in those countries about now.
12:43:56 PM
CO-CHAIR PASKVAN finding no further questions thanked everyone
for their presentations and adjourned the meeting at 12:43 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Calista Region Presentation re Kisarilik River and Chikuminuk Lake Hydro Feasibility Study.ppt |
SRES 2/26/2011 10:00:00 AM |
|
| Presentation_Great Bear Petro_2-26-11.pptx |
SRES 2/26/2011 10:00:00 AM |