Legislature(2011 - 2012)BUTROVICH 205
02/14/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Overview: North Slope Production by the Alaska Oil and Gas Conservation Commission | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 192 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 14, 2012
3:34 p.m.
MEMBERS PRESENT
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Bert Stedman
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
Senator Joe Paskvan, Co-Chair
Senator Lesil McGuire
OTHER LEGISLATORS PRESENT
Senator Cathy Giessel
COMMITTEE CALENDAR
SENATE BILL NO. 192
"An Act relating to the oil and gas production tax; and
providing for an effective date."
- HEARD & HELD
OVERVIEW: NORTH SLOPE PRODUCTION BY ALASKA OIL AND GAS
CONSERVATION COMMISSION
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 192
SHORT TITLE: OIL AND GAS PRODUCTION TAX RATES
SPONSOR(s): RESOURCES
02/08/12 (S) READ THE FIRST TIME - REFERRALS
02/08/12 (S) RES, FIN
02/10/12 (S) RES AT 3:30 PM BUTROVICH 205
02/10/12 (S) Heard & Held
02/10/12 (S) MINUTE(RES)
02/13/12 (S) RES AT 3:30 PM BUTROVICH 205
02/13/12 (S) Heard & Held
02/13/12 (S) MINUTE(RES)
02/14/12 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
DAN SEAMOUNT, Chair
Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, AK
POSITION STATEMENT: Testified about current North Slope
production and activity.
KATHY FOERSTER, Engineering Commissioner
Alaska Oil and Gas Conservation Commission (AOGCC)
POSITION STATEMENT: Testified about current North Slope
production and activity.
ACTION NARRATIVE
3:34:11 PM
CO-CHAIR TOM WAGONER called the Senate Resources Standing
Committee meeting to order at 3:34 p.m. Present at the call to
order were Senators Wielechowski, Stedman, French, Stevens and
Co-Chair Wagoner.
SB 192-OIL AND GAS PRODUCTION TAX RATES
OVERVIEW: NORTH SLOPE PRODUCTION BY THE ALASKA OIL AND GAS
CONSERVATION COMMISSION
3:34:30 PM
CO-CHAIR WAGONER announced that the business before the
committee was to hear an overview from the Alaska Oil and Gas
Conservation in the context of SB 192.
^Overview: North Slope Production by the Alaska Oil and Gas
Conservation Commission
3:35:13 PM
DAN SEAMOUNT, Chair, Alaska Oil and Gas Conservation Commission
(AOGCC), said he was a geologist and the chair to the
commission.
KATHY FOERSTER, Alaska Oil and Gas Conservation Commission
(AOGCC), said she was the AOGCC engineering commissioner.
3:36:47 PM
MR. SEAMOUNT said they were asked to testify today about North
Slope production and activity. He began by showing pictures of
the North Slope facilities. He said the North Slope is about the
size of Wyoming and the production area is really small, about
the size of Rhode Island; well penetration is not very complete.
SENATOR STEDMAN asked what he meant by not very complete. Is it
held by another entity or just not available because of the
technology at the time it was drilled? Or is it so spread out
that it doesn't provide complete data?
MR. SEAMOUNT replied all of those were correct. The BLM holds
most of the information; they were old wells with old ways of
collecting information. The AOGCC has very minimal information,
but they do know whether they encountered oil or gas.
SENATOR STEDMAN asked if there are still core samples from those
drillings or are they lost.
MR. SEAMOUNT replied that they would probably be stored at the
USGC in Denver or at the core facility, the Geological Material
Center in Eagle River and he would check on that.
SENATOR STEVENS asked which years these wells were drilled.
3:40:23 PM
MR. SEAMOUNT replied from the 40s through 80s; most were
probably pre-70s. Slide 3 was a chart of the only oil production
going on at that time on the North Slope. The next slide was a
picture of the Alpine Oil Field that was discovered in 1994 and
started regular production in 2002. The reason he showed it was
as an example of the tremendous strides in technology that have
enabled drilling from a very small footprint. They are drilling
wells up to five miles out and draining 20,000 acres (31 sq.
miles) from one 13-acre pad. The future looks even better as far
as technology goes, he said. Things are being done now, like
extended reach, that hadn't even been thought about 20 years
ago. Another technological advance is that oil and gas are now
being produced out of shale and that was not possible 10 years
ago.
3:41:48 PM
He said the AOGCC mission is to keep charts and statistics for:
- Historical AOGCC and Gas permitting activity
- North Slope actual drilled wells and well work
3:43:29 PM
MR. SEAMOUNT explained that the AOGCC is a quasi-judicial state
regulatory agency with oversight mainly for underground oil and
gas reservoir operations on private, federal and public lands in
Alaska; it exercises the police power of the state. They
regulate the drilling and development of oil and gas and
geothermal resources as well as underground storage of natural
gas (in Cook Inlet). One of the few things they do on the
surface is insuring metering accuracy for custody transfers.
AOGCC mandates include conservation: preventing the waste of
energy resources, promoting greater ultimate energy resource
recovery, protecting underground fresh water from damage caused
by oil, gas and geothermal operations, protecting human safety
in oil field operations and protecting correlative rights of
owners that have adjacent properties to production.
Slide 8 splits out the North Slope drilling permits since
inception of the AOGCC in 1957 on a chart. He said that after
1970 the North Slope was by far the most active in the state.
The first "hump" in the late 60s indicated the gas field
development in Cook Inlet and the next hump in late 70s was the
oil development in Cook Inlet and the big hump around 1980 was
development drilling within, mainly, Prudhoe Bay and Kuparuk and
after that a lot of satellite development.
MR. SEAMOUNT said the numbers of wells drilled on the North
Slope varied from almost zero in the 1950s to the peak of 275 in
1982. There has been a "little downturn" in the last year and
that trend in permits started around 2005 and is at a low now.
In fact, the only time it was lower over the last almost 20
years was in 1999, the year after the extremely low oil prices.
The green curve showed the numbers of active wells that the
inspectors have to do some sort of observation on; that number
has steadily grown through the years to now with an all-time
high of 4,800 active wells. The magenta curve indicated the
number of active oil reservoirs in the state and that number has
continued to climb, and fairly fast from 2000 and 2005.
3:48:53 PM
Slide 9 illustrated the development timeline for North Slope oil
fields. The average time to production from discovery (taking
out five of the most delayed fields) was 11 years, but it took
an average of 7 years for fields where the operator tried as
hard as they could to get the field on production, such as
Alpine and Oooguruk.
CO-CHAIR WAGONER asked how that timeline compares to the Bakken
in North Dakota.
MR. SEAMOUNT replied that he didn't have specific numbers, but
it's a very fast timeline in North Dakota.
CO-CHAIR WAGONER said it's an entirely different system there;
they don't worry about pipelines because they truck it if they
have to.
MS. FOERSTER added that part of the difference is in the Lower
48, exploratory wells typically become producers; whereas on the
North Slope exploratory wells are typically just drilled for
data, because the possibilities of successful production are
low. At the end of drilling an exploratory well in the Lower 48
all they have to do is open the valve and on the North Slope
they have to start over and wait for the next winter exploration
season.
MR. SEAMOUNT said they could give 10 other reasons why the
production timeline is much longer in Alaska.
3:52:19 PM
He said slide 10 shows Alaska's average daily oil and NGL
productions from late the 1960s through 2011; it shows that in
the late 60s through the 70s Cook Inlet was the top producer in
the state producing 285,000 barrels of oil per day (bbl/d).
Prudhoe Bay came on line in the 70s, then the Kuparuk Milne
Point and then in the 80s everybody ran to the North Slope. Even
though everybody ran to the North Slope he said it is still "way
under-explored" as is Cook Inlet.
3:53:24 PM
SENATOR FRENCH referenced an article out of a 1992 Oil and Gas
Journal in which a couple of Arco people said, "By any
definition, Prudhoe Bay is declining and will continue to
decline." He said to accountants the decline started in 1988
when the field was no longer able to make its maximum allowable
rate of 1.5 mmbbl/d, and to engineers the decline began long
before that. He asked Mr. Seamount to comment on the Prudhoe
decline and what is possible to get out of that reservoir now.
MS. FOERSTER explained that when they were saying the decline
started sooner for the engineers they meant that a lot of
engineering work went into maintaining the plateau as long as
they did.
She said the Prudhoe Bay reservoir is "world class" and the
largest reservoir in North America. When it was discovered in
the 70s, the plan was to have a gas pipeline as well, and with
the technology then, the thought was they would water flood it
and blow down a little gas along the way, and if that plan had
followed through Prudhoe Bay would have been depleted with about
8 billion barrels of production. But it has produced over 11
billion barrels so far and there is still about 2 billion
barrels remaining of technically recoverable oil. To put that in
perspective, Thunder Horse was the biggest discovery in North
America this millennium and it's less than 2 billion barrels. So
the biggest discovery in North America at inception is smaller
than what is left at Prudhoe Bay!
SENATOR STEVENS asked why Mr. Seamount said North Slope and Cook
Inlet are underexplored.
3:56:49 PM
MR. SEAMOUNT answered because huge areas between wells haven't
been explored and there are known structures on the North Slope
that haven't been drilled. The Cook Inlet Basin is the same size
as the San Juan Basin in New Mexico, which has 29,000 wells in
it and discoveries are still being made there. Cook Inlet has
1,000 wells drilled and of those, less than 400 have been
exploratory. There are plays that work throughout the world that
they have never gone after in Cook Inlet and some not even on
the North Slope.
SENATOR WIELECHOWSKI asked how challenged the remaining 2
billion barrels in Prudhoe Bay is.
MS. FOERSTER replied that oil is technically recoverable today
and they expect the operator to produce it. The challenges that
exist are oil price and how it will be transported should the
total North Slope rate drop below that at which TAPS can operate
and the mechanical integrity of the aging infrastructure.
SENATOR WIELECHOWSKI asked if she expects it to be produced
under the current tax structure.
MS. FOERSTER replied that she had been in the state only 20
years and the tax structure had changed at least five times. To
say that it will be developed under the current tax structure
would be a bit naïve on her part. She hadn't seen fiscal
stability, but that would be good.
SENATOR WIELECHOWSKI said that was why he was trying to get at
costs and asked what the cost per barrel would be. Is it
economically recoverable under the current tax structure?
3:59:35 PM
MS. FOERSTER replied that she hadn't looked enough at the
economics to answer that question.
SENATOR FRENCH said he appreciated the hyperbole but the cameras
are running and they take a lot of heat for these oil tax
changes. He pinpointed the tax changes at ACES, PPT and ELF
which actually happened in 1989, more than 20 years ago saying
the most he could see is three and that's if you count when
Governor Murkowski aggregated the fields at Prudhoe Bay.
CO-CHAIR WAGONER said the presenters of the Gleason court case
in previous meetings said they felt with the proper investment
the decline curve could be flattened out and even raised some,
but he hadn't heard anyone say the decline could be stopped with
just Prudhoe Bay. The only thing he has heard that would level
the curve would be new discoveries and new production from new
fields.
MS. FOERSTER responded that it would take an enormous investment
at Prudhoe Bay to stop the decline in that field and agreed that
new discoveries and spending money in existing fields are both
needed.
4:02:18 PM
MR. SEAMOUNT agreed, too. He said slide 11 was a pie chart that
showed the kinds of wells and how many of each were drilled
throughout Alaska last year. At least 140 wells were drilled in
2011; 125 on the North Slope and 15 in Cook Inlet and 5
alternative energy wells (geothermal and underground coal
gasification). The North Slope is the most important when it
comes to activity, but Cook Inlet is ramping up with one jack up
rig already there and one on the way, and different types of
plays are being looked at.
New discoveries possible in NPRA, OCS and a big area of state
leases are in a good spot for shale oil and gas; and then
there's ANWR.
SENATOR FRENCH asked how far out AOGCC's jurisdiction goes into
the water.
MR. SEAMOUNT replied three miles out and if they drill from
shore, they will have jurisdiction from a safety standpoint not
from a reservoir development standpoint.
SENATOR FRENCH asked whose jurisdiction picks that up
afterwards.
MS. FOERSTER replied the Bureau of Ocean Energy Management
(BOEM).
4:05:45 PM
MR. SEAMOUNT said slide 12 was Alaska production curve without
Cook Inlet. He pointed out that in 1998 the president of Arco,
Ken Thompson's motto was "No decline in 99" and he was right for
a number of years up until about 2005.
SENATOR STEDMAN asked how elephant field production cycles play
out normally.
MS. FOERSTER answered that Prudhoe Bay was developed by the best
operators in the country and is a good "go-bye."
MR. SEAMOUNT added that the recovery rates at Prudhoe Bay are
incredible.
SENATOR STEDMAN asked if they should expect a flattening out of
production and a long tail for elephant fields.
MS. FOERSTER replied that is exactly what should be expected at
Prudhoe Bay.
4:08:56 PM
MR. SEAMOUNT went to slide 14 that displayed the timing of
prominent discoveries on the North Slope and the number of
exploration wells drilled going back to 1950 (NPRA legacy wells
not included). The number of exploration wells that were drilled
varied from 2 per year to 32 per year. Typically 7 wells were
drilled a year since 1980. Media has reported that there could
be more than 35 wells this year, but the AOGCC has received
permits for about 8 or 9 wells so far for this drilling this
season on the North Slope. At this point even 15 would be a lot
because it's getting late. They need to see permits before the
ice goes out if someone really wants to drill.
SENATOR FRENCH asked him to talk about the cyclical nature of
exploration.
MR. SEAMOUNT replied that is a difficult question to answer.
When he was in the business he drilled more wells when the oil
price was up and fewer when it was down. But now the oil price
is up and he would be happy to see 10 exploration wells
especially after last year.
MS. FOERSTER agreed.
4:11:19 PM
SENATOR WIELECHOWSKI said Petroleum News reported in the week of
February 12 issue that the total number of 2012 North Slope
explorers is 6 and the total of oil exploration wells is 23 to
27. Where did that disparity come from?
MR. SEAMOUNT replied that he didn't know; all he knew was the
numbers of permits AOGCC had received.
SENATOR FRENCH asked how long it takes the AOGCC to process a
development well permit.
MR. SEAMOUNT answered the average development well takes about 7
working days and probably less than two weeks for an exploration
well.
4:13:05 PM
MS. FOERSTER added the length of time it takes them to process
an exploratory well permit depends on not just the complexity of
the well but the completeness of the application, and as new
operators come to the state, they spend a lot of time teaching
them how to work within the process. She said the commission
starts processing a permit only when it is complete, and it's
conceivable that a new operator's permit could take months to
complete.
SENATOR FRENCH said he heard that ConocoPhillips was announcing
plans for an exploration well.
MR. SEAMOUNT went to slide 15 that showed the operators who have
drilled the exploration wells since 1997, and ConocoPhillips and
BP were by far the big guys up until 2002 when new operators
came in. So far this year, they have received three permit
applications from Repsol, two from Pioneer, one from Brooks
Range and one from ConocoPhillips.
4:15:07 PM
Slide 16 showed development and service wells drilled from 1950
to 2011 (that was a slow year). There was a real slow down in
1999 when the price of oil took a nose dive and then 190
development wells were drilled up until 2005 and then it dropped
off again. Other than a couple of years where the trend has been
broken it looks like there is a down trend in the number of
development wells being drilled (to keep the oil field going).
SENATOR FRENCH said it looks like from 1999 to 2000 it goes from
250 wells drilled one year to just 100 in the next, a huge swing
in a single year and he asked him to comment on that.
MR. SEAMOUNT responded that is when the price of oil tanked. He
remarked that he was surprised to see there wasn't more activity
now with the high price of oil. However, new operators showed on
the North Slope in 2011 and he quipped the more the merrier.
4:17:51 PM
Slide 18 showed the same sorts of North Slope trends but divided
into development, exploratory and service wells. He explained
that the service and development wells are the ones that keep
the production going.
SENATOR WIELECHOWSKI asked if the chart showed horizontal or
vertical footage [as opposed to well count].
MR. SEAMOUNT answered both.
SENATOR FRENCH asked if this took into account multiple
completions from a single well bore.
MR. SEAMOUNT answered yes.
MS. FOERSTER said one of the reasons they wanted to show
activity this way was because it levels things out. Well count
can be deceptive if the wells are complicated and it takes a
number of days to drill them. A month could be spent on one well
and a week on another. This averages the total footage drilled.
SENATOR FRENCH asked how many laterals you can get from a single
bore generally and if multiple completions are the standard now.
MS. FOERSTER answered the most she has counted is around five in
Alaska. And it's hard to generalize.
SENATOR WIELECHOWSKI asked if fracking is going on in these well
bores.
MS. FOERSTER replied Alaska has been fracking since the 1960s.
Approximately 25 percent of Alaska's wells have been
hydraulically fractured.
SENATOR FRENCH asked if new technology, like 3-D and 4-D seismic
and drill bit sensors, potentially reduce the number of wells
you need to drill as well as the number of feet.
MR. SEAMOUNT answered that the new types of information they can
acquire now makes it easier to find and stay in the reservoirs
and helps the economics of a well because you don't make as many
mistakes if you know where you are.
SENATOR FRENCH said as much as that is interesting it doesn't
tell how much oil you hit; it just tells you how many feet
you've drilled.
MS. FOERSTER replied that you get in contact with more of the
reservoir from a variety of mechanisms of which fracturing is
one and that is used for vertical extensions. Drilling ultra-
extended reach horizontal wells is another technique that is
used for lateral extension.
SENATOR FRENCH asked if new technology has reduced the number of
wells needed.
MR. SEAMOUNT replied that it had made it easier to find and stay
in the reservoir and reduces costs by providing more accuracy.
4:22:43 PM
MR. SEAMOUNT went on to slide 19, a plot of the active drilling
and work over rigs for Alaska that didn't show much variability
since 2006. Cook Inlet now has maybe gotten a little higher
percentage of rigs than it has in the past. Slide 20 was just
the number of drilling rigs (without the work over rigs)
indicating a low in 2009, but an increase in activity in 2011.
Slide 21 showed work over rigs. He turned the explanation of
what the work over rigs actually do over to Ms. Foerster.
4:24:48 PM
MS. FOERSTER said slide 22 showed the work over activity in the
area of maintenance and repair. Slide 23 showed another group
used just for fixing things; it shows the number of work overs
done to prepare casing, tubing or well heads just to keep
mechanical integrity of the well bore. Another section showed
the number of work overs done for pump maintenance or
replacement for wells that use down-hole electric submersible
pumps (ESP) to get their oil out. The ESPs are used at Milne
Point, Schrader Bluff and heavy oil. She explained that most of
the wells at Prudhoe Bay are gas lift. Another section showed
the number of work overs done for scale and corrosion control
work (chemical treatments).
SENATOR FRENCH asked if a coil tubing unit would count as a work
over rig in this example.
MS. FOERSTER replied yes; you could place chemicals with a coil
tubing unit.
SENATOR FRENCH remarked that just putting tubing down the hole
and injecting some acid or something doesn't require a rig or
even a big derrick.
4:26:36 PM
MS. FOERSTER agreed and said another small strip at the top
catches all other maintenance and repair work done - a little of
this, a little of that.
Slide 23 showed all of the work over activity done for
production enhancement. A red portion of each bar showed the
work overs done to add perforations to open up a new section of
the reservoir to flow into the well. The green portion showed
the number of work overs done to stimulate with either acid jobs
or hydraulic fractures. The blue part showed the number of work
overs done to isolate gas or water to make more room for the
oil. The purple part showed the number of work overs done to
convert producers to injectors or vice versa as part of enhanced
oil recovery. The tiny yellow sliver showed the number of work
overs done to re-enter suspended wells and reestablish
production in wells that have been shut in for a long period of
time.
SENATOR FRENCH said this brings up an interesting distinction
that has crept into the debate about oil taxes and that recently
they have heard a lot about the difference between money spent
on the North Slope to do maintenance and money that adds new
production, and he asked her if this is maintenance sending.
MR. SEAMOUNT replied that this slide showed the work overs that
are done to add new production; the previous slide [22] showed
the work overs done for maintenance and repair of existing
wells.
SENATOR FRENCH said it looked about 2:1 maintenance:production
for the last couple of years.
MS. FOERSTER replied yes; and added in a field that has been
around as long as Prudhoe Bay and Kuparuk, a whole lot of
maintenance is to be expected.
SENATOR FRENCH asked what happens to the production out of a
well if you don't do maintenance spending (going back to slide
22).
MS. FOERSTER replied eventually it would become shut in; it
could be dangerous to operate or the well could quit working.
SENATOR FRENCH asked if you don't spend on maintenance could you
lose production.
MS. FOERSTER replied if you have to shut the well in, you would
definitely lose production.
4:30:42 PM
MS. FOERSTER reminded them to keep in mind that statistics can
show anything. She next went to some of Senator Paskvan's
questions and talked about the health and potential of North
Slope reservoirs keeping in mind, she said, that the only thing
you can guarantee about a prediction is that it will be wrong.
In considering the health of the North Slope reservoirs, the bad
news is also the good news. The health of all the fields on the
North Slope depends to some degree on the health of Prudhoe Bay.
It is the central and circulatory system of the North Slope; the
rest of them are along for the ride, and it will continue that
way for a long time.
This is not a bad thing. With current technology, there are
still about 2 billion barrels left, another 15 years of
production at the current rate with no decline. With current
decline, as long as the price is sufficient to offset costs and
there is a pipeline, there will continue to be production.
4:32:51 PM
SENATOR STEDMAN asked her to help cross reference earlier
testimony dealing with the expectations that there are 7 to 8
billion barrels of proven reserves on the North Slope and yet we
are looking at 2 billion in Prudhoe Bay and a billion in others,
about half of what has been discussed in other testimony.
MS. FOERSTER asked who gave that testimony.
SENATOR STEDMAN replied it came out of the Gleason decision
dealing with TAPS.
MS. FOERSTER replied that the AOGCC uses the existing DNR
estimates for their numbers, and according to their estimates
Prudhoe Bay has 2 billion barrels left and all the other
reservoirs combined have another 2 billion.
SENATOR WIELECHOWSKI asked if it is realistic to get another 1
million barrels of oil going down the pipeline per day in the
foreseeable future.
MS. FOERSTER replied it's conceivable, but it would take a lot
of investment, a lot of new discoveries, a lot of technological
advances and a lot of luck.
MR. SEAMOUNT said opening ANWR and the OCS to development could
get us there.
4:34:48 PM
MS. FOERSTER said that would take some luck.
SENATOR WIELECHOWSKI asked if that is even possible without new
discoveries and technology.
MS. FOERSTER replied she didn't think 1 million barrels a day
more was possible; that is why she said they need new
discoveries and new technology. One place new production could
come from is the 20 billion barrels of known resource in the
heavy and viscous oils that aren't being produced right now, but
that would take new investments and lots of technology.
CO-CHAIR WAGONER said he was confused about the estimates and
asked whose estimate the 20 billion barrels was.
MS. FOERSTER replied that there is more than 20 billion barrels
potential in the heavy and viscous oil. It has a wide range of
viscosity and they will crack little bitty nuts and in doing so
they may discover another 2 or 3 billion. For this conversation
she didn't think the full level was necessary, but she could
respond with their "big number" later in the week.
CO-CHAIR WAGONER said he wanted the total number remarking that
it would all be technology driven.
SENATOR WIELECHOWSKI asked what the total booked reserves was on
the North Slope.
MS. FOERSTER replied the operators are only booking as proven
reserves what they can get with current technology from Kuparuk,
West Sak, Milne Point and Nikaitchuq.
SENATOR STEDMAN asked if she thought the State of Alaska as
resource owner should have an accurate account of what is booked
and filed with the Security Exchange Commission (SEC).
MS. FOERSTER answered that she thought those figures were
publically available.
SENATOR STEDMAN said she didn't answer the question; there seems
to be some confusion as to what those numerics are and he
wondered why there would be any misunderstanding or difference
of opinion on the reserve numbers. They should be nailed down.
MS. FOERSTER replied that reserves are depending upon what you
assume as a minimum rate at which it is no longer economic to
produce, what the price forecast is and at what level you
consider yourself to go negative. There is a bit of an art to
decline curve analysis. Until 2005, both the AOGCC and the DNR
did annual reserve estimates and because of all the assumptions
and the little bit of art that is involved their numbers were
never exactly the same. So they quit doing them. It's a
forecast; it's not in the bank.
4:41:13 PM
SENATOR STEDMAN said that would be a question for DNR as they
drill into it and that he thought the State of Alaska, as co-
owners of the asset, should have that number even as it changes.
But sometimes the numbers aren't even close in some of the
documents and conversations.
SENATOR FRENCH asked if she had reviewed the Gleason decision.
MS. FOERSTER replied no.
SENATOR WIELECHOWSKI said the former director of the Alaska
Division of Oil and Gas testified before the U.S. Senate in May
that with the exception of development of heavy oil resources,
the natural field declines cannot be replaced without access to
production from federal lands in the OCS. He quoted, "There are
no known conventional resources or Native lands that are likely
sufficient to replace the decline in existing production rates."
Do you agree?
MS. FOERSTER answered yes; she thought OCS needed to be opened
in order to stop the decline. The technical advances can't be
made rapidly enough in viscous and heavy oil to stem the
decline. Having 10 exploratory wells and a 10 percent success
rate for them won't make it happen onshore. She wanted ANWR and
the NPRA opened as well.
MR. SEAMOUNT said the key word is "no known" onshore. "Oops I
caught an elephant. I didn't know it was there."
4:43:23 PM
MS. FOERSTER said she hoped they drew the same conclusions that
she had about increased activity on the North Slope now and in
the future. New and existing operators are drilling exploratory
wells, field expanding and doing in-fill development wells
everywhere from Oooguruk to Prudhoe Bay. Existing operators are
performing remedial well work on existing wells - everything
from repair work to production enhancement work. Nothing
indicates to them that things will change dramatically in the
next few years, and they don't see a cliff or a mountain in the
future. Two things could change that picture: if one of the
exploratory wells is a success or there is a technology
breakthrough that increases recovery from an existing field or
unlocks the door to some of the 20 billion barrels of heavy and
viscous oil potential. The only other thing that could make a
dramatic change in activity level would be a dive in oil price
or some other catastrophic event that would curtail the
operator's ability to spend.
4:45:23 PM
She said she was asked to talk about the decline curve analysis
of the ANS reservoirs and responded that the AOGCC used to do
full field decline curve analyses of all the Alaska reservoirs
as part of its annual reserves determination. And every year the
DNR would do the same and then they would get a million
questions about why their numbers weren't identical, so they
quit doing them. The AOGCC still does decline curve analyses for
individual wells or small portions of fields to evaluate
projects that the operators are proposing to do and check on
their performance, but for full field decline analysis they rely
on DNR, because DNR engineers and geologists are as capable as
theirs.
Another of Senator Paskvan's questions was what the AOGCC sees
as the role of new technology in the future of ANS production.
The answer was that technology advances have already played a
huge role in North Slope production moving Prudhoe Bay from an 8
billion barrel field to a 13 billion barrel field, making the
viscous plays at West Sak, Schrader Bluff and Nikaitchuq
commercial and soon enabling BP to move forward with its Liberty
project. There is no reason to think it won't continue and it
will be a key component of assuring a long and healthy future
for North Slope production.
4:47:28 PM
MS. FOERSTER said operators have two incentives to push for
those new technologies. First, the infrastructure is already
here and why not just continue to cultivate it? The other
incentive is when they are done they have to clean it up. That
will be an enormous expenditure and they won't get any oil for
it. So the longer into the future they can delay dismantlement,
plugging and abandonment and mediation the healthier their
bottom line is going to look. Those are huge incentives to keep
the North Slope healthy.
4:48:23 PM
SENATOR STEVENS said he remembered talk about a fund being there
to dismantle the line and asked if that is true.
MS. FOERSTER said she didn't know what the companies have set
up, but if they did have one it would be somewhere drawing
interest.
She went to Senator Paskvan's last question about the transition
to the future and the influx of new operators and the transition
from just a few big companies on the North Slope to lots of
smaller companies. She explained that it's just a natural part
of the maturation of any basin; it happens everywhere. When she
grew up in Corpus Christi, Texas, every major had an office
there and now they are gone and little companies are there. She
said transitions are a lot easier in places where the costs of
doing business are a lot less than those in Alaska with its
harsh environment, but it is happening here.
MS. FOERSTER said the North Slope is kind of like the African
Savannah and Prudhoe Bay is a zebra, and the big companies are
lions. The lions kill a zebra and chow down and as they are
getting full, the vultures and hyenas come in. That's the way
companies are starting to come in and it's a good thing.
Unfortunately the maggots move in, too, but we don't want to let
those in.
Another interesting phenomenon that is happening in the Lower 48
is that little companies are proving to the big companies that
the shales can happen. So the majors are coming back into those
areas.
4:52:27 PM
Another future is possible for the North Slope. Ms. Foerster
said 20 years ago she predicted the majors would throw the keys
to someone like ASRC and leave them to operate the North Slope
fields. That is possible but now it's further in the future.
Thanks to technology advances and oil prices, the majors will
keep those keys for a while longer.
CO-CHAIR WAGONER thanked the presenters and held SB 192 in
committee.
4:53:29 PM
CO-CHAIR WAGONER adjourned the Senate Resources Standing
Committee meeting at 4:53 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AOGCC_Foerster_2-14-2012.pdf |
SRES 2/14/2012 3:30:00 PM |
SB 192 |
| AOGCC_Seamount_02-14-2012.pdf |
SRES 2/14/2012 3:30:00 PM |
SB 192 |