Legislature(2011 - 2012)SENATE FINANCE 532

04/25/2012 09:00 AM Senate RESOURCES


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09:02:55 AM Start
09:04:24 AM SB3001
11:19:59 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB3001 OIL AND GAS PRODUCTION TAX TELECONFERENCED
Heard & Held
Operational Update: Great Bear Prepares
to Test Alaska's Shale Oil Play
Presentation by Great Bear Petroleum
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         April 25, 2012                                                                                         
                           9:02 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Joe Paskvan, Co-Chair                                                                                                   
Senator Thomas Wagoner, Co-Chair                                                                                                
Senator Bill Wielechowski, Vice Chair                                                                                           
Senator Bert Stedman                                                                                                            
Senator Lesil McGuire                                                                                                           
Senator Hollis French                                                                                                           
Senator Gary Stevens                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Cathy Giessel                                                                                                           
Senator Joe Thomas                                                                                                              
Senator Dennis Egan                                                                                                             
Senator Linda Menard                                                                                                            
Representative Berta Gardner                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 3001                                                                                                            
"An Act  relating to  adjustments to oil  and gas  production tax                                                               
values  based on  a percentage  of gross  value at  the point  of                                                               
production for  oil and  gas produced  from leases  or properties                                                               
north  of   68  degrees  North  latitude;   relating  to  monthly                                                               
installment payments of the oil  and gas production tax; relating                                                               
to  the determinations  of  oil and  gas  production tax  values;                                                               
relating  to  oil  and  gas   production  tax  credits  including                                                               
qualified  capital  credits   for  exploration,  development,  or                                                               
production; making  conforming amendments;  and providing  for an                                                               
effective date."                                                                                                                
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB3001                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX                                                                                         
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
04/18/12       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/18/12       (S)       RES, FIN                                                                                               
04/19/12       (S)       RES AT 3:30 PM SENATE FINANCE 532                                                                      
04/19/12       (S)       Heard & Held                                                                                           
04/19/12       (S)       MINUTE(RES)                                                                                            
04/20/12       (S)       RES AT 10:00 AM SENATE FINANCE 532                                                                     
04/20/12       (S)       Heard & Held                                                                                           
04/20/12       (S)       MINUTE(RES)                                                                                            
04/24/12       (S)       RES AT 9:00 AM SENATE FINANCE 532                                                                      
04/24/12       (S)       Heard & Held                                                                                           
04/24/12       (S)       MINUTE(RES)                                                                                            
04/25/12       (S)       RES AT 9:00 AM SENATE FINANCE 532                                                                      
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ED DUNCAN, CEO and President                                                                                                    
Great Bear Petroleum, LLC                                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Testified during the discussion of SB 3001.                                                               
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
9:02:55 AM                                                                                                                    
CO-CHAIR  JOE  PASKVAN  called   the  Senate  Resources  Standing                                                             
Committee meeting  to order at 9:02  a.m. Present at the  call to                                                               
order  were  Senators  French,  Stevens,  Stedman,  and  Co-Chair                                                               
Paskvan.                                                                                                                        
                                                                                                                                
               SB 3001-OIL AND GAS PRODUCTION TAX                                                                           
                                                                                                                                
CO-CHAIR  PASKVAN  announced the  consideration  of  SB 3001.  He                                                               
noted that the committee would  hear from Ed Duncan regarding the                                                               
shale oil process in Alaska.                                                                                                    
                                                                                                                                
ED  DUNCAN,  CEO  and  President,   Great  Bear  Petroleum,  LLC,                                                               
testified  during the  discussion of  SB 3001.  He said  he would                                                               
present an  operational update on  where Great Bear  Petroleum is                                                               
at today  and take a  look at where they  might be next  year. He                                                               
noted that Great Bear Petroleum was  the first mover of shale oil                                                               
in Alaska.                                                                                                                      
                                                                                                                                
9:04:24 AM                                                                                                                    
MR.  DUNCAN hoped  to provide  information in  order to  help the                                                               
legislature  make  the  best  possible  decisions  regarding  oil                                                               
issues at this time.                                                                                                            
                                                                                                                                
CO-CHAIR WAGONER joined the committee.                                                                                          
                                                                                                                                
MR. DUNCAN referred  to a map of regionally  vested onshore lease                                                               
holders that had  been updated following the  December 2011 lease                                                               
sale.  He noted  that Royale  Energy from  San Diego  entered the                                                               
shale business  in Alaska  in December of  2011. The  fairway for                                                               
oil  and   gas  shale  development   on  Alaska  state   land  is                                                               
fundamentally  leased  at this  time.  He  said he  believes  the                                                               
solution  for  Alaska  for production  decline  is  new  reserves                                                               
within the  legacy producers and  within new  entry participants,                                                               
such as Great Bear.                                                                                                             
                                                                                                                                
He  related that  a year  and  a half  ago, shale  play was  just                                                               
getting started  internationally. Shale play  is driven  by price                                                               
and technology.  The shale industry  is supreme  at technological                                                               
innovation.                                                                                                                     
                                                                                                                                
He showed a map of Great  Bear leases and spoke of the importance                                                               
of  the James  Dalton Highway  (Haul Road)  and the  Trans Alaska                                                               
Pipeline (TAPS)  regarding early testing and  proof of commercial                                                               
viability of shale play.                                                                                                        
                                                                                                                                
9:07:27 AM                                                                                                                    
SENATOR WIELECHOWSKI joined the committee.                                                                                      
                                                                                                                                
MR. DUNCAN referred  to a map that showed Great  Bear acreage and                                                               
six well locations that have  been permitted to begin drilling in                                                               
May of  2012. The locations  run north  and south along  the Haul                                                               
Road  and  allow  for  year-round   easy  access.  To  prove  the                                                               
viability of an unconventional reservoir,  a well that won't flow                                                               
to the surface  under natural conditions, Great Bear  needs to be                                                               
able to drill, fracture stimulate, and complete necessary tests.                                                                
                                                                                                                                
9:09:11 AM                                                                                                                    
He listed  the well  locations that  were ready  to go:  Alcor 1,                                                               
Merak 1,  Mizar 1,  Megrez 1,  Dubhe 1, and  Alioth 1.  The wells                                                               
were named after stars in  the constellation Ursa Major. The plan                                                               
of  operations is  on file,  well  plans have  been designed  and                                                               
redesigned, and  the technical work  program is as good  as could                                                               
be  hoped for.  An  important  step was  to  consummate the  well                                                               
agreement with Halliburton.                                                                                                     
                                                                                                                                
MR. DUNCAN  said it was  a very exciting  time for Alaska  as the                                                               
commercial viability  of shale oil  is about to be  tested. Next,                                                               
Great Bear  will move  toward a pilot  production test  that will                                                               
last about a year.                                                                                                              
                                                                                                                                
He  showed  a map  that  represents  a three-dimensional  seismic                                                               
program that will  be important for designing  the orientation of                                                               
laterals and  identifying major  fracture networks  and faulting.                                                               
He stressed the importance of  drilling the wells in an efficient                                                               
and timely manner.                                                                                                              
                                                                                                                                
9:13:00 AM                                                                                                                    
MR. DUNCAN addressed  the plan of development  timeline, which he                                                               
said has been modified slightly  from early days, partly by Great                                                               
Bear and partly  by external forces. The timeline  is designed to                                                               
get shale play  to the point of  discussing commercial viability.                                                               
He detailed  the three phases  of the  plan. Phase one  is termed                                                               
"proof  of concept"  and  consists of  data  collection and  play                                                               
tests.                                                                                                                          
                                                                                                                                
CO-CHAIR   PASKVAN   requested   an  explanation   of   drilling,                                                               
especially the term "cored through all three main shales."                                                                      
                                                                                                                                
MR.  DUNCAN explained  that the  North  Slope Basin  is the  most                                                               
prolific oil field in North  America. Three world class oil prone                                                               
source rocks exist  regionally across the North  Slope. HRZ (GRZ)                                                               
is the  shallowest, a lower  cretaceous aged rock unit  with very                                                               
high organic  carbon content. Based  on known  information, these                                                               
rocks are mature for oil across the entire lease hold.                                                                          
                                                                                                                                
CO-CHAIR PASKVAN  asked him to  explain thermal maturity  and why                                                               
it is important.                                                                                                                
                                                                                                                                
MR.  DUNCAN explained  that thermal  maturity is  related to  the                                                               
process  of natural  heating of  buried rocks  containing organic                                                               
carbon, such  as plant  or animal material  that lies  within the                                                               
depositional  system  at  the time  when  rocks  were  originally                                                               
deposited. That material  is heated and transformed  into oil and                                                               
gas  in  the  subsurface.  The   process  of  heating  is  called                                                               
"thermally maturing," generally increasing  with depth of burial,                                                               
so shallow rocks in the North  Alaska Basin are the least mature.                                                               
At the  deepest level,  the rocks mature  past oil  generation to                                                               
gas  generation. The  first phase  of  hydrocarbon generation  is                                                               
oil; the  next phase is gas,  and then the rocks  are spent. Much                                                               
of the world is full of spent rock.                                                                                             
                                                                                                                                
9:18:37 AM                                                                                                                    
CO-CHAIR  PASKVAN asked  how many  meters deep  the three  source                                                               
rock layers are.                                                                                                                
                                                                                                                                
MR. DUNCAN replied  that the HRZ source rock will  occur at 2,500                                                               
meters below ground  level or 7,500 feet and will  be between 400                                                               
and 600 feet thick. He noted that HRZ will be selectively cored.                                                                
                                                                                                                                
He  explained that  the  second  layer of  source  rock is  basal                                                               
Kingak,  a Jurassic  Age  shale. Nearly  all of  the  oil in  the                                                               
Alpine  Field is  from basal  Kingak, an  important discovery  in                                                               
that it initiated  Great Bear's interest in shale  oil from basal                                                               
Kingak.                                                                                                                         
                                                                                                                                
He  related that  sitting  beneath basal  Kingak  is source  rock                                                               
called  Shublik, a  Triassic  Age rock.  Shublik  is the  primary                                                               
source  rock for  the  North  Slope and  occurs  in outcrops  all                                                               
across the  Brooks Range.  He continued  to explain  that Shublik                                                               
rock  is responsible  for 60  percent  of oil  reserves known  to                                                               
exist on  the North Slope. It  is a rich organic  carbonate black                                                               
limestone and  is very brittle  so it fractures well  in outcrop.                                                               
He  noted  that Great  Bear  has  data  from  about 20  tests  of                                                               
naturally  fractured Shublik  in  the  Prudhoe Bay/Kuparuk  field                                                               
areas.                                                                                                                          
                                                                                                                                
He summarized that  there are three source  rocks, co-located and                                                               
regionally present,  in a  section 600 to  800 feet  thick. Great                                                               
Bear will initially focus on  Shublik, but also will collect data                                                               
on  other source  rocks  in order  to determine  if  they can  be                                                               
produced as well.                                                                                                               
                                                                                                                                
9:22:21 AM                                                                                                                    
SENATOR FRENCH asked how thick Shublik is.                                                                                      
                                                                                                                                
MR. DUNCAN said  Shublik ranges in thickness between  100 feet in                                                               
the northeast,  to over 250  feet in  the southwest of  the lease                                                               
hold.                                                                                                                           
                                                                                                                                
SENATOR FRENCH  pointed out that  Great Bear is waiting  to drill                                                               
its first oil  well, which is exciting. On the  other hand, there                                                               
could be a  downside where oil cannot be produced.  He asked what                                                               
the upside potential was.                                                                                                       
                                                                                                                                
MR. DUNCAN answered that the  upside could involve a commercially                                                               
viable development  of all  three zones. If  they all  "frack and                                                               
flow," the  ultimate volumetric outcome  is beyond  game changing                                                               
because of the thickness and regional extent of the target zone.                                                                
                                                                                                                                
SENATOR  WIELECHOWSKI  asked  how  Great  Bear's  lease  holdings                                                               
compare  to Bakken  or  Eagle  Ford or  other  world class  shale                                                               
plays.                                                                                                                          
                                                                                                                                
MR.  DUNCAN replied  that Great  Bear is  confident that  Shublik                                                               
rock can be  fractured and stimulated to yield  flow. He asserted                                                               
that  Shublik  is similar  in  quality,  thickness, and  regional                                                               
extent to both Eagle Ford and Bakken.                                                                                           
                                                                                                                                
9:26:31 AM                                                                                                                    
CO-CHAIR  PASKVAN  requested  that  Mr.  Duncan  share  his  work                                                               
history in Alaska and his involvement with the shale industry.                                                                  
                                                                                                                                
MR. DUNCAN  related that he  started his large-company  career in                                                               
1982  in Alaska.  He said  he had  been living  in San  Francisco                                                               
working  for a  regional exploration  office whose  primary focus                                                               
was the North  Slope and Alaska's Outer  Continental Shelf (OCS).                                                               
He shared  his experience with  the Mukluk lease, the  Camden Bay                                                               
area, and everything east of  the Colville River to the Mackenzie                                                               
Delta. The  focus was on  surveying and permitting in  the Arctic                                                               
National Wildlife Refuge (ANWR) for  drilling the Kick Well site.                                                               
He said he  then worked another year in Alaska  as an exploration                                                               
supervisor and then as a  basin specialist for British Petroleum.                                                               
He shared his involvement in regional source rock evaluation.                                                                   
                                                                                                                                
9:30:21 AM                                                                                                                    
MR.  DUNCAN  related  his  work  experience  with  unconventional                                                               
resource  development in  Oklahoma  and California.  Simultaneous                                                               
with Eagle  Ford and Bakken  coming on,  he reported that  he set                                                               
out to find the next big  emerging resource play in the world. He                                                               
said  he discovered,  and was  stunned at,  the potential  of the                                                               
Brookian Foredeep in the Brooks Range in 2009.                                                                                  
                                                                                                                                
He  continued  to  say  that  at the  same  time,  the  USGS  and                                                               
Schlumberger  and Stanford  researchers were  working on  a three                                                               
dimensional fluid-flow  model-based review of  petroleum kitchens                                                               
and a  charge history  of the  North Slope  fields. It  remains a                                                               
seminal piece  of work by  Ken Peters.  He stated that  the paper                                                               
captured all  of the data  he could  have wished for  to evaluate                                                               
unconventional oil potential  in Alaska. The intent  of the model                                                               
was to  explain the charge  history of Prudhoe Bay,  Kuparuk, and                                                               
Alpine.                                                                                                                         
                                                                                                                                
9:34:19 AM                                                                                                                    
SENATOR FRENCH asked for an explanation of "charge history."                                                                    
                                                                                                                                
MR. DUNCAN explained that "charge  history" refers to a time when                                                               
hydrocarbons were  generated in  thermally mature areas  and then                                                               
migrated  vertically or  laterally into  the reservoirs  they are                                                               
found in today.                                                                                                                 
                                                                                                                                
CO-CHAIR  PASKVAN stated  that approximately  16 billion  barrels                                                               
have been pumped  through the TAPS system. He asked  if there was                                                               
any correlation between  the quantities of oil that  comes out of                                                               
Prudhoe Bay, Kuparuk, and Alpine, and  what might still be in the                                                               
source rock.                                                                                                                    
                                                                                                                                
MR. DUNCAN  referred to Ken  Peters' paper that was  published in                                                               
2006,  which  deals with  the  material  balance of  hydrocarbons                                                               
generated regionally  and those  captured in  known accumulations                                                               
in North  Alaska. He  said it  is fair to  say that  the residual                                                               
hydrocarbons, or  retained hydrocarbons  in the source  rock, are                                                               
significant  and in  excess of  hydrocarbons  contained in  known                                                               
tracts. The question is how  to recover the retained hydrocarbons                                                               
because of the relative newness  of technology and unconventional                                                               
oil. The amount  of oil recovered is improving every  year. A few                                                               
years ago the  recovery rate in the  Eagle Ford was about  3 or 4                                                               
percent; now it is over 6 or 7 percent and improving.                                                                           
                                                                                                                                
He explained  that there is about  100 billion barrels of  oil in                                                               
conventional traps  between Point Thomson  and Alpine. That  is a                                                               
fraction  of the  oil generated,  which is  closer to  4 trillion                                                               
barrels. He  emphasized that he  was not suggesting that  was the                                                               
oil  resource base  in North  Alaska; however,  it speaks  to the                                                               
quality, scale,  and thickness of  the petroleum  source kitchens                                                               
in that specific basin.                                                                                                         
                                                                                                                                
9:38:52 AM                                                                                                                    
CO-CHAIR WAGONER asked how many lateral  feet on a shale play can                                                               
be fractured.                                                                                                                   
                                                                                                                                
MR. DUNCAN answered  that the data Great Bear  is collecting will                                                               
provide information  on how best  to develop the  shale resource.                                                               
Very  thick sections  can't be  developed laterally.  He said  he                                                               
expects  to  see  very precise,  targeted  lateral  drilling  and                                                               
precise,   well-managed   calibrated  stimulation   programs   in                                                               
Shublik.                                                                                                                        
                                                                                                                                
9:42:13 AM                                                                                                                    
SENATOR WIELECHOWSKI  asked how it  is possible shale  play could                                                               
have been missed by producers already on the North Slope.                                                                       
                                                                                                                                
MR. DUNCAN explained  that these plays are very new  - October of                                                               
2010 - and  the companies that discovered the plays  were not the                                                               
major producers.  Their context  was different from  Great Bear's                                                               
and other companies that led the unconventional revolution.                                                                     
                                                                                                                                
9:44:34 AM                                                                                                                    
SENATOR  STEVENS asked  what Great  Bear's relationship  with the                                                               
majors is, considering that the major companies own TAPS.                                                                       
                                                                                                                                
MR. DUNCAN  related that he  could answer the question  better if                                                               
Great Bear was in production. He  said he believed Great Bear has                                                               
a good relationship  with the majors. He pointed out  that he was                                                               
previously  employed  by  BP. He  expected  to  produce  pipeline                                                               
quality oil by  the end of the  year, but said there is  a lot of                                                               
work to do first.                                                                                                               
                                                                                                                                
9:46:52 AM                                                                                                                    
CO-CHAIR PASKVAN  asked if there  is a chemical  fingerprint that                                                               
shows the  location and history of  the source rock on  the North                                                               
Slope.                                                                                                                          
                                                                                                                                
MR. DUNCAN answered  yes. He referred again  to the geochemically                                                               
oriented publications by  Ken Peters that deals  with the "mixing                                                               
of the  various source oils"  in North Slope fields.  One article                                                               
showed that  Alpine was  sourced by Kingak,  a critical  piece of                                                               
data. The articles  showed the percentage of each  source rock in                                                               
each area. The oil can be  geochemically traced to the rocks from                                                               
which they came.                                                                                                                
                                                                                                                                
SENATOR FRENCH asked  if Great Bear's oil will come  out south of                                                               
pump station one, south of  Deadhorse. He also inquired about the                                                               
pump  station tie-in  referred  to  in phase  2  of Great  Bear's                                                               
development plan.                                                                                                               
                                                                                                                                
MR. DUNCAN  explained that the  early stage  development planning                                                               
is geared toward a trucking operation.                                                                                          
                                                                                                                                
9:52:41 AM                                                                                                                    
SENATOR  FRENCH  summarized  that  the oil  would  flow  back  to                                                               
surface tanks  and be trucked to  the North Slope to  be put into                                                               
production facilities there.                                                                                                    
                                                                                                                                
MR. DUNCAN said that was exactly  right. There would be a modular                                                               
processing system  on the pad  with the  wells, a tank  system to                                                               
hold produced  oil, and  a trucking operation  to deliver  oil to                                                               
TAPS.                                                                                                                           
                                                                                                                                
MR.  DUNCAN discussed  the importance  of  Great Bear's  position                                                               
along the  Haul Road. If the  results from 2012 are  positive, in                                                               
2013 the  construction of the  pilot development pad  will begin.                                                               
It will  be a  self-contained, multi-wellhead  modular processing                                                               
system trucking operation  located a few hundred  yards away from                                                               
the existing  Haul Road.  If the  pilot pad  provides encouraging                                                               
results,  the  Haul  Road  will   define  the  first  development                                                               
corridor, a chain of production pads  that are linked to the Haul                                                               
Road.                                                                                                                           
                                                                                                                                
SENATOR FRENCH  referred to an  article in Petroleum  News, April                                                             
8, 2012, regarding shale oil  development. The article points out                                                               
how rapidly  shale developments  can come  on line.  He requested                                                               
more  information  about the  advantages  of  a 2-year  play,  as                                                               
compared to a 10-year play.                                                                                                     
                                                                                                                                
MR.  DUNCAN said  he did  not know  where the  "first oil  in ten                                                               
years" comment  came from.  He noted  it did  not apply  to Great                                                               
Bear's  model. He  clarified  that the  expectation  is to  begin                                                               
producing in  2014 with  the goal  of getting  oil to  market. In                                                               
2015 the plan  is to build a development corridor  along the Haul                                                               
Road.                                                                                                                           
                                                                                                                                
SENATOR FRENCH noted  that the article says a shale  oil well may                                                               
initially produce oil  at a high rate of about  1,000 barrels per                                                               
day, but  production tends to  decline rapidly, stabilizing  at a                                                               
more long-term rate of 100 to  200 barrels per day. In the Bakken                                                               
play in  North Dakota, total  production is currently  running at                                                               
about 488,000  barrels per  day from  6,000 wells,  indicating an                                                               
average daily  well production of  just 80 barrels. He  asked how                                                               
many wells would need to be drilled for commercialization.                                                                      
                                                                                                                                
9:55:23 AM                                                                                                                    
MR. DUNCAN  expected that the  well spacing in North  Alaska will                                                               
ultimately  be  around 160  acres  per  well. This  program  will                                                               
support 200  wells per  year through  the course  of a  very long                                                               
drill  out. If  the rocks  allow for  regional production,  under                                                               
this model the play  will be drilled out at a  very high rate for                                                               
at least  10 to  15 years. Great  Bear has a  goal to  reduce the                                                               
surface footprint, unlike Bakken.                                                                                               
                                                                                                                                
CO-CHAIR WAGONER asked if there  had been any discussion with the                                                               
North Slope  Borough or indigenous  people in the  area regarding                                                               
the possible density of development.                                                                                            
                                                                                                                                
MR. DUNCAN said Great Bear has  tried very hard to keep the North                                                               
Slope Borough  and the villages  up to date on  their development                                                               
plans.                                                                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI inquired if  the expected production profile                                                               
is about 1,000 barrels per day for the 200 wells.                                                                               
                                                                                                                                
MR. DUNCAN  reported that it was  a good number to  use. He noted                                                               
that the wells  decline at a rapid rate. He  expected about 1,000                                                               
barrels  a day  for initial  production, followed  by an  average                                                               
production in  the first year  of 500 to  600 barrels a  day, and                                                               
ending up with  about 250 to 300 barrels a  day. The decline rate                                                               
slows in  years 2  and 3  and beyond. The  fact that  these wells                                                               
decline rapidly portends continuous operations.                                                                                 
                                                                                                                                
SENATOR  WIELECHOWSKI asked  how many  barrels would  be produced                                                               
under full field development in year 5 and year 10.                                                                             
                                                                                                                                
MR. DUNCAN  said it  depends on  how many  wells are  drilled and                                                               
completed. He  maintained that  200 wells  a year  is achievable;                                                               
that is 8  development pads per year and will  require a complete                                                               
overhaul  of the  rig  market.  He added  that  there  is also  a                                                               
substantial  workforce challenge.  With 200  wells a  year, after                                                               
five years there would be 1,000 producing wells.                                                                                
                                                                                                                                
10:03:50 AM                                                                                                                   
CO-CHAIR  PASKVAN asked  Mr. Duncan  to comment  on the  geologic                                                               
risks of conventional and unconventional oil.                                                                                   
                                                                                                                                
MR.  DUNCAN  related  that   conventional  reservoirs  will  flow                                                               
without  stimulation to  the  surface. Unconventional  reservoirs                                                               
needs stimulus to  flow to the surface and  require technology to                                                               
become commercial.  The challenge now  is the use  of terminology                                                               
when  discussing shale  oil and  unconventional  oil. In  Alaska,                                                               
HRZ, GRZ,  basal Kingak, and  Shublik are  considered technically                                                               
unconventional.  HRZ,  GRZ, and  basal  Kingak  are shale  plays.                                                               
Shublik is technically not a shale play.                                                                                        
                                                                                                                                
10:06:36 AM                                                                                                                   
MR.   DUNCAN  continued   to  explain   Great   Bear's  plan   of                                                               
development.  He maintained  that  by  the end  of  the year  the                                                               
geological  risks will  have been  addressed. He  listed some  of                                                               
those risks, such as the rocks  could be too ductile or clay rich                                                               
to frack a well.                                                                                                                
                                                                                                                                
10:09:09 AM                                                                                                                   
MR.  DUNCAN  turned to  a  slide  entitled, "North  Alaska  Shale                                                               
Resource  Play Realization:  Challenges and  Business Development                                                               
Opportunities."  He   noted  the  list  of   key  challenges  for                                                               
unconventional  resource  development  in North  Alaska  and  how                                                               
Great  Bear means  to address  those challenges.  He stated  that                                                               
access to  gravel for infrastructure support,  water for drinking                                                               
and fracking,  and silica rich  sand or propping, were  among the                                                               
largest challenges.                                                                                                             
                                                                                                                                
SENATOR WIELECHOWSKI  asked how  Great Bear will  assure fracking                                                               
won't be a  problem in Alaska. He also asked  if propane would be                                                               
used for fracking.                                                                                                              
                                                                                                                                
MR. DUNCAN  said that Alaska  has a  number of gifts  from Mother                                                               
Nature. There are no fresh water  aquifers that are not frozen as                                                               
permafrost  on   the  North  Slope.  Water   sources  potentially                                                               
available are subsurface  up to a depth of about  5,000 feet, and                                                               
there are  thick sandstone aquifers  that contain  brackish water                                                               
not  fit  for human  consumption  or  agricultural use,  but  are                                                               
chemically very suitable for fracking.                                                                                          
                                                                                                                                
He noted there  is very active research related  to providing sea                                                               
water as  an allowable component  for fracking. The  operation of                                                               
fracking  involves capturing  and cleaning  the flow  back water,                                                               
necessitating  future recycling  techniques. Halliburton  is very                                                               
active  in   water  recycling  research  using   reverse  osmosis                                                               
filtering.                                                                                                                      
                                                                                                                                
He stated that access to gravel  is one challenge Great Bear will                                                               
need help with.                                                                                                                 
                                                                                                                                
He  said  that propane  flaring  was  not  part of  Great  Bear's                                                               
planned operations.                                                                                                             
                                                                                                                                
CO-CHAIR PASKVAN noted the arrival of Senator McGuire.                                                                          
                                                                                                                                
10:16:45 AM                                                                                                                   
MR. DUNCAN  pointed out that a  big challenge for Great  Bear and                                                               
the  entire petroleum  industry has  to do  with how  all players                                                               
will need  to cooperate to  make the  best outcome for  Alaska. A                                                               
huge  challenge  will  be  training,   hiring,  and  retaining  a                                                               
critical mass of  workforce. At 50 wells a year,  Great Bear will                                                               
require  a  significant  rebuild   of  a  skilled  workforce.  He                                                               
referred  to slide  8 which  showed the  large number  of workers                                                               
needed  in  Pennsylvania, 44,000,  and  South  Texas, 68,000,  to                                                               
sustain the production in those locations.                                                                                      
                                                                                                                                
CO-CHAIR  PASKVAN asked  if  the  Alaska jobs  would  last for  a                                                               
generation or more.                                                                                                             
                                                                                                                                
MR. DUNCAN said he believed they would.                                                                                         
                                                                                                                                
CO-CHAIR PASKVAN  inquired whether jobs in  unconventional plays,                                                               
such as Great Bear's, are measurable in tens of thousands.                                                                      
                                                                                                                                
MR. DUNCAN  said that  was an accurate  estimation based  on what                                                               
has happened in Eagle Ford and in Bakken.                                                                                       
                                                                                                                                
10:22:50 AM                                                                                                                   
CO-CHAIR PASKVAN asked  if the uptick in  production, as depicted                                                               
in  the  chart entitled  "Historical  Oil  Production," was  from                                                               
unconventional plays or conventional plays.                                                                                     
                                                                                                                                
MR. DUNCAN  replied that he  didn't have  the input data  for the                                                               
slide, but based on knowledge,  asserted that the uptick was from                                                               
unconventional  oil that  was technologically  and price  driven,                                                               
particularly in North  Dakota, Texas, and Alberta  where there is                                                               
heavy oil.                                                                                                                      
                                                                                                                                
CO-CHAIR  PASKVAN summarized  that  the two  driving factors  for                                                               
increased production are technology and oil price.                                                                              
                                                                                                                                
MR. DUNCAN said those factors  were certainly driving Eagle Ford,                                                               
Bakkan and other unconventional plays.                                                                                          
                                                                                                                                
10:25:25 AM                                                                                                                   
SENATOR  FRENCH   asked  what   advantages  a   partnership  with                                                               
Halliburton provides.                                                                                                           
                                                                                                                                
MR.  DUNCAN  replied  that Halliburton  is  a  recognized  global                                                               
leader in fracking with a  highly trained workforce, and has made                                                               
a   significant   commitment   to   research   and   development.                                                               
Halliburton  is  a leader  in  oil  recovery technology  and  the                                                               
commitment to address unforeseen challenges.                                                                                    
                                                                                                                                
SENATOR FRENCH asked if the  addition of another company, Royale,                                                               
competing  in   the  North  Slope  for   shale  oil  development,                                                               
validates Great Bear's venture.                                                                                                 
                                                                                                                                
MR.  DUNCAN  replied  that  he  does not  look  at  Royale  as  a                                                               
competing company because  the play is so large  that it requires                                                               
additional companies.  He shared  that the lead  technical driver                                                               
at Royale is a personal friend whom he worked with in the 80's.                                                                 
                                                                                                                                
CO-CHAIR FRENCH  asked if he  was the engineer that  analyzed the                                                               
Mukluk failure.                                                                                                                 
                                                                                                                                
MR.  DUNCAN said  that Dr.  Mohamed Abdel-Rahman  is a  very good                                                               
geologist  from Sheffield  University in  the United  Kingdom. He                                                               
stated he was pleased to see Royale and others in the play.                                                                     
                                                                                                                                
10:29:11 AM                                                                                                                   
CO-CHAIR PASKVAN  asked what kind  of play  ConocoPhillips' lease                                                               
in NPRA is.                                                                                                                     
                                                                                                                                
MR.  DUNCAN said  he  didn't know  Conoco's  lease strategy,  but                                                               
offered  that  the  lease  acreage  lies  in  between  two  known                                                               
fairways. He thought it was probably an unconventional play.                                                                    
                                                                                                                                
SENATOR  MCGUIRE  asked  for  advice in  terms  of  training  the                                                               
necessary workforce.                                                                                                            
                                                                                                                                
MR. DUNCAN  answered that  Great Bear's program  is not  the only                                                               
one in North  Alaska that may lead to significant  job growth, so                                                               
the  best thing  to  do would  be  to engage  with  the state  in                                                               
regards to future great demands on the workforce.                                                                               
                                                                                                                                
SENATOR MCGUIRE stressed the importance  of training Alaskans for                                                               
the jobs and of offering the right training programs.                                                                           
                                                                                                                                
10:34:08 AM                                                                                                                   
CO-CHAIR PASKVAN pointed out that  the presentation documents are                                                               
on  BASIS.  He   noted  that  DOR  presented   chart  6  entitled                                                               
"Historical  Oil Production"  to the  House Resources  Committee.                                                               
The committee  was told the  Texas decline curve had  been turned                                                               
around from conventional oil. He wondered if that was accurate.                                                                 
                                                                                                                                
MR. DUNCAN  asserted that  it was not  an accurate  statement. He                                                               
said he knows  that oil production is  increasing dramatically on                                                               
the Eagle Ford  play as well in other plays.  The upturn in Texas                                                               
is more  substantial than what appears  on chart 6 and  there are                                                               
very few active conventional oil plays in the state.                                                                            
                                                                                                                                
10:36:46 AM                                                                                                                   
CO-CHAIR PASKVAN asked  if "co-located" was an  accurate term for                                                               
the layering of rock types.                                                                                                     
                                                                                                                                
MR.  DUNCAN   said  yes.  The  Shublik   formation  is  deposited                                                               
regionally, the  basil Kingak is  similarly distributed,  and the                                                               
HRZ has less of a  regional distribution, but covers the entirety                                                               
of the central coastal plain area.                                                                                              
                                                                                                                                
CO-CHAIR PASKVAN inquired  if all rock layers can  be accessed in                                                               
one well.                                                                                                                       
                                                                                                                                
MR.  DUNCAN replied  that  it depends  on how  the  bore hole  is                                                               
engineered.  In the  event  that all  three  rock layers  deserve                                                               
commercial  development, the  nature  of the  bore  holes can  be                                                               
technically modified.  In testing  for commercial  viability, the                                                               
rocks dictate how to drill the well.                                                                                            
                                                                                                                                
At ease from 10:40 a.m. to 10:48 a.m.                                                                                           
                                                                                                                                
10:48:19 AM                                                                                                                   
MR.  DUNCAN  discussed  the  challenge  in  Alaska  of  inspiring                                                               
additional  exploration and  maintaining current  oil production.                                                               
He related  that the petroleum  basin in  North Alaska is  one of                                                               
the greatest  basins in North  America and in the  world. Prudhoe                                                               
Bay is the 18th largest oil field ever found on the planet.                                                                     
                                                                                                                                
He  pointed out  that the  perception  remains that  Alaska is  a                                                               
high-cost, high-risk,  over-regulated place that has  a series of                                                               
layered fears,  some that  are real  and some  that are  not. The                                                               
challenge is  how to  create an  operating environment  in Alaska                                                               
where the return is better than  competing plays in the Lower 48.                                                               
The  challenge is  shared by  the  state as  well as  by the  oil                                                               
companies.                                                                                                                      
                                                                                                                                
He noted  that Great Bear  has the largest contiguous  lease hold                                                               
position in an unconditional play  in North America. He suggested                                                               
that everyone  is trying to  drive the costs of  production down.                                                               
He encouraged the industry to work  with the state on this issue.                                                               
He stated  that Great Bear is  happy to be working  in Alaska and                                                               
will soon have real data about the potential of their wells.                                                                    
                                                                                                                                
10:57:52 AM                                                                                                                   
CO-CHAIR WAGONER understood that  the workforce was critical, but                                                               
didn't  know of  housing  opportunities on  the  North Slope.  He                                                               
asked if anybody has talked about building a camp.                                                                              
                                                                                                                                
MR.  DUNCAN  replied  that  Great  Bear  is  very  aware  of  the                                                               
magnitude of the housing challenge. No  one has a feeling for how                                                               
big this  project could  become. He said  the jobs  are year-long                                                               
and would involve families so housing and support is critical.                                                                  
                                                                                                                                
11:02:04 AM                                                                                                                   
CO-CHAIR PASKVAN reported that Great  Bear has recently hired Pat                                                               
Galvin, the  former Commissioner  of Revenue.  He asked  what Mr.                                                               
Galvin's role will be.                                                                                                          
                                                                                                                                
MR. DUNCAN  answered that Mr.  Galvin is a valuable  resource due                                                               
to  his understanding  of the  current fiscal  regime, regulatory                                                               
process, and  permitting front. Pat's  role will be to  help with                                                               
external  and  government  affairs, dealing  with  expanding  the                                                               
operation,  and close  coordination with  regulatory agencies  to                                                               
minimize  delays.  He  will  be deputy  general  counsel  to  the                                                               
corporation.                                                                                                                    
                                                                                                                                
11:04:33 AM                                                                                                                   
CO-CHAIR PASKVAN  requested more information about  the move from                                                               
"proof of concept into the pilot  program." He wanted to know how                                                               
the type of drilling rig needed  would be determined and how many                                                               
would be needed.                                                                                                                
                                                                                                                                
MR.  DUNCAN  replied  he  expects that  Great  Bear  will  design                                                               
drilling  hardware and  pumping  services  specifically for  this                                                               
play. The  number of the  rigs needed is  an unknown. He  said he                                                               
pictured a fleet of similar or  identical rigs in order to reduce                                                               
costs for training, maintenance, and deployment.                                                                                
                                                                                                                                
SENATOR FRENCH  returned to slide 3  and asked if Alcor  would be                                                               
the first well.                                                                                                                 
                                                                                                                                
MR. DUNCAN said yes.                                                                                                            
                                                                                                                                
SENATOR FRENCH inquired what day Great Bear intends to spud in.                                                                 
                                                                                                                                
MR. DUNCAN  replied it would  be as soon  as Great Bear  gets the                                                               
rig and the site ready. The rig contract starts on May 15.                                                                      
                                                                                                                                
SENATOR FRENCH  suggested there  might be a  whole lot  of people                                                               
watching. He wished Mr. Duncan good luck.                                                                                       
                                                                                                                                
11:07:48 AM                                                                                                                   
SENATOR MCGUIRE  asked what the range  of cost per well  would be                                                               
and what type of credit incentive Mr. Duncan would prefer.                                                                      
                                                                                                                                
MR. DUNCAN  explained that the best  way to answer the  "cost per                                                               
well" question is  to think about what the cost  per well will be                                                               
during core  development. Data  is being  collected in  the early                                                               
wells  which  are  more expensive  than  full  field  development                                                               
wells.                                                                                                                          
                                                                                                                                
He addressed  the question about preferred  credit incentives. He                                                               
said he  would have to consider  what the state can  do to reduce                                                               
development costs  in Alaska in  order to compete with  the Lower                                                               
48.  He suggested  the  state  and industry  meet  to solve  that                                                               
problem. He  proposed meeting with  the state after  Great Bear's                                                               
cost  reduction  task  force  meeting   to  identify  major  cost                                                               
drivers.                                                                                                                        
                                                                                                                                
CO-CHAIR WAGONER asked how many feet  of core would be drilled in                                                               
each exploration well.                                                                                                          
                                                                                                                                
MR. DUNCAN  replied that there  are plans for  multi-hundred feet                                                               
of core through all of the rock zones.                                                                                          
                                                                                                                                
11:14:45 AM                                                                                                                   
CO-CHAIR  WAGONER  asked if  other  cuttings  would be  analyzed,                                                               
also.                                                                                                                           
                                                                                                                                
MR. DUNCAN said yes. Great  Bear will finalize sampling scenarios                                                               
with Halliburton tomorrow.                                                                                                      
                                                                                                                                
CO-CHAIR PASKVAN asked how the core  is handled when it comes out                                                               
of the earth.                                                                                                                   
                                                                                                                                
MR. DUNCAN  replied that geo-chemical  and rock  mechanic experts                                                               
will dictate how the core is  handled, but the number one rule is                                                               
to not allow  contamination. The core goes into  isolation and is                                                               
shipped  off the  North  Slope  to labs  in  Houston and  Golden,                                                               
Colorado within hours of coming out of the ground.                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI  asked if  Halliburton is  providing venture                                                               
capital.                                                                                                                        
                                                                                                                                
MR.  DUNCAN explained  that  the  participation agreement  allows                                                               
Halliburton to  drill and complete  a certain number of  wells. A                                                               
successful completion of  their work program will earn  them a 25                                                               
percent working interest  position in a 125,000 acre  subset of a                                                               
half  million acres.  Great  Bear will  remain  the operator.  He                                                               
concluded that  it was  a good  way to align  one of  the world's                                                               
leading technical service companies with Great Bear's challenge.                                                                
                                                                                                                                
CO-CHAIR PASKVAN opined  that Alaska is at a  very important time                                                               
in its history,  but there are many challenges, also.  He said he                                                               
remains optimistic and hopeful after hearing the presentation.                                                                  
                                                                                                                                
[SB 3001 was held in committee.]                                                                                                
                                                                                                                                
11:19:59 AM                                                                                                                   
There being no further business to come before the committee,                                                                   
Co-Chair Paskvan adjourned the Senate Resources Standing                                                                        
Committee at 11:19 a.m.                                                                                                         

Document Name Date/Time Subjects
Great Bear_April 25 2012.pdf SRES 4/25/2012 9:00:00 AM
SB3001
02-13-2012_DOR_Response_Butcher to French.pdf SRES 4/25/2012 9:00:00 AM
SB3001
02-13-2012_DOR_Response_Butcher to French_AK compared to TX ND Alberta w price of oil.pdf SRES 4/25/2012 9:00:00 AM
SB3001
02-13-2012_DOR_Response_Butcher to French_Eagle Ford.pdf SRES 4/25/2012 9:00:00 AM
SB3001
AOGCC_HydraulicFracWhitePaper.pdf SRES 4/25/2012 9:00:00 AM
SB3001
Petroleum News - Task force assesses shale oil needs.pdf SRES 4/25/2012 9:00:00 AM
SB3001