Legislature(2017 - 2018)Anch LIO Lg Conf Rm
09/10/2018 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview: Activities in the National Petroleum Reserve-alaska | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
HOUSE RESOURCES STANDING COMMITTEE
September 10, 2018
3:33 p.m.
MEMBERS PRESENT
SENATE RESOURCES
Senator Cathy Giessel, Chair
Senator John Coghill, Vice Chair
Senator Bert Stedman
Senator Kevin Meyer
HOUSE RESOURCES
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative John Lincoln
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative George Rauscher
MEMBERS ABSENT
SENATE RESOURCES
Senator Natasha von Imhof
Senator Bill Wielechowski
Senator Click Bishop
HOUSE RESOURCES
Representative DeLena Johnson
Representative David Talerico
Representative Mike Chenault
Representative Chris Tuck
OTHER LEGISLATORS PRESENT
Senator Micciche
COMMITTEE CALENDAR
OVERVIEW: DEVELOPMENT IN THE NATIONAL PETROLEUM RESERVE-ALASKA
(NPR-A)
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
STEVE WACHOWSKI, Senior Adviser on Alaskan Affairs
U.S. Department of Interior
Anchorage, Alaska
POSITION STATEMENT: Provided an update on how the state's
resources plans for the NPR-A fit in with the President's energy
dominance agenda.
MIKE NAVARRE, Commissioner
Department of Commerce, Community and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of the NPR-A Impact
Grant Program.
FAITH MARTINEAU, Executive Director
Office of Project Management and Permitting (OPMP)
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of OPMP's activities in
the NPR-A.
JIM BECKHAM, Deputy Director
Division of Oil and Gas (DOG)
Department of Natural Resources (DNR)
POSITION STATEMENT: Provided a briefing on DOG's role in NPR-A
development.
SCOTT JEPSEN, Vice President
External Affairs and Transportation
ConocoPhillips Alaska
Anchorage, Alaska
POSITION STATEMENT: Provided overview of ConocoPhillips' current
production and outlook across the North Slope and NPR-A.
ACTION NARRATIVE
3:33:05 PM
CHAIR CATHY GIESSEL called the joint meeting of the Senate and
House Resources Standing Committees to order at 3:33 p.m.
Present at the call to order were Senators Coghill, Meyer,
Stedman, and Chair Giessel.
CO-CHAIR TARR said that Representatives Birch, Drummond, Parish,
Lincoln, Rauscher (online), Co-Chair Josephson and Co-Chair Tarr
were present at the call to order.
CHAIR GIESSEL said Senator Micciche was also present. In the
audience she also recognized former Representative Kurt Olsen
and Office of Management Budget (OMB) Director Pat Pitney.
^Overview: Activities in the National Petroleum Reserve-Alaska
Overview: Activities in the
National Petroleum Reserve-Alaska (NPR-A)
3:35:33 PM
CHAIR GIESSEL announced that this is the second hearing of
today's joint meetings of the Resources Committees and the topic
for this hearing is an overview of activities in the National
Petroleum Reserve- Alaska (NPR-A). Over the last two years,
discoveries and announcements of very large oil deposits have
generated a lot of activities in and around the NPR-A. Today the
committee will hear first from a member of the United States
Department of Interior (USDOR), the agency that manages
development in the NPR-A, and the Alaska Commissioner of the
Department of Commerce, Community and Economic Development
(DCCED) Mike Navarre. That department manages the special fund
that collects part of the royalties from activities that occur
in the NPR-A. The commissioner will acquaint this committee with
that fund and what communities on the North Slope get services.
Then, the Alaska Department of Natural Resources (DNR) will
present the activities occurring on state land adjacent to the
NPR-A and what role the state has in facilitating that
development. Finally, the committee will hear from one of the
companies investing and developing projects in the area and what
the development plan means for the country, the state, and the
communities of the North Slope.
CHAIR GIESSEL said that over the past 18 months, the U.S.
federal government has been engaged in making the country energy
dominant when it comes to the production of oil and gas, and the
NPR-A, as its name suggests, is a federal area. She welcomed Mr.
Wachowski to the table to talk about the activities occurring in
this important area.
3:35:49 PM
STEVE WACHOWSKI, Senior Adviser on Alaskan Affairs, U.S.
Department of Interior, Anchorage, Alaska, provided an update on
how the state's resources plans for the NPR-A fit in with the
President's energy dominance agenda. There is a lot of oil in
the NPR-A, he said, and they are looking for responsible ways to
make those areas available for leasing for responsible energy
development. Getting more throughput in the Trans Alaska
Pipeline (TAPS) is a key part to the President's agenda. This
will be done in partnership with the State of Alaska (SOA) and
the legislature, the North Slope Borough, and local Alaska
stakeholder Native corporations and tribal entities.
3:38:29 PM
He said the Department of Interior Secretary's Order 3352 issued
on May 3, 2017, directed the United State Geological Survey
(USGS) and the Bureau of Land Management (BLM) and their
respective assistant secretaries to reassess the mineral wealth
of the NPR-A and the Beaufort Sea and to strike a balance of
promoting development that would protect the surface resources.
MR. WACHOWSKI explained that the BLM is charged with managing
the surface and subsurface of the NPR-A. The 2013 NPR-A
integrated activity plan (IAP) looked at maximizing tracts
available for lease at the next lease sale on December 6, 2017
and offered all 900 available tracts on 10.3 million acres. The
sale generated about $1.1 million based on seven tracts covering
about 80,000 acres. ConocoPhillips was the only company to
participate in that lease sale, but that wasn't a surprise as
many of the areas were of low prospectivity.
Their first plan was to look at the wide range of resource
management options for the entire 23 million-acre petroleum
reserve and to make more acres available. They came up with two
options: do another integrated action plan (IAP) or select a
different alternative within the existing IAP.
The USGS is the agency charged with the mineral potential
assessment in the area and using new data collected by industry
and USGS teams had reassessed the Barrow Arch to show much more
potential and released the results last December. They estimated
a mean of 8.7 billion barrels of oil and 25 trillion cubic feet
of gas, a significant increase from the 1.5 billion barrels of
oil assessed in 2010. He noted that this assessment was for
undiscovered technically recoverable oil and gas resources that
are estimated to exist based on geological knowledge and theory,
while technically recoverable resources are those that can be
produced using currently available technology and industry
practices. The estimates are significantly higher than previous
ones mainly because two recent oil discoveries are larger than
anticipated; they are the Nanushuk and Torok formations in and
around the NPR-A. In summary, he said, the current USGS estimate
is more than six times the previous estimate of the Central
North Slope done in 2005and the NPR-A estimate done in 2010, and
therefore they are looking forward to meeting the President's
energy dominance strategy and putting more oil in TAPS in the
future.
CHAIR GIESSEL commented that at an Anchorage meeting last
November the head of USGS presented the geology of the NPR-A and
ANWR, and it was very interesting information. She transitioned
to the next speaker, Mr. Mike Navarre, the commissioner of the
Department of Commerce, Community and Economic Development
(DCCED). She said that prior to being commissioner, Mr. Navarre
was the mayor of the Kenai Peninsula and before that he was a
member of the House for over a decade. In these capacities, he
really understands the relationship between development of a
resource in one jurisdiction and allocating the benefits
equitably between the state and local shareholders.
3:45:37 PM
MIKE NAVARRE, Commissioner, Department of Commerce, Community
and Economic Development (DCCED), said he was pleased to give
them a brief overview of the NPR-A Impact Grant Program and how
it works. He found that a report goes to the legislature on an
annual basis, which he would touch on in just a bit.
As a bit of background, several claims were made in the NPR-A by
Standard Oil in 1917. However, Reserve 4 was established in 1923
to provide fuel for the Navy, making all claims including those
by Standard Oil void. They were transferred to the Bureau of
Land Management in 1976 and renamed the National Petroleum
Reserve-Alaska.
This area has been home to Inupiat communities for thousands of
years. The initial lease sale in 1984 generated a little under
$47 million to the State of Alaska and there were no lease sales
for the next 15 years. Six lease sales were conducted between
1999 and 2011 in the Northeast and Northwest Planning Areas.
Leases are now scheduled to be held annually.
3:47:19 PM
MR. NAVARRE said the NPR-A is managed by the federal government
and 50 percent of the funds received from sales, rentals,
bonuses, and royalties on leases go to the State of Alaska. He
noted at this point little if any revenue has been generated
from oil fields; the bulk of them have been from rentals,
bonuses, and lease sales.
He said the NPR-A is governed by federal statute 42 USC Chapter
78 and state statute AS 37.05.530 that lay out the process and
regulations followed by the DCCED.
The primary objective of NPR-A impact mitigation programs is to
provide eligible municipalities with grants to help mitigate
significant adverse impacts related to oil and gas development
within the NPR-A. "Impacts" is a broad term that means
reasonably attributable to NPR-A oil and gas activities on
population, employment, finances, social and political values,
air and water quality, fish and wildlife habitat, the ability to
provide essential public services including health care, public
safety, education, transportation, utilities, and government
administration, and other things of demonstrable importance to
the applicant or its residents.
The next three slides provided a grant award history for FY87-
FY99, FY00-FY08, and FY08-FY18. He explained that a review
committee is put together that is subject to approval by the
legislature that includes the DCCED and that the committee
sometimes appropriates an award without really knowing how much
money is going to be available.
CHAIR GIESSEL asked him to clarify that.
3:49:41 PM
MR. NAVARRE responded that deposits from the federal government
in FY19 are accounted up to the end of August. Last year,
deposits amounted to almost $12 million. After the end of August
another $13.5 million was deposited into that fund.
MR. NAVARRE augmented his explanation with an FY20 Impact
Mitigation Grant Timeline. Only six communities in the North
Slope Borough are available to the application process: Nuiqsut,
Wainwright, Atqasuk, Anaktuvuk Pass, and Utqiagvik. The postmark
due date for completed applications is November 15, 2018. On
January 2019 the committee selections become publicly available.
The legislature appropriates the funding and grant awards are
made in late April 2019. But sometimes the budget has not been
adopted by then, so, they don't know how much money is really
available for the grants.
3:52:38 PM
Under "Resources" he listed:
-FY20 NPR-A Handbook
-FY20 NPR-A Fillable Application
-Annual (FY18) Report to Legislature, which provides history
since its inception. He suggested changing that requirement to a
full report every five years with annual updates, to provide
more efficiency.
3:53:57 PM
REPRESENTATIVE BIRCH asked what reporting aspect he found
burdensome.
COMMISSIONER NAVARRE replied that seeing how the legislature
gets the annual information anyway, having annual updates with a
report to the legislature every five years would be more
efficient.
CO-CHAIR TARR said she assumed that the legislature
appropriating funding in late April 2018 is timed with passing
the budget, but in the past couple of years, the budget has been
passed in something more like July, and she asked how that
timeline would impact when the money gets allocated to
communities. She also asked why funding was so high in the FY04-
06 group of projects.
COMMISSIONER NAVARRE said lease sales almost certainly occurred
in those years.
CO-CHAIR TARR asked why the lease sales in those years were much
more successful than in other years.
COMMISSIONER NAVARRE responded that lease sales weren't always
done on an annual basis; sometimes they would take place every
certain number of years.
3:56:05 PM
SENATOR STEDMAN said both Finance Committees have an ongoing
discussion on whether to line-item grants to individual
communities or to keep them as one lump-sum buried in the
budget, so not too many legislators even notice it. However, he
felt that they should be a line item for each community. A hot-
button issue with these grants over the years is that all the
state's 50 percent royalty goes to the affected communities and
none of it goes to the Permanent Fund.
COMMISSIONER NAVARRE replied that some of it goes to the
Permanent Fund and if money is left over at the end of the
fiscal year, it goes to an education fund.
SENATOR STEDMAN asked what would happen if more development
happens.
COMMISSIONER NAVARRE said he was cautious to not speculate too
much on revenue from future development. A lot of factors play
into projects that aren't in production yet. Greater Moose's
Tooth 1 (GMT-1) is coming online this fall and will start to
generate royalties, but either the federal government or the
Department of Revenue (DOR) could better estimate what those
impacts might be.
SENATOR STEDMAN said it would be nice if he could keep an eye on
the incentives the state will potentially pay out to these areas
recognizing that a good portion of these funds may not come back
into the treasury to help offset those costs. We don't want to
end up with a lot going out and nothing coming in.
CHAIR GIESSEL commented that the whole the rationale for having
this meeting is to raise awareness of this subject.
COMMISSIONER NAVARRE added that significant policy discussions
have to take place.
SENATOR STEDMAN said his understanding is that federal statute
42 ties the state's hands. Is that correct?
COMMISSIONER NAVARRE replied that there are some limitations
directed by federal statute, but the state statute limits some
options, also.
4:00:14 PM
CHAIR GIESSEL noted that Representative Young made a proposal
for the state to receive 47 percent of the royalty and the other
3 percent would go to Native corporations. She asked the
commissioner if not knowing exactly how much money is coming in
was partly a factor of the fiscal years being different between
the state and the federal government.
COMMISSIONER NAVARRE replied that it's also the timing of the
deposits going into the fund; if they come in after August, they
go into the next fiscal year. When the funds are actually paid
into the fund is hard to estimate, especially for lease sales
and when a field goes into production.
CHAIR GIESSEL noted that five years ago the federal government
was short of cash and sequestered some mining royalties.
CO-CHAIR TARR said the original intent of this fund was to
mitigate resource development to local community infrastructure,
but as times goes on and infrastructure is more developed, she
wondered if the impacts should be assessed in the same way and
if that would change what communities would qualify.
COMMISSIONER NAVARRE said that the funding is fairly broad and
subject to interpretation and some subjective analysis.
4:03:23 PM
CHAIR GIESSEL thanked him for his presentation and welcomed the
Department of Natural Resources (DNR) to the table saying they
are charged with maximizing the state's resources in a patchwork
of jurisdictions and that the resources don't recognize
boundaries and cross jurisdictions as in the NPR-A.
FAITH MARTINEAU, Executive Director, Office of Project
Management and Permitting (OPMP), Department of Natural
Resources (DNR), Anchorage, Alaska, said she would cover the
state's role in NPR-A's development, the overlap of resources
between state and federally managed lands, the state's support
for specific projects within NPR-A and the proposed development
within that federally managed area of the state. She would
provide information from the perspective of the OPMP and the
state's role through its Large Project Coordination Program,
their participation as a cooperating agency and as regulator and
resource manager from the perspective of the Division of Oil and
Gas. She would also touch briefly on state support of NPR-A
projects of Greater Moose's Tooth 1 & 2 and the newly proposed
Willow Master Development Plan by ConocoPhillips.
MS. MARTINEAU said AS 38.05.020 (b)(9) provides the authority
and duties of the DNR commissioner to lead and coordinate all
matters related to the state's review and authorization of
resource development projects.
4:06:17 PM
The commissioner has delegated that authority to OPMP
specifically and they implement that responsibility through
their Large Project Coordination Program. The model is unique to
the State of Alaska; it requires an "opt in" by the project
proponents and it is defined by a Memorandum of Understanding
(MOU) that is developed between OPMP and the project proponent.
It includes the scope of work and associated funding so that
cost recovery can be accomplished for each of the different
regulating agencies.
MS. MARTINEAU said this particular program has a number of
benefits: it provides a streamlined regulatory process for the
project proponent that otherwise is a very complicated and
rigorous and provides a mechanism to the state for cost recovery
for support services that are comensurate with the large
development project. It also ensures the public that state
agencies are maximally involved in the review and development of
a proposed large project. Their existing project portfolio
represents both extraction industries: oil and gas development
and hardrock mining; however, NPR-A is about oil and gas
development.
MS. MARTINEAU said the MOUs also establish funding and support
for their participating as a cooperating agency through the
federally required National Environmental Policy Act (NEPA)
process, which frequently involves the development of an
Environmental Impact Statement (EIS) for land use plans and
large development projects. OPMP serves as the lead in these
types of efforts and coordinates the state agencies' review and
comment for both.
The Alaska National Interest Lands Conservation Act (ANILCA)
coordination team and the federal plan review team provide the
necessary technical support and expertise in order to evaluate
the information contained within both land use plans and large
development proposals.
4:09:34 PM
MS. MARTINEAU said the BLM manages NPR-A consistent with the
existing 2012 NPR-A Integrated Activities Plan for which an
Environmental Impact Statement (EIS) was developed and the
corresponding record of decision, which defines areas that are
available for oil and gas leasing as well as areas that are not
available, related infrastructure, timing restrictions, and
other stipulations and mitigation measures. The state's
participation on the IAP was as a cooperating agency and
provided comments on the suite of alternatives that were
developed and analyzed in EIS, any subsequent modification,
further analysis, or development of a new plan that the state
would participate in as a cooperating agency.
MS. MARTINEAU said OPMP has maintained an MOU with
ConocoPhillips for development of GMT 1 & 2 and participated as
a cooperating agency for development of an EIS for both. They
are currently helping ConocoPhillips navigate the regulatory and
permitting process with the state agencies for further
development of that unit. (slide 6)
The Willow Master Development Plan describes the proposed
development that would occur by ConocoPhillips within NPR-A and
is very similar to the Alpine Satellite development, for which
an EIS was prepared. It contemplates not just a gravel pad and
associated infrastructure, an access road and a pipeline, but
also takes an overarching look at what a greater development
might look like in the Willow area, and even contemplates some
areas that ConocoPhillips is still in the process of creating.
MS. MARTINEAU said BLM is currently preparing an EIS for the
Willow Master Development Plan (MDP) and notice of intent went
out in August. It is currently conducting scoping and collecting
comments on what type of issues should be analyzed.
4:11:26 PM
JIM BECKHAM, Deputy Director, Division of Oil and Gas (DOG),
Department of Natural Resources (DNR), said they have a support
role in NPR-A development. They have to get the hydrocarbon
resources to TAPS; basically anything west of the Coleville
River is where they are going to support any development
activity. That means supporting permits for rights-of-way for
access to any projects to the west most likely in the form of
permitting pipelines to transport oil to TAPS. They will
participate in EIS drafting as they did in ANWR and authorize
facilities sharing across units going west.
He said the North Slope has limited processing facilities and
the department tries to minimize the footprint in their
developments, so they encourage facility access and sharing
where possible. Hydrocarbon transportation across state-owned
and managed unit boundaries requires authorizations by the state
per lease and unit. So, the division reviews any application for
facility access or sharing agreement and considers any factors
but principally conservation of resources, prevention of waste,
and protection of all parties, including the state.
CO-CHAIR JOSEPHSON remembered that one of the original MDPs for
this area was done by Secretary Salazar in the first term of the
Obama Administration and asked what he knew about the undoing of
those plans and the redoing of them in a different
administration.
MR. BECKHAM replied that he is not qualified to comment on that
and is not involved in any of it.
MS. MARTINEAU added that Representative Josephson was probably
referring to the Integrated Activity Plan (IAP) that was
previously approved by Secretary Salazar, and that typically EIS
modifications vary from plan to plan. Secretary's Order 3355
describes new timelines and guidance over how long the NEPA
process should take and completion of an EIS from the notice of
intent to the record of decision.
4:15:20 PM
CO-CHAIR TARR said that the North Slope has some issues and that
commercial agreements give owner operators an advantage over new
entrants because some infrastructure costs have already been
paid for. Those particular commercial terms are happening
outside of any involvement from the state. She asked if Mr.
Beckham was saying that once some kind of agreement is reached,
that that paperwork gets forwarded to the department, but they
are mostly checking off requirements against the previous lease
sale but not weighing in or analyzing beyond that.
MR. BECKHAM replied that was correct; the department doesn't get
involved in commercial negotiations between two parties. But
once they have settled on those agreements, the department steps
in to make sure that any agreement is first and foremost in the
interests of the state, meaning no wasted resources, and that
all involved parties are protected equally.
SENATOR MEYER remarked that the fields they are talking about
today are 100 percent-owned by one company.
MR. BECKHAM replied that is true.
SENATOR MEYER reasoned that the commercial terms shouldn't hold
up the permitting process on those two fields. He asked how many
federal and state permits a company has to get before it can
bring a field into production.
MR. BECKHAM replied that it takes quite a few permits, but he
would have to get the exact answer back to him.
SENATOR MEYER asked him for suggestions on ways to expedite the
permitting process while keeping it in place.
4:18:20 PM
MR. BECKHAM said he would touch on that in a little bit. He
provided an example of a shared facility agreement recently
approved by the division, for moving GMT 1 production through
the Alpine central processing facility in the Colville River
Unit (slide 9).
4:19:11 PM
Slide 10 depicted tax and royalties by region on the North Slope
compiled by the Department of Revenue (DOR) and the next slides
provided USGS assessments for the NPR-A. He said the Department
of Interior Secretary's Order 3355 deals with permitting
resource overlap. He explained that some discussions are
happening within state and federal government about a program
that allows the state to take over some federal permitting
responsibilities if the requirements are similar for each, so
they aren't both run at the same time. Some of those are well
completions, well recompletions, and plugging and abandoning.
The state has a robust permitting process through the Alaska Oil
and Gas Conservation Commission (Alaska Oil and Gas Conservation
Commission (AOGCC)) and might be able to streamline that, as
well.
MR. BECKHAM explained that SO 3355 was issued with the intent of
immediately improving the department's National Environmental
Policy Act Review and limited EISs to 150 pages to be completed
within 365 days (one year). Some EISs were taking multiple years
and limiting it to one year makes all of the agencies
essentially streamline their activities to coordinate in a more
expeditious manner.
4:22:10 PM
REPRESENTATIVE BIRCH asked if the department has a handle on the
overall plugging and abandonment piece.
MR. BECKHAM asked if he was referring to the legacy wells.
REPRESENTATIVE BIRCH replied those and other wells at some time
in the future.
MR. BECKHAM said he didn't want to speak for the AOGCC, but the
department does have a good handle on the requirements for
plugging and abandoning wells.
4:23:40 PM
CO-CHAIR JOSEPHSON went to page 7 noting that the division has a
role in permitting rights of way and the transportation of
hydrocarbons and asked if it's safe to say that those permits
are pro forma and asked given that its federal land, if the
state could do otherwise than just grant the permits.
MR. BECKHAM replied the department doesn't have input into the
permitting on NPR-A, but they have a great deal to say about how
crossing rivers is done responsibly and safely. And while he
likes to say their job is to get to yes, because without it
there is no transportation or production, it is not an automatic
yes. All the impacts and opportunities are weighed, and they try
to come up with the best possible solution and get to yes, as
well.
SENATOR MICCICHE said slide 8 talks about authorizations for
facility access, specifically to processing facilities, and
asked what factors are considered and to what degree the
department is involved in trying to work out those issues.
4:25:54 PM
MR. BECKHAM answered that most of the issues deal with
protection of working interests owners' rights and the state's
rights after the commercial agreement has been made, which
includes whether or not each working interest owner will be
afforded the ability to have the benefits of the facility if
another producer is using it, and the benefits to the state
relating to royalty oil that comes from that unit and is
processed in that facility.
SENATOR MICCICHE asked if the department is involved at all, is
it an entity-to-entity negotiation, or does the department
become more involved if a development would be very beneficial
to the state rather than a marginal development.
MR. BECKHAM replied that the department doesn't get involved in
commercial negotiations between unit operators whether it is a
big or a little project.
4:27:15 PM
CHAIR GIESSEL thanked the presenters and invited ConocoPhillips
to provide its presentation. She said ConocoPhillips is
developing the Willow prospect, the subject of this
presentation.
SCOTT JEPSEN, Vice President, External Affairs and
Transportation, ConocoPhillips Alaska, Anchorage, Alaska, said
he would talk about ConocoPhillips' robust production outlook in
the NPR-A and across the North Slope. He would also review their
exploration programs and talk about what he considers to be a
renaissance of investment on the North Slope and would conclude
with some higher-level observations and challenges going
forward.
Slide 3 delineated North Slope state and federal units. He said
ConocoPhillips has a 36 percent working interest in the Prudhoe
Bay Unit that is operated by BP. The Kuparuk River Unit is west
of that and ConocoPhillips's working interest is 55 percent,
however they have recently agreed to acquire BP's 39 percent
interest and at closing, ConocoPhillips will own about 95
percent. The NPR-A boundary is further west and ConocoPhillips
has an interest in the Colville River Unit where the Alpine
field is located. They have two developments in the Greater
Moose's Tooth Unit and the Willow prospect located in the Bear
Tooth Unit.
MR. JEPSEN said that earlier this year ConocoPhillips acquired
Anadarko's working interest in the Colville river Unit as well
as all the jointly held acreage in NPR-A, so now they
essentially have about 100 percent working interest in the NPR-A
and the Colville River Unit.
Back in 2013, ConocoPhillips had an uncompetitive tax structure,
a high cost of supply (which meant they were investing their
monies elsewhere), a declining production profile in Alaska,
limited investment and a focus on Lower 48 unconventionals.
4:32:15 PM
Today their profile, even without their BP and Anadarko
acquisitions, has changed substantially. In 2028 they are
predicting having 100,000 barrels a day higher production than
today. What changed? One of the things that changed is that SB
21 improved their fiscal framework, technological advancements
and innovations helped target new and bypassed resources, and
cost of supply was reduced; they made a comprehensive effort to
capture value from core fields and infrastructure and the
renewed focus on exploration has yielded early success.
MR. JEPSEN said slide 6 used the categories of exploration,
project inventory, development programs, lowering base decline
and identifying opportunities to sustain cost of supply
reductions to illustrate the drivers. The most technological
improvement came in the area of drilling that made a significant
difference in terms of what and how much can be developed. Slide
7 mapped their North Slope pipeline projects.
4:37:04 PM
He said they see big upside in exploration (slide 7), but a lot
of work still needs to be done to better understand the ultimate
production profile, but they have found some very substantial
resources. GMT 1 will have first oil in this year's fourth
quarter; their estimation is around 30,000 barrels a day with a
value of $1 billion. There were about 700 workers during the two
construction seasons.
GMT 2 is similar to GMT 1 in scope except that it will have more
wells, which means it will be more expensive. They estimate
about 38,000 barrels a day at peak with a value of $1.5 billion.
MR. JEPSEN said that ConocoPhillips is using their extended
reach drilling rig in the Fiord West accumulation, an area they
couldn't figure out a way to develop economically before. But
with this rig they can now drill from the existing CD 2 drill
site. Permitting will always be a challenge because Fiord West
is on the coastline with its sensitive wetlands.
4:39:07 PM
Last, the Willow Discovery in the Bear Tooth Unit will be
developed much like the Alpine Field. They estimate thousands of
jobs during construction and several hundred permanent jobs when
it comes on stream.
CO-CHAIR JOSEPHSON asked if the legislature should expect this
new production to supplant existing production or add to it.
MR. JEPSEN answered that it will be additive.
4:39:57 PM
MR. JEPSEN explained that they drilled three wells inside the
Willow Discovery in the north and West Willow 1, a separate
accumulation, and have positive results in all of them (slide
8). They have had three different well tests, about 37 miles of
ice roads and five different ice pads.
ConocoPhillips also did some exploration on Stoney Hill in the
Narwhal Trend down to the south, which is a little bit further
from infrastructure. The two different tests were successful.
They also drilled and tested the Putu well, which is about three
miles from the village of Nuiqsut. Now they are trying to figure
out how best to develop these. They will all require additional
appraisal and analysis. Putu has an advantage in the sense that
it is within the Colville River Unit and is closer to
facilities; and the base plan there is to bring the production
back into the Alpine facilities. They estimate that 100 to 315
billion barrels of resource was discovered in this exploration
program.
4:43:28 PM
When ConocoPhillips first announced Willow they estimated about
300 million barrels of resource and now with the additional
information they are estimating 400-750 million barrels of oil.
Their compressed seismic imaging (CSI) technology is
proprietary; it allows them to shoot four times as much for the
same dollar amount in the same timeframe and get a better image,
a very helpful gamechanger for them.
West Willow 1 will be tied back into facilities at Willow, but
additional testing has to be done to understand it. Slide 11
laid out ConocoPhillips's development plans. They are hoping for
a record of decision on the GMT 2 EIS in October, which will
position them for a final investment decision (FID) later this
year. Assuming that goes forward, they would build a road from
GMT 2 over to the Willow Central Facilities, so it would be
connected by road back to the Alpine Central Facilities.
They are planning on using a sea lift, because that is typically
the way to keep development on the North Slope efficient. The
sea lift would land the modules on a temporary gravel island
north of Atiguru Point and in the winter time an ice road will
be built down to various locations indicated on the map.
MR. JEPSEN said the main plan for recovery is water flood and a
enriched gas mixture process. The plan is to take seawater from
the Kuparuk sea water treatment plant with a connection
happening somewhere down around Central Production Facility 2 in
the southwest corner of the Kuparuk River field. And build a
pipeline over to Willow. They currently bring sea water from STP
(Alpine Field), but more pipeline capacity is needed to bring
enough to do the waterflood for Willow.
They will use a portion of indigenous natural gas liquids from
production at Willow alternately with the enriched gas as a
miscible injective to increase production. This is the
technology they use in all of their core fields of Prudhoe Bay,
Kuparuk, and Alpine.
MR. JEPSEN pointed out that the farther west they go the harder
it is to find gravel, but whatever they find will lower costs
for development at Willow. He summarized that over the next four
to five years, ConocoPhillips will work on trying to understand
the right size for this facility. They talk about a nominal
100,000 barrels a day, but exploration and delineation will
reveal more detail. They expect to spend $2-3 billion within 4-5
years to get first production on stream and then another $2-3
billion to fully develop the field. They expect FID in 2021 and
first oil in the 2024-25 timeframe.
Slide 13 graphed the Willow EIS schedule for getting the record
of decision. The process has started; the scoping period has
been extended to September 20 and the schedule is to have it
done in a year (August 2019).
MR. JEPSEN said that concludes some of the newer term stuff up
to Willow. Now he would talk about additional exploration. For
late 2018/19, 6-8 wells are planned with 9 tests in a two-week
program. They are doing an exploration prospect that will be
drilled off of an existing Kuparuk drill site in the fourth
quarter this year. The Putu play will be drilled off the CD 4
site. Hopefully, both will be done by the end of the year.
For the exploration season Mr. Jepsen said ConocoPhillips wants
to focus on Willow and will be doing some horizontal wells up
there to better understand what productivity might look like and
the type of wells that could be used to develop it. They will
drill some vertical wells, test communications between wells and
do additional delineation, as well. The well will be to test
formations they have found to better understand their
feasibility. How much they get done depends on how fast it goes
and things like weather.
4:49:34 PM
The other questions is what ConocoPhillips is going to do with
rest of the "blobs" up there. A "blob" is an oil accumulation
that geologists and geophysicists put on a map. Orangish blobs
are exploration prospects. To date they have only tested about
75 percent of their prospect inventory and so their goal in
2029-plus timeframe is to focus on testing the remaining
accumulations. Mr. Jepsen said it is "fairly rare" for
ConocoPhillips to publicly share what all of their exploration
prospects look like, but they have a lot of acreage and a lot of
upside and want to show that.
4:50:30 PM
MR. JEPSEN said he next wanted to share some information that is
very rarely pulled together on what he calls the North Slope
Renaissance for investment. ConocoPhillips is doing things up
there, but other operators are, too. All the various projects
add up to around $13 billion in capital over the last 7-8 years
and hundreds of thousands of new barrels of oil production have
come online. To give them some idea of the scale of investment
that is going on on the North Slope, he said these other
projects include:
- The Liberty Project on the eastern North Slope by Hilcorp and
BP - 55,000 barrels a day and a $1 billion in investment.
-Oil Search/Repsol/Armstrong at the Pikka Prospect talk about
rates as high as 100,000 barrels a day and their current base
plan is to build their own separate production facilities which
would be in the same investment arena he talked about for West
Willow" $3-4 billion.
-ENI is doing exploration and picked up some acreage south of
the Prudhoe Bay fields.
-Brooks Range will hopefully have production this year.
This investment is one of the bigger untold stories. These
projects aren't just prospects on paper; these are actually
prospects that people are fishing through the permitting system
and have a high probability of going forward. The core fields
are Kuparuk, Prudhoe Bay, and Alpine; they are the hearts and
lungs of the North Slope and must be kept healthy. The farther
one gets from them the farther away they move from making sense.
4:53:15 PM
Slide 16, the last of the deck, showed ConocoPhillips's
production profile. Five years ago, they were looking at
potentially 100,000 barrels of oil to where they are today, and
they have discovered 500 million barrels of oil since 2016 with
75 percent of their prospects being already tested. The
transformation has been driven by technology, tax reform, and a
focus on reducing costs.
4:53:50 PM
In order to stay competitive, ConocoPhillips Alaska has to keep
its fiscal plan in place, he said again. If any costs go up,
that makes them less competitive. If the fish habitat ballot
measure passes, that will be a "big drag" on development,
because it lays out a lot of mitigation and creates uncertainty
as to how fish habitat permits will be managed. He stated that
the North Slope already follows a tremendous amount of science-
based regulations and they don't have an issue with fish habitat
permits.
4:55:04 PM
SENATOR MEYER asked if Alaska can assume, since it has the
highest unemployment rate in the nation, that jobs will grow
correspondingly with ConocoPhillips's investments outlined on
slide 15.
MR. JEPSEN replied that he can't speak to Alaska's overall
employment, but ConocoPhillips adds about one job per economic
multiplier factor of 20 and projects like Willow, Liberty, and
Pikka are going to add permanent jobs. So, there should
definitely be job growth in the oil industry.
4:56:18 PM
CO-CHAIR TARR said she has tempered optimism, because Caelus and
Hilcorp, for instance, have stalled because of unresolved issues
related to tax credits, and the Mustang development was supposed
to be online prior to the price crash but is now on hold until
the price recovers. However, the Oil-Search/Repsol/Armstrong
project is a bright spot because of their collaboration. She
sees one strong company that looks like it has several potential
projects over the next several years but a lot less optimism
around some of the other activities relating to the tax
structure. Previously, the credits were a way to attract
explorers and new entrants and that has now gone away, but not
in a way that was resolved and those unresolved tax credit
issues call into question just how long those companies will be
in Alaska. So, Alaska could end up in the same place it was
before with a few strong companies on the North Slope.
MR. JEPSEN responded that what the state did this year to try to
resolve the tax credit problem will help some of the situations
she talked about, but Oil-Search just spent $50 million to
acquire 50 percent of Armstrong's interest, so they are pretty
serious. He hadn't heard BP and Hilcorp say too much about being
dependent on tax credits to develop the Liberty prospect. Those
are the big hitters. With regards to Caelus, something will
happen with that, although he understands the uncertainty.
Companies are investing a lot of money right now, he said, and
they wouldn't be doing that if they didn't have a reasonable
expectation that they can get through the permitting process and
actively move towards development. But, he said, "Alaska takes
deep pockets." ConocoPhillips is exploring in the NPR-A, but it
can be 10 years before they make a discovery and have Willow on
stream; they have spent $3 billion-plus on GMT 1&2 drill sites,
and once they make a decision to move forward, they will spend
$400-600 million more before getting first oil. So, he thinks
it's unrealistic to expect small operators to come up here. They
should encourage larger companies, because that's where the
staying power resides, really. He added that ConocoPhillips is
working closely with Brooks Range to try to help them come on
stream this year.
CO-CHAIR TARR said at the beginning of this calendar year,
people were very cautious about price saying that it wouldn't go
above $60 for the foreseeable future, and for months now it has
been above $70 and even up to $80, and she asked what price
outlook ConocoPhillips is modeling around.
5:01:25 PM
MR. JEPSEN replied that they have taken a different approach and
instead of getting hung up on exactly what the price will be,
they model around what the price could fall to. Their goal is to
have their projects make economic sense with cost of supply at
$40/barrel. They just haven't been successful at predicting
price and want to be able to survive another price crash.
5:02:54 PM
REPRESENTATIVE BIRCH commended him for a "great briefing" and
his candor in setting out ConocoPhillips' targets. It's very
encouraging to believe that there is another 30-40 years of life
in TAPS based on their prospects. He asked how the Brooks Range
project is functioning in terms of integration between
facilities.
MR. JEPSEN responded that he doesn't speak for Brooks Range, but
they are looking at bringing in a facility that will process
their crude for the first stage of production. So, they will be
shipping pipeline quality crude through the current pipeline.
SENATOR MICCICHE said he feels encouraged by his projections and
asked if this level of activity is relatively unprecedented or
if it is comparable to the Prudhoe Bay/Kuparuk heydays.
MR. JEPSEN replied that this level of activity on the North
Slope hasn't been seen in decades.
SENATOR STEDMAN remarked that one must be fearless to be
external affairs vice president for over a decade and asked if
it's true he had hand-fed a brown bear.
MR. JEPSEN answered that it's true he was licked by a brown
bear.
5:06:21 PM
CHAIR GIESSEL, finding no further questions, thanked everyone
for coming, and adjourned the joint meeting of the Senate and
House Resources Committees at 5:06 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES - Hearing Agenda - 9 - 10 - 18 - 1530pm.pdf |
SRES 9/10/2018 3:30:00 PM |
|
| SRES - HRES - DNR Presentation on NPR-A - 9 - 10 - 2018 .pdf |
SRES 9/10/2018 3:30:00 PM |
NPR-A |
| SRES - HRES - ConocoPhillips Presentation on NPR-A - 9 - 10 - 2018.pdf |
SRES 9/10/2018 3:30:00 PM |
NPR-A |
| SRES - HRES - AK Dept of Commerce Presentation on NPR-A - 9 - 10 - 2018 - 1530pm.pdf |
SRES 9/10/2018 3:30:00 PM |
NPR-A |
| SRES - HRES - Dept of Interior Slides on NPR-A.pdf |
SRES 9/10/2018 3:30:00 PM |
NPR-A |