Legislature(2011 - 2012)BUTROVICH 205

02/14/2012 03:30 PM RESOURCES


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03:34:11 PM Start
03:34:30 PM SB192
03:35:13 PM Overview: North Slope Production by the Alaska Oil and Gas Conservation Commission
04:53:29 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 192 OIL AND GAS PRODUCTION TAX RATES TELECONFERENCED
Heard & Held
-Overview of Alaska North Slope Production
Presentation by Alaska Oil and Gas Conservation
Commission (AOGCC)
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       February 14, 2012                                                                                        
                           3:34 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Thomas Wagoner, Co-Chair                                                                                                
Senator Bill Wielechowski, Vice Chair                                                                                           
Senator Bert Stedman                                                                                                            
Senator Hollis French                                                                                                           
Senator Gary Stevens                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Joe Paskvan, Co-Chair                                                                                                   
Senator Lesil McGuire                                                                                                           
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Cathy Giessel                                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 192                                                                                                             
"An Act relating to the oil and gas production tax; and                                                                         
providing for an effective date."                                                                                               
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
OVERVIEW: NORTH SLOPE PRODUCTION BY ALASKA OIL AND GAS                                                                          
CONSERVATION COMMISSION                                                                                                         
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 192                                                                                                                  
SHORT TITLE: OIL AND GAS PRODUCTION TAX RATES                                                                                   
SPONSOR(s): RESOURCES                                                                                                           
                                                                                                                                
02/08/12       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/08/12       (S)       RES, FIN                                                                                               
02/10/12       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/10/12       (S)       Heard & Held                                                                                           
02/10/12       (S)       MINUTE(RES)                                                                                            
02/13/12       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/13/12       (S)       Heard & Held                                                                                           
02/13/12       (S)       MINUTE(RES)                                                                                            
02/14/12       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DAN SEAMOUNT, Chair                                                                                                             
Alaska Oil and Gas Conservation Commission (AOGCC)                                                                              
Anchorage, AK                                                                                                                   
POSITION   STATEMENT:  Testified   about   current  North   Slope                                                             
production and activity.                                                                                                        
                                                                                                                                
KATHY FOERSTER, Engineering Commissioner                                                                                        
Alaska Oil and Gas Conservation Commission (AOGCC)                                                                              
POSITION   STATEMENT:  Testified   about   current  North   Slope                                                             
production and activity.                                                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:34:11 PM                                                                                                                    
CO-CHAIR  TOM  WAGONER  called   the  Senate  Resources  Standing                                                             
Committee meeting  to order at 3:34  p.m. Present at the  call to                                                               
order were  Senators Wielechowski,  Stedman, French,  Stevens and                                                               
Co-Chair Wagoner.                                                                                                               
                                                                                                                                
            SB 192-OIL AND GAS PRODUCTION TAX RATES                                                                         
   OVERVIEW: NORTH SLOPE PRODUCTION BY THE ALASKA OIL AND GAS                                                               
                    CONSERVATION COMMISSION                                                                                 
                                                                                                                                
3:34:30 PM                                                                                                                    
CO-CHAIR  WAGONER   announced  that   the  business   before  the                                                               
committee was  to hear an  overview from  the Alaska Oil  and Gas                                                               
Conservation in the context of SB 192.                                                                                          
                                                                                                                                
                                                                                                                                
^Overview:  North Slope  Production  by the  Alaska  Oil and  Gas                                                               
Conservation Commission                                                                                                         
3:35:13 PM                                                                                                                    
DAN SEAMOUNT,  Chair, Alaska Oil and  Gas Conservation Commission                                                               
(AOGCC),  said  he   was  a  geologist  and  the   chair  to  the                                                               
commission.                                                                                                                     
                                                                                                                                
KATHY  FOERSTER,  Alaska  Oil  and  Gas  Conservation  Commission                                                               
(AOGCC), said she was the AOGCC engineering commissioner.                                                                       
                                                                                                                                
3:36:47 PM                                                                                                                    
MR. SEAMOUNT  said they were  asked to testify today  about North                                                               
Slope production  and activity. He  began by showing  pictures of                                                               
the North Slope facilities. He said  the North Slope is about the                                                               
size of  Wyoming and the  production area is really  small, about                                                               
the size of Rhode Island; well penetration is not very complete.                                                                
                                                                                                                                
SENATOR STEDMAN asked  what he meant by not very  complete. Is it                                                               
held  by another  entity or  just  not available  because of  the                                                               
technology at  the time it  was drilled? Or  is it so  spread out                                                               
that it doesn't provide complete data?                                                                                          
                                                                                                                                
MR. SEAMOUNT  replied all  of those were  correct. The  BLM holds                                                               
most of  the information; they  were old  wells with old  ways of                                                               
collecting information.  The AOGCC has very  minimal information,                                                               
but they do know whether they encountered oil or gas.                                                                           
                                                                                                                                
SENATOR STEDMAN asked if there  are still core samples from those                                                               
drillings or are they lost.                                                                                                     
                                                                                                                                
MR. SEAMOUNT  replied that they  would probably be stored  at the                                                               
USGC in Denver  or at the core facility,  the Geological Material                                                               
Center in Eagle River and he would check on that.                                                                               
                                                                                                                                
SENATOR STEVENS asked which years these wells were drilled.                                                                     
                                                                                                                                
3:40:23 PM                                                                                                                    
MR.  SEAMOUNT  replied  from  the  40s  through  80s;  most  were                                                               
probably pre-70s. Slide 3 was a  chart of the only oil production                                                               
going on at  that time on the  North Slope. The next  slide was a                                                               
picture of the  Alpine Oil Field that was discovered  in 1994 and                                                               
started regular production  in 2002. The reason he  showed it was                                                               
as an example  of the tremendous strides in  technology that have                                                               
enabled drilling from  a very small footprint.  They are drilling                                                               
wells up  to five  miles out  and draining  20,000 acres  (31 sq.                                                               
miles) from one 13-acre pad. The  future looks even better as far                                                               
as  technology goes,  he said.  Things are  being done  now, like                                                               
extended  reach, that  hadn't even  been thought  about 20  years                                                               
ago. Another  technological advance is  that oil and gas  are now                                                               
being produced  out of shale and  that was not possible  10 years                                                               
ago.                                                                                                                            
                                                                                                                                
3:41:48 PM                                                                                                                    
He said the AOGCC mission is to keep charts and statistics for:                                                                 
 - Historical AOGCC and Gas permitting activity                                                                                 
 - North Slope actual drilled wells and well work                                                                               
                                                                                                                                
3:43:29 PM                                                                                                                    
MR. SEAMOUNT explained  that the AOGCC is  a quasi-judicial state                                                               
regulatory agency  with oversight mainly for  underground oil and                                                               
gas reservoir operations on private,  federal and public lands in                                                               
Alaska;  it  exercises  the  police  power  of  the  state.  They                                                               
regulate  the  drilling  and  development  of  oil  and  gas  and                                                               
geothermal resources  as well as  underground storage  of natural                                                               
gas  (in Cook  Inlet).  One of  the  few things  they  do on  the                                                               
surface is insuring metering accuracy for custody transfers.                                                                    
                                                                                                                                
AOGCC  mandates include  conservation:  preventing  the waste  of                                                               
energy  resources,  promoting  greater ultimate  energy  resource                                                               
recovery, protecting  underground fresh water from  damage caused                                                               
by oil,  gas and geothermal  operations, protecting  human safety                                                               
in  oil field  operations  and protecting  correlative rights  of                                                               
owners that have adjacent properties to production.                                                                             
                                                                                                                                
Slide  8  splits  out  the North  Slope  drilling  permits  since                                                               
inception of  the AOGCC in  1957 on a  chart. He said  that after                                                               
1970 the  North Slope was  by far the  most active in  the state.                                                               
The  first  "hump"  in  the  late 60s  indicated  the  gas  field                                                               
development in Cook  Inlet and the next hump in  late 70s was the                                                               
oil development  in Cook Inlet and  the big hump around  1980 was                                                               
development drilling within, mainly,  Prudhoe Bay and Kuparuk and                                                               
after that a lot of satellite development.                                                                                      
                                                                                                                                
MR.  SEAMOUNT said  the numbers  of  wells drilled  on the  North                                                               
Slope varied from almost zero in the  1950s to the peak of 275 in                                                               
1982. There  has been a  "little downturn"  in the last  year and                                                               
that trend  in permits started around  2005 and is at  a low now.                                                               
In  fact, the  only time  it was  lower over  the last  almost 20                                                               
years was in  1999, the year after the extremely  low oil prices.                                                               
The  green curve  showed the  numbers  of active  wells that  the                                                               
inspectors have  to do some  sort of observation on;  that number                                                               
has  steadily grown  through the  years to  now with  an all-time                                                               
high  of 4,800  active  wells. The  magenta  curve indicated  the                                                               
number of active oil reservoirs in  the state and that number has                                                               
continued to climb, and fairly fast from 2000 and 2005.                                                                         
                                                                                                                                
3:48:53 PM                                                                                                                    
Slide 9 illustrated the development  timeline for North Slope oil                                                               
fields.  The average  time to  production from  discovery (taking                                                               
out five  of the most delayed  fields) was 11 years,  but it took                                                               
an average  of 7  years for  fields where  the operator  tried as                                                               
hard  as they  could  to get  the field  on  production, such  as                                                               
Alpine and Oooguruk.                                                                                                            
                                                                                                                                
CO-CHAIR WAGONER asked  how that timeline compares  to the Bakken                                                               
in North Dakota.                                                                                                                
                                                                                                                                
MR. SEAMOUNT  replied that he  didn't have specific  numbers, but                                                               
it's a very fast timeline in North Dakota.                                                                                      
                                                                                                                                
CO-CHAIR WAGONER  said it's an  entirely different  system there;                                                               
they don't  worry about pipelines  because they truck it  if they                                                               
have to.                                                                                                                        
                                                                                                                                
MS. FOERSTER  added that part of  the difference is in  the Lower                                                               
48, exploratory wells typically  become producers; whereas on the                                                               
North  Slope exploratory  wells  are typically  just drilled  for                                                               
data,  because the  possibilities  of  successful production  are                                                               
low. At the  end of drilling an exploratory well  in the Lower 48                                                               
all they  have to  do is open  the valve and  on the  North Slope                                                               
they have to start over and  wait for the next winter exploration                                                               
season.                                                                                                                         
                                                                                                                                
MR.  SEAMOUNT said  they  could  give 10  other  reasons why  the                                                               
production timeline is much longer in Alaska.                                                                                   
                                                                                                                                
3:52:19 PM                                                                                                                    
He  said  slide 10  shows  Alaska's  average  daily oil  and  NGL                                                               
productions from  late the 1960s  through 2011; it shows  that in                                                               
the late 60s  through the 70s Cook Inlet was  the top producer in                                                               
the  state producing  285,000  barrels of  oil  per day  (bbl/d).                                                               
Prudhoe  Bay came  on line  in the  70s, then  the Kuparuk  Milne                                                               
Point and then in the 80s  everybody ran to the North Slope. Even                                                               
though everybody ran to the North  Slope he said it is still "way                                                               
under-explored" as is Cook Inlet.                                                                                               
                                                                                                                                
3:53:24 PM                                                                                                                    
SENATOR FRENCH  referenced an article out  of a 1992 Oil  and Gas                                                               
Journal  in  which  a  couple   of  Arco  people  said,  "By  any                                                               
definition,  Prudhoe  Bay  is  declining  and  will  continue  to                                                               
decline."  He said  to accountants  the decline  started in  1988                                                               
when the field  was no longer able to make  its maximum allowable                                                               
rate  of 1.5  mmbbl/d, and  to engineers  the decline  began long                                                               
before  that. He  asked Mr.  Seamount to  comment on  the Prudhoe                                                               
decline and what is possible to get out of that reservoir now.                                                                  
                                                                                                                                
MS. FOERSTER  explained that  when they  were saying  the decline                                                               
started  sooner  for the  engineers  they  meant  that a  lot  of                                                               
engineering work  went into  maintaining the  plateau as  long as                                                               
they did.                                                                                                                       
                                                                                                                                
She  said the  Prudhoe Bay  reservoir  is "world  class" and  the                                                               
largest reservoir  in North  America. When  it was  discovered in                                                               
the 70s, the  plan was to have  a gas pipeline as  well, and with                                                               
the technology  then, the thought  was they would water  flood it                                                               
and blow down  a little gas along  the way, and if  that plan had                                                               
followed through Prudhoe Bay would  have been depleted with about                                                               
8  billion barrels  of production.  But it  has produced  over 11                                                               
billion  barrels  so far  and  there  is  still about  2  billion                                                               
barrels remaining of technically recoverable  oil. To put that in                                                               
perspective,  Thunder Horse  was the  biggest discovery  in North                                                               
America this millennium and it's  less than 2 billion barrels. So                                                               
the biggest  discovery in North  America at inception  is smaller                                                               
than what is left at Prudhoe Bay!                                                                                               
                                                                                                                                
SENATOR STEVENS asked why Mr.  Seamount said North Slope and Cook                                                               
Inlet are underexplored.                                                                                                        
                                                                                                                                
3:56:49 PM                                                                                                                    
MR. SEAMOUNT  answered because huge  areas between  wells haven't                                                               
been explored and  there are known structures on  the North Slope                                                               
that haven't been drilled. The Cook  Inlet Basin is the same size                                                               
as the  San Juan Basin in  New Mexico, which has  29,000 wells in                                                               
it and  discoveries are  still being made  there. Cook  Inlet has                                                               
1,000  wells  drilled and  of  those,  less  than 400  have  been                                                               
exploratory. There are plays that  work throughout the world that                                                               
they have  never gone after  in Cook Inlet  and some not  even on                                                               
the North Slope.                                                                                                                
                                                                                                                                
SENATOR  WIELECHOWSKI  asked  how   challenged  the  remaining  2                                                               
billion barrels in Prudhoe Bay is.                                                                                              
                                                                                                                                
MS. FOERSTER  replied that oil  is technically  recoverable today                                                               
and they expect  the operator to produce it.  The challenges that                                                               
exist are  oil price and  how it  will be transported  should the                                                               
total North Slope rate drop below  that at which TAPS can operate                                                               
and the mechanical integrity of the aging infrastructure.                                                                       
                                                                                                                                
SENATOR  WIELECHOWSKI asked  if  she expects  it  to be  produced                                                               
under the current tax structure.                                                                                                
                                                                                                                                
MS.  FOERSTER replied  that she  had been  in the  state only  20                                                               
years and the  tax structure had changed at least  five times. To                                                               
say that  it will  be developed under  the current  tax structure                                                               
would  be  a bit  naïve  on  her  part.  She hadn't  seen  fiscal                                                               
stability, but that would be good.                                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI  said that was why  he was trying to  get at                                                               
costs  and  asked what  the  cost  per  barrel  would be.  Is  it                                                               
economically recoverable under the current tax structure?                                                                       
                                                                                                                                
3:59:35 PM                                                                                                                    
MS.  FOERSTER  replied  that  she hadn't  looked  enough  at  the                                                               
economics to answer that question.                                                                                              
                                                                                                                                
SENATOR FRENCH said he appreciated  the hyperbole but the cameras                                                               
are  running and  they  take a  lot  of heat  for  these oil  tax                                                               
changes.  He pinpointed  the tax  changes  at ACES,  PPT and  ELF                                                               
which actually  happened in 1989,  more than 20 years  ago saying                                                               
the  most he  could see  is three  and that's  if you  count when                                                               
Governor Murkowski aggregated the fields at Prudhoe Bay.                                                                        
                                                                                                                                
CO-CHAIR WAGONER  said the presenters  of the Gleason  court case                                                               
in previous  meetings said they  felt with the  proper investment                                                               
the decline  curve could be  flattened out and even  raised some,                                                               
but he hadn't heard anyone say  the decline could be stopped with                                                               
just Prudhoe  Bay. The only thing  he has heard that  would level                                                               
the curve  would be new  discoveries and new production  from new                                                               
fields.                                                                                                                         
                                                                                                                                
MS. FOERSTER responded that it  would take an enormous investment                                                               
at Prudhoe Bay to stop the  decline in that field and agreed that                                                               
new discoveries  and spending money  in existing fields  are both                                                               
needed.                                                                                                                         
                                                                                                                                
4:02:18 PM                                                                                                                    
MR. SEAMOUNT agreed,  too. He said slide 11 was  a pie chart that                                                               
showed  the kinds  of wells  and how  many of  each were  drilled                                                               
throughout Alaska last  year. At least 140 wells  were drilled in                                                               
2011;  125  on  the North  Slope  and  15  in  Cook Inlet  and  5                                                               
alternative  energy   wells  (geothermal  and   underground  coal                                                               
gasification).  The North  Slope is  the most  important when  it                                                               
comes to activity, but Cook Inlet  is ramping up with one jack up                                                               
rig already  there and  one on  the way,  and different  types of                                                               
plays are being looked at.                                                                                                      
                                                                                                                                
New discoveries  possible in NPRA,  OCS and  a big area  of state                                                               
leases  are in  a  good spot  for  shale oil  and  gas; and  then                                                               
there's ANWR.                                                                                                                   
                                                                                                                                
SENATOR FRENCH asked  how far out AOGCC's  jurisdiction goes into                                                               
the water.                                                                                                                      
                                                                                                                                
MR.  SEAMOUNT replied  three miles  out  and if  they drill  from                                                               
shore, they will  have jurisdiction from a  safety standpoint not                                                               
from a reservoir development standpoint.                                                                                        
                                                                                                                                
SENATOR   FRENCH  asked   whose   jurisdiction   picks  that   up                                                               
afterwards.                                                                                                                     
                                                                                                                                
MS.  FOERSTER  replied  the Bureau  of  Ocean  Energy  Management                                                               
(BOEM).                                                                                                                         
                                                                                                                                
4:05:45 PM                                                                                                                    
MR. SEAMOUNT  said slide 12  was Alaska production  curve without                                                               
Cook Inlet.  He pointed out that  in 1998 the president  of Arco,                                                               
Ken Thompson's motto was "No decline  in 99" and he was right for                                                               
a number of years up until about 2005.                                                                                          
                                                                                                                                
SENATOR STEDMAN  asked how elephant field  production cycles play                                                               
out normally.                                                                                                                   
                                                                                                                                
MS. FOERSTER answered that Prudhoe  Bay was developed by the best                                                               
operators in the country and is a good "go-bye."                                                                                
                                                                                                                                
MR. SEAMOUNT  added that  the recovery rates  at Prudhoe  Bay are                                                               
incredible.                                                                                                                     
                                                                                                                                
SENATOR STEDMAN asked  if they should expect a  flattening out of                                                               
production and a long tail for elephant fields.                                                                                 
                                                                                                                                
MS. FOERSTER replied  that is exactly what should  be expected at                                                               
Prudhoe Bay.                                                                                                                    
                                                                                                                                
4:08:56 PM                                                                                                                    
MR.  SEAMOUNT went  to  slide  14 that  displayed  the timing  of                                                               
prominent  discoveries  on the  North  Slope  and the  number  of                                                               
exploration wells drilled  going back to 1950  (NPRA legacy wells                                                               
not included). The number of  exploration wells that were drilled                                                               
varied from  2 per year  to 32 per  year. Typically 7  wells were                                                               
drilled a  year since 1980.  Media has reported that  there could                                                               
be  more than  35 wells  this year,  but the  AOGCC has  received                                                               
permits for  about 8  or 9  wells so far  for this  drilling this                                                               
season on the North  Slope. At this point even 15  would be a lot                                                               
because it's  getting late. They  need to see permits  before the                                                               
ice goes out if someone really wants to drill.                                                                                  
                                                                                                                                
SENATOR FRENCH  asked him  to talk about  the cyclical  nature of                                                               
exploration.                                                                                                                    
                                                                                                                                
MR.  SEAMOUNT replied  that is  a difficult  question to  answer.                                                               
When he  was in the business  he drilled more wells  when the oil                                                               
price was up  and fewer when it  was down. But now  the oil price                                                               
is  up  and  he  would  be happy  to  see  10  exploration  wells                                                               
especially after last year.                                                                                                     
                                                                                                                                
MS. FOERSTER agreed.                                                                                                            
                                                                                                                                
4:11:19 PM                                                                                                                    
SENATOR WIELECHOWSKI said Petroleum News  reported in the week of                                                               
February  12 issue  that the  total  number of  2012 North  Slope                                                               
explorers is  6 and the total  of oil exploration wells  is 23 to                                                               
27. Where did that disparity come from?                                                                                         
                                                                                                                                
MR. SEAMOUNT  replied that he  didn't know;  all he knew  was the                                                               
numbers of permits AOGCC had received.                                                                                          
                                                                                                                                
SENATOR FRENCH  asked how long  it takes  the AOGCC to  process a                                                               
development well permit.                                                                                                        
                                                                                                                                
MR. SEAMOUNT answered the average  development well takes about 7                                                               
working days and probably less  than two weeks for an exploration                                                               
well.                                                                                                                           
                                                                                                                                
4:13:05 PM                                                                                                                    
MS. FOERSTER  added the length of  time it takes them  to process                                                               
an exploratory well permit depends  on not just the complexity of                                                               
the  well but  the completeness  of the  application, and  as new                                                               
operators come  to the state, they  spend a lot of  time teaching                                                               
them  how to  work within  the process.  She said  the commission                                                               
starts processing  a permit  only when it  is complete,  and it's                                                               
conceivable that  a new  operator's permit  could take  months to                                                               
complete.                                                                                                                       
                                                                                                                                
SENATOR FRENCH  said he heard that  ConocoPhillips was announcing                                                               
plans for an exploration well.                                                                                                  
                                                                                                                                
MR. SEAMOUNT went to slide 15  that showed the operators who have                                                               
drilled the exploration wells since  1997, and ConocoPhillips and                                                               
BP were  by far  the big  guys up until  2002 when  new operators                                                               
came  in. So  far  this  year, they  have  received three  permit                                                               
applications  from  Repsol, two  from  Pioneer,  one from  Brooks                                                               
Range and one from ConocoPhillips.                                                                                              
                                                                                                                                
4:15:07 PM                                                                                                                    
Slide 16 showed  development and service wells  drilled from 1950                                                               
to 2011  (that was a  slow year). There was  a real slow  down in                                                               
1999  when  the price  of  oil  took a  nose  dive  and then  190                                                               
development wells were drilled up  until 2005 and then it dropped                                                               
off again. Other than a couple  of years where the trend has been                                                               
broken  it looks  like there  is a  down trend  in the  number of                                                               
development wells being drilled (to keep the oil field going).                                                                  
                                                                                                                                
SENATOR FRENCH said it looks like  from 1999 to 2000 it goes from                                                               
250 wells drilled one year to just  100 in the next, a huge swing                                                               
in a single year and he asked him to comment on that.                                                                           
                                                                                                                                
MR. SEAMOUNT responded  that is when the price of  oil tanked. He                                                               
remarked that he was surprised  to see there wasn't more activity                                                               
now with the high price of  oil. However, new operators showed on                                                               
the North Slope in 2011 and he quipped the more the merrier.                                                                    
                                                                                                                                
4:17:51 PM                                                                                                                    
Slide 18 showed the same sorts  of North Slope trends but divided                                                               
into  development, exploratory  and service  wells. He  explained                                                               
that the  service and  development wells are  the ones  that keep                                                               
the production going.                                                                                                           
                                                                                                                                
SENATOR  WIELECHOWSKI asked  if  the chart  showed horizontal  or                                                               
vertical footage [as opposed to well count].                                                                                    
                                                                                                                                
MR. SEAMOUNT answered both.                                                                                                     
                                                                                                                                
SENATOR  FRENCH   asked  if  this  took   into  account  multiple                                                               
completions from a single well bore.                                                                                            
                                                                                                                                
MR. SEAMOUNT answered yes.                                                                                                      
                                                                                                                                
MS.  FOERSTER  said  one  of  the reasons  they  wanted  to  show                                                               
activity this  way was because  it levels things out.  Well count                                                               
can be  deceptive if  the wells  are complicated  and it  takes a                                                               
number of days to drill them. A  month could be spent on one well                                                               
and a week on another. This averages the total footage drilled.                                                                 
                                                                                                                                
SENATOR FRENCH asked how many laterals  you can get from a single                                                               
bore generally and if multiple completions are the standard now.                                                                
                                                                                                                                
MS. FOERSTER answered the most she  has counted is around five in                                                               
Alaska. And it's hard to generalize.                                                                                            
                                                                                                                                
SENATOR WIELECHOWSKI asked if fracking  is going on in these well                                                               
bores.                                                                                                                          
                                                                                                                                
MS. FOERSTER  replied Alaska has  been fracking since  the 1960s.                                                               
Approximately   25   percent   of  Alaska's   wells   have   been                                                               
hydraulically fractured.                                                                                                        
                                                                                                                                
SENATOR FRENCH asked if new  technology, like 3-D and 4-D seismic                                                               
and drill  bit sensors,  potentially reduce  the number  of wells                                                               
you need to drill as well as the number of feet.                                                                                
                                                                                                                                
MR. SEAMOUNT answered that the  new types of information they can                                                               
acquire now  makes it easier to  find and stay in  the reservoirs                                                               
and helps the economics of a  well because you don't make as many                                                               
mistakes if you know where you are.                                                                                             
                                                                                                                                
SENATOR FRENCH  said as  much as that  is interesting  it doesn't                                                               
tell  how much  oil you  hit;  it just  tells you  how many  feet                                                               
you've drilled.                                                                                                                 
                                                                                                                                
                                                                                                                                
MS. FOERSTER  replied that you  get in  contact with more  of the                                                               
reservoir from  a variety  of mechanisms  of which  fracturing is                                                               
one and  that is  used for  vertical extensions.  Drilling ultra-                                                               
extended  reach horizontal  wells  is another  technique that  is                                                               
used for lateral extension.                                                                                                     
                                                                                                                                
SENATOR FRENCH asked if new  technology has reduced the number of                                                               
wells needed.                                                                                                                   
                                                                                                                                
MR. SEAMOUNT replied that it had  made it easier to find and stay                                                               
in the reservoir and reduces costs by providing more accuracy.                                                                  
                                                                                                                                
4:22:43 PM                                                                                                                    
MR. SEAMOUNT went  on to slide 19, a plot  of the active drilling                                                               
and work over  rigs for Alaska that didn't  show much variability                                                               
since  2006. Cook  Inlet now  has  maybe gotten  a little  higher                                                               
percentage of  rigs than it  has in the  past. Slide 20  was just                                                               
the  number  of  drilling  rigs  (without  the  work  over  rigs)                                                               
indicating a  low in 2009, but  an increase in activity  in 2011.                                                               
Slide  21 showed  work over  rigs. He  turned the  explanation of                                                               
what the work over rigs actually do over to Ms. Foerster.                                                                       
                                                                                                                                
4:24:48 PM                                                                                                                    
MS. FOERSTER said  slide 22 showed the work over  activity in the                                                               
area of  maintenance and  repair. Slide  23 showed  another group                                                               
used just  for fixing things; it  shows the number of  work overs                                                               
done  to  prepare casing,  tubing  or  well  heads just  to  keep                                                               
mechanical  integrity of  the well  bore. Another  section showed                                                               
the  number   of  work  overs   done  for  pump   maintenance  or                                                               
replacement  for wells  that use  down-hole electric  submersible                                                               
pumps (ESP)  to get  their oil  out. The ESPs  are used  at Milne                                                               
Point, Schrader Bluff  and heavy oil. She explained  that most of                                                               
the wells  at Prudhoe  Bay are gas  lift. Another  section showed                                                               
the number  of work  overs done for  scale and  corrosion control                                                               
work (chemical treatments).                                                                                                     
                                                                                                                                
SENATOR FRENCH asked if a coil  tubing unit would count as a work                                                               
over rig in this example.                                                                                                       
                                                                                                                                
MS. FOERSTER replied  yes; you could place chemicals  with a coil                                                               
tubing unit.                                                                                                                    
                                                                                                                                
SENATOR FRENCH  remarked that just  putting tubing down  the hole                                                               
and injecting  some acid  or something doesn't  require a  rig or                                                               
even a big derrick.                                                                                                             
                                                                                                                                
                                                                                                                                
4:26:36 PM                                                                                                                    
MS.  FOERSTER agreed  and said  another  small strip  at the  top                                                               
catches all other maintenance and repair  work done - a little of                                                               
this, a little of that.                                                                                                         
                                                                                                                                
Slide  23  showed  all  of   the  work  over  activity  done  for                                                               
production  enhancement. A  red portion  of each  bar showed  the                                                               
work overs done  to add perforations to open up  a new section of                                                               
the reservoir  to flow  into the well.  The green  portion showed                                                               
the number of work overs done  to stimulate with either acid jobs                                                               
or hydraulic fractures.  The blue part showed the  number of work                                                               
overs done  to isolate  gas or  water to make  more room  for the                                                               
oil. The  purple part  showed the  number of  work overs  done to                                                               
convert producers to injectors or  vice versa as part of enhanced                                                               
oil recovery.  The tiny yellow  sliver showed the number  of work                                                               
overs   done  to   re-enter  suspended   wells  and   reestablish                                                               
production in wells  that have been shut in for  a long period of                                                               
time.                                                                                                                           
                                                                                                                                
SENATOR  FRENCH said  this brings  up an  interesting distinction                                                               
that has crept into the debate  about oil taxes and that recently                                                               
they have  heard a lot  about the difference between  money spent                                                               
on the  North Slope  to do  maintenance and  money that  adds new                                                               
production, and he asked her if this is maintenance sending.                                                                    
                                                                                                                                
MR. SEAMOUNT replied  that this slide showed the  work overs that                                                               
are done  to add new  production; the previous slide  [22] showed                                                               
the  work  overs done  for  maintenance  and repair  of  existing                                                               
wells.                                                                                                                          
                                                                                                                                
SENATOR FRENCH  said it  looked about  2:1 maintenance:production                                                               
for the last couple of years.                                                                                                   
                                                                                                                                
MS. FOERSTER  replied yes;  and added  in a  field that  has been                                                               
around  as long  as  Prudhoe  Bay and  Kuparuk,  a  whole lot  of                                                               
maintenance is to be expected.                                                                                                  
                                                                                                                                
SENATOR  FRENCH asked  what happens  to the  production out  of a                                                               
well if  you don't do  maintenance spending (going back  to slide                                                               
22).                                                                                                                            
                                                                                                                                
MS.  FOERSTER replied  eventually  it would  become  shut in;  it                                                               
could be dangerous to operate or the well could quit working.                                                                   
                                                                                                                                
SENATOR FRENCH asked if you  don't spend on maintenance could you                                                               
lose production.                                                                                                                
                                                                                                                                
MS. FOERSTER replied  if you have to shut the  well in, you would                                                               
definitely lose production.                                                                                                     
                                                                                                                                
4:30:42 PM                                                                                                                    
MS. FOERSTER  reminded them to  keep in mind that  statistics can                                                               
show  anything.  She  next  went to  some  of  Senator  Paskvan's                                                               
questions  and talked  about the  health and  potential of  North                                                               
Slope reservoirs keeping  in mind, she said, that  the only thing                                                               
you can  guarantee about a prediction  is that it will  be wrong.                                                               
In considering the health of  the North Slope reservoirs, the bad                                                               
news is also the  good news. The health of all  the fields on the                                                               
North Slope depends to some degree  on the health of Prudhoe Bay.                                                               
It is the central and circulatory  system of the North Slope; the                                                               
rest of  them are along for  the ride, and it  will continue that                                                               
way for a long time.                                                                                                            
                                                                                                                                
This  is not  a bad  thing.  With current  technology, there  are                                                               
still  about  2  billion  barrels   left,  another  15  years  of                                                               
production  at the  current rate  with no  decline. With  current                                                               
decline, as long  as the price is sufficient to  offset costs and                                                               
there is a pipeline, there will continue to be production.                                                                      
                                                                                                                                
4:32:51 PM                                                                                                                    
SENATOR  STEDMAN  asked  her  to  help  cross  reference  earlier                                                               
testimony dealing  with the  expectations that there  are 7  to 8                                                               
billion barrels of proven reserves on  the North Slope and yet we                                                               
are looking at 2 billion in  Prudhoe Bay and a billion in others,                                                               
about half of what has been discussed in other testimony.                                                                       
                                                                                                                                
MS. FOERSTER asked who gave that testimony.                                                                                     
                                                                                                                                
SENATOR  STEDMAN replied  it  came out  of  the Gleason  decision                                                               
dealing with TAPS.                                                                                                              
                                                                                                                                
MS.  FOERSTER  replied  that  the AOGCC  uses  the  existing  DNR                                                               
estimates  for their  numbers, and  according to  their estimates                                                               
Prudhoe  Bay  has  2  billion  barrels left  and  all  the  other                                                               
reservoirs combined have another 2 billion.                                                                                     
                                                                                                                                
SENATOR WIELECHOWSKI  asked if it  is realistic to get  another 1                                                               
million barrels  of oil going  down the  pipeline per day  in the                                                               
foreseeable future.                                                                                                             
                                                                                                                                
MS. FOERSTER  replied it's conceivable,  but it would take  a lot                                                               
of investment, a  lot of new discoveries, a  lot of technological                                                               
advances and a lot of luck.                                                                                                     
                                                                                                                                
MR. SEAMOUNT said  opening ANWR and the OCS  to development could                                                               
get us there.                                                                                                                   
                                                                                                                                
4:34:48 PM                                                                                                                    
MS. FOERSTER said that would take some luck.                                                                                    
                                                                                                                                
SENATOR WIELECHOWSKI asked  if that is even  possible without new                                                               
discoveries and technology.                                                                                                     
                                                                                                                                
MS. FOERSTER  replied she  didn't think 1  million barrels  a day                                                               
more  was  possible;   that  is  why  she  said   they  need  new                                                               
discoveries and  new technology.  One place new  production could                                                               
come from  is the  20 billion  barrels of  known resource  in the                                                               
heavy and viscous oils that  aren't being produced right now, but                                                               
that would take new investments and lots of technology.                                                                         
                                                                                                                                
CO-CHAIR WAGONER  said he  was confused  about the  estimates and                                                               
asked whose estimate the 20 billion barrels was.                                                                                
                                                                                                                                
MS. FOERSTER replied  that there is more than  20 billion barrels                                                               
potential in  the heavy and viscous  oil. It has a  wide range of                                                               
viscosity and they  will crack little bitty nuts and  in doing so                                                               
they may discover  another 2 or 3 billion.  For this conversation                                                               
she  didn't think  the full  level was  necessary, but  she could                                                               
respond with their "big number" later in the week.                                                                              
                                                                                                                                
CO-CHAIR WAGONER said  he wanted the total  number remarking that                                                               
it would all be technology driven.                                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI asked what the  total booked reserves was on                                                               
the North Slope.                                                                                                                
                                                                                                                                
MS. FOERSTER  replied the  operators are  only booking  as proven                                                               
reserves what they can get  with current technology from Kuparuk,                                                               
West Sak, Milne Point and Nikaitchuq.                                                                                           
                                                                                                                                
SENATOR  STEDMAN asked  if she  thought  the State  of Alaska  as                                                               
resource owner should have an  accurate account of what is booked                                                               
and filed with the Security Exchange Commission (SEC).                                                                          
                                                                                                                                
MS.  FOERSTER  answered  that  she  thought  those  figures  were                                                               
publically available.                                                                                                           
                                                                                                                                
SENATOR STEDMAN said she didn't  answer the question; there seems                                                               
to  be some  confusion  as  to what  those  numerics  are and  he                                                               
wondered why  there would be  any misunderstanding  or difference                                                               
of opinion on the reserve numbers. They should be nailed down.                                                                  
                                                                                                                                
MS. FOERSTER  replied that reserves  are depending upon  what you                                                               
assume as  a minimum rate  at which it  is no longer  economic to                                                               
produce,  what  the price  forecast  is  and  at what  level  you                                                               
consider yourself  to go negative.  There is a  bit of an  art to                                                               
decline curve  analysis. Until 2005,  both the AOGCC and  the DNR                                                               
did annual reserve  estimates and because of  all the assumptions                                                               
and the  little bit of  art that  is involved their  numbers were                                                               
never  exactly  the  same.  So  they  quit  doing  them.  It's  a                                                               
forecast; it's not in the bank.                                                                                                 
                                                                                                                                
4:41:13 PM                                                                                                                    
SENATOR STEDMAN  said that would  be a  question for DNR  as they                                                               
drill into  it and that  he thought the  State of Alaska,  as co-                                                               
owners of the asset, should have  that number even as it changes.                                                               
But  sometimes the  numbers  aren't  even close  in  some of  the                                                               
documents and conversations.                                                                                                    
                                                                                                                                
SENATOR FRENCH asked if she had reviewed the Gleason decision.                                                                  
                                                                                                                                
MS. FOERSTER replied no.                                                                                                        
                                                                                                                                
SENATOR  WIELECHOWSKI  said the  former  director  of the  Alaska                                                               
Division of Oil  and Gas testified before the U.S.  Senate in May                                                               
that with  the exception of  development of heavy  oil resources,                                                               
the natural field  declines cannot be replaced  without access to                                                               
production from federal  lands in the OCS. He  quoted, "There are                                                               
no known conventional  resources or Native lands  that are likely                                                               
sufficient to replace the decline  in existing production rates."                                                               
Do you agree?                                                                                                                   
                                                                                                                                
MS. FOERSTER  answered yes; she  thought OCS needed to  be opened                                                               
in order  to stop  the decline. The  technical advances  can't be                                                               
made  rapidly  enough  in  viscous  and heavy  oil  to  stem  the                                                               
decline. Having  10 exploratory  wells and  a 10  percent success                                                               
rate for them  won't make it happen onshore. She  wanted ANWR and                                                               
the NPRA opened as well.                                                                                                        
                                                                                                                                
MR. SEAMOUNT  said the key  word is  "no known" onshore.  "Oops I                                                               
caught an elephant. I didn't know it was there."                                                                                
                                                                                                                                
4:43:23 PM                                                                                                                    
MS. FOERSTER said  she hoped they drew the  same conclusions that                                                               
she had  about increased activity on  the North Slope now  and in                                                               
the future.  New and existing operators  are drilling exploratory                                                               
wells,  field  expanding  and  doing  in-fill  development  wells                                                               
everywhere from  Oooguruk to Prudhoe Bay.  Existing operators are                                                               
performing  remedial well  work  on existing  wells -  everything                                                               
from  repair   work  to  production  enhancement   work.  Nothing                                                               
indicates to  them that  things will  change dramatically  in the                                                               
next few years, and  they don't see a cliff or  a mountain in the                                                               
future.  Two things  could change  that  picture: if  one of  the                                                               
exploratory  wells  is  a  success   or  there  is  a  technology                                                               
breakthrough that  increases recovery  from an existing  field or                                                               
unlocks the door  to some of the 20 billion  barrels of heavy and                                                               
viscous oil  potential. The  only other thing  that could  make a                                                               
dramatic change  in activity level would  be a dive in  oil price                                                               
or  some   other  catastrophic  event  that   would  curtail  the                                                               
operator's ability to spend.                                                                                                    
                                                                                                                                
4:45:23 PM                                                                                                                    
She said she  was asked to talk about the  decline curve analysis                                                               
of the  ANS reservoirs and  responded that  the AOGCC used  to do                                                               
full field  decline curve analyses  of all the  Alaska reservoirs                                                               
as part of its annual  reserves determination. And every year the                                                               
DNR  would  do  the  same  and then  they  would  get  a  million                                                               
questions  about why  their numbers  weren't  identical, so  they                                                               
quit doing them. The AOGCC  still does decline curve analyses for                                                               
individual  wells  or  small  portions   of  fields  to  evaluate                                                               
projects  that the  operators are  proposing to  do and  check on                                                               
their performance, but for full  field decline analysis they rely                                                               
on DNR,  because DNR engineers  and geologists are as  capable as                                                               
theirs.                                                                                                                         
                                                                                                                                
Another of  Senator Paskvan's questions  was what the  AOGCC sees                                                               
as the  role of new technology  in the future of  ANS production.                                                               
The answer  was that  technology advances  have already  played a                                                               
huge role in North Slope production  moving Prudhoe Bay from an 8                                                               
billion barrel  field to  a 13 billion  barrel field,  making the                                                               
viscous  plays  at  West  Sak,   Schrader  Bluff  and  Nikaitchuq                                                               
commercial and soon enabling BP  to move forward with its Liberty                                                               
project. There  is no reason  to think  it won't continue  and it                                                               
will be  a key component  of assuring  a long and  healthy future                                                               
for North Slope production.                                                                                                     
                                                                                                                                
4:47:28 PM                                                                                                                    
MS.  FOERSTER said  operators  have two  incentives  to push  for                                                               
those  new technologies.  First,  the  infrastructure is  already                                                               
here  and  why not  just  continue  to  cultivate it?  The  other                                                               
incentive is  when they are done  they have to clean  it up. That                                                               
will be  an enormous expenditure and  they won't get any  oil for                                                               
it. So the  longer into the future they  can delay dismantlement,                                                               
plugging  and  abandonment  and  mediation  the  healthier  their                                                               
bottom line is  going to look. Those are huge  incentives to keep                                                               
the North Slope healthy.                                                                                                        
                                                                                                                                
4:48:23 PM                                                                                                                    
SENATOR STEVENS said he remembered  talk about a fund being there                                                               
to dismantle the line and asked if that is true.                                                                                
                                                                                                                                
MS. FOERSTER  said she  didn't know what  the companies  have set                                                               
up,  but if  they  did have  one it  would  be somewhere  drawing                                                               
interest.                                                                                                                       
                                                                                                                                
She went to Senator Paskvan's  last question about the transition                                                               
to the future and the influx  of new operators and the transition                                                               
from  just a  few big  companies on  the North  Slope to  lots of                                                               
smaller companies.  She explained that  it's just a  natural part                                                               
of the maturation  of any basin; it happens  everywhere. When she                                                               
grew  up in  Corpus Christi,  Texas,  every major  had an  office                                                               
there and now  they are gone and little companies  are there. She                                                               
said transitions  are a lot easier  in places where the  costs of                                                               
doing  business are  a lot  less than  those in  Alaska with  its                                                               
harsh environment, but it is happening here.                                                                                    
                                                                                                                                
MS. FOERSTER  said the North  Slope is  kind of like  the African                                                               
Savannah and  Prudhoe Bay is a  zebra, and the big  companies are                                                               
lions.  The lions  kill a  zebra and  chow down  and as  they are                                                               
getting full,  the vultures  and hyenas come  in. That's  the way                                                               
companies  are  starting  to  come  in and  it's  a  good  thing.                                                               
Unfortunately the maggots move in, too,  but we don't want to let                                                               
those in.                                                                                                                       
                                                                                                                                
Another interesting phenomenon that is  happening in the Lower 48                                                               
is that  little companies are  proving to the big  companies that                                                               
the shales can  happen. So the majors are coming  back into those                                                               
areas.                                                                                                                          
                                                                                                                                
4:52:27 PM                                                                                                                    
Another  future is  possible for  the North  Slope. Ms.  Foerster                                                               
said 20 years  ago she predicted the majors would  throw the keys                                                               
to someone  like ASRC and leave  them to operate the  North Slope                                                               
fields.  That is  possible but  now it's  further in  the future.                                                               
Thanks to  technology advances  and oil  prices, the  majors will                                                               
keep those keys for a while longer.                                                                                             
                                                                                                                                
CO-CHAIR  WAGONER  thanked the  presenters  and  held SB  192  in                                                               
committee.                                                                                                                      
                                                                                                                                
4:53:29 PM                                                                                                                    
CO-CHAIR   WAGONER  adjourned   the  Senate   Resources  Standing                                                               
Committee meeting at 4:53 p.m.                                                                                                  

Document Name Date/Time Subjects
AOGCC_Foerster_2-14-2012.pdf SRES 2/14/2012 3:30:00 PM
SB 192
AOGCC_Seamount_02-14-2012.pdf SRES 2/14/2012 3:30:00 PM
SB 192