Legislature(2011 - 2012)BUTROVICH 205
02/22/2012 01:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Alaska North Slope Plans of Development by Dnr | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 192 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 22, 2012
1:33 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Bert Stedman
Senator Lesil McGuire
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Cathy Giessel
COMMITTEE CALENDAR
SENATE BILL NO. 192
"An Act relating to the oil and gas production tax; and
providing for an effective date."
- HEARD & HELD
PRESENTATION: ALASKA NORTH SLOPE PLANS OF DEVELOPMENT
- 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
02/14/12 (S) Heard & Held
02/14/12 (S) MINUTE(RES)
02/15/12 (S) RES AT 3:30 PM BUTROVICH 205
02/15/12 (S) Heard & Held
02/15/12 (S) MINUTE(RES)
02/16/12 (S) RES AT 3:30 PM BUTROVICH 205
02/16/12 (S) Heard & Held
02/16/12 (S) MINUTE(RES)
02/17/12 (S) RES AT 3:30 PM BUTROVICH 205
02/17/12 (S) Heard & Held
02/17/12 (S) MINUTE(RES)
02/21/12 (S) RES AT 3:30 PM BUTROVICH 205
02/21/12 (S) Heard & Held
02/21/12 (S) MINUTE(RES)
02/22/12 (S) RES AT 1:30 PM BUTROVICH 205
WITNESS REGISTER
BILL BARRON, Director
Division of Oil and Gas
Department of Natural Resources (DNR)
Juneau, AK
POSITION STATEMENT: Gave overview of North Slope plans of
development (POD).
ACTION NARRATIVE
1:33:16 PM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 1:33 p.m. Present at the call to
order were Senators French, Stevens, Wielechowski, Co-Chair
Wagoner, and Co-Chair Paskvan.
SB 192-OIL AND GAS PRODUCTION TAX RATES
ALASKA NORTH SLOPE PLANS OF DEVELOPMENT BY DNR
1:33:41 PM
CO-CHAIR PASKVAN announced that today the committee would hear
more about plans of development from the Department of Natural
Resources (DNR).
CO-CHAIR WAGONER said he was intrigued by what Mr. Barron said
about the exploration currently taking place on the North Slope
and what led to it. He was under the false assumption that it
was entirely related to credits, but the director said it was
also related to the terms of the leases. He asked Mr. Barron to
expand on that.
^Alaska North Slope Plans of Development by DNR
1:34:43 PM
BILL BARRON, Director, Division of Oil and Gas (DOG), Department
of Natural Resources (DNR), said the discussion related to the
apparent robust nature of the drilling program this year on the
North Slope and while DNR believes that tax credits have a play
in the dialog, the lion's share of the drilling was a direct
result of lease terms expiring. These leases that were acquired
5, 7 or 10 years ago, are about to "term out" and if adequate
work hasn't been done to prove moveable hydrocarbons and to form
a unit, those leases will expire and be returned to the state.
1:36:03 PM
SENATOR MCGUIRE joined the committee.
1:36:55 PM
CO-CHAIR PASKVAN asked how much money the state had paid out
under the 40 percent exploration credit.
MR. BARRON replied that he didn't know, but he could get that
number for him.
CO-CHAIR PASKVAN said he was trying to figure out what the
decision-making is if they don't know how much money has been
paid out in credits and the director says the lion's share of
the decisions are about lease terms.
MR. BARRON elaborated that while the tax credit is part of the
internal fiscal decision process for a company, the risk of
losing the land and access to it for exploration drives that
decision in a much greater way. He explained that a company
makes an internal decision at some point to drill, find and
prove hydrocarbon; then they form a production unit and the land
stays with them for another five year term until it's on full
production. But once a company loses the land, it goes back up
for lease sale.
CO-CHAIR PASKVAN asked if DNR analyzed the number of leases
terming out over the last five years and then the next five.
MR. BARRON replied yes and that information is available.
CO-CHAIR PASKVAN asked him to provide that information to the
committee.
1:39:12 PM
SENATOR STEDMAN joined the committee.
SENATOR STEVENS asked if any effort at all to drill stops the
loss of a lease or if the department requires a certain level.
MR. BARRON said he had this information in the presentation and
at the right time he could address that question within a more
comprehensive context.
1:39:47 PM
SENATOR WIELECHOWSKI asked how long the lease terms were and if
companies need that much time or did they wait until the last
minute to do anything. Are the state's lease terms where they
need to be and, if the lease terms are such a big driver, do the
tax credits need to be as high as they are?
MR. BARRON said, again, that his presentation would address
those questions. He commented that he was still on his first
slide and he already had half a dozen questions. The request was
to discuss plans of development (POD) and it's important to set
the broader stage of how one gets to one. He first would walk
them through area-wide lease sales and exploration licenses, the
primary term for explorers to have access to the land. The
primary focus of the exploration during that term is to do
prudent exploration activities and demonstrate by drilling a
well that it is a candidate for unitization.
Unitization is the next phase after proving moveable
hydrocarbons and a company can reasonably estimate closure
(capture area) that the hydrocarbons are based in. At this
junction the state has a great deal of leverage in moving the
needle in terms of establishing a work scope for development
operations. Once a unit is on sustained production, a
participating area (PA) is established and this is when a POD is
required.
1:43:12 PM
He explained that the exploration license and/or area-wide lease
sale can turn into lease issuance or primary exploration and to
proving of moveable hydrocarbons. If the answer to that question
is no or no work done, then the land is returned to the state so
it can be put back into a lease sale. If a unit is formed, that
is there for five years until sustained production is
established and that holds the unit as long as there is
production.
1:43:56 PM
The state has had varying lease terms over many years. They have
been as short as five years and seven years (primarily North
Slope). The Kenai Peninsula, appropriately, has its own shorter
timeframes, because of its existing infrastructure and road
systems allow easier access. Having longer lease terms of 10
years on the North Slope, for instance is appropriate where part
of the requirement for exploration is that it be done in winter
off of ice roads and ice pads. So by having a longer breadth of
time, they gain enough land to have a reasonable critical mass
of area to explore, are able to do seismic and analyze it, can
find an appropriate target, can get the proper permits in place,
secure a rig, build an ice pad and ice road to it and commence
drilling.
He said that the North Slope experiment of five year leases was
a detriment to both the state and the industry, because
companies didn't have enough time to get the pre-work done to be
able to establish where they should drill their first and maybe
only exploration well.
MR. BARRON said the division interviewed many companies that
were historic explorers on the North Slope and companies who
were interested in becoming explorers there about the most
advantageous lease terms under the pretext that it is
advantageous to the state to do proper exploration as quickly as
possible to find and then produce hydrocarbon and avoid the
warehousing issue.
1:47:04 PM
He said the lease sale the division conducted in December ranks
in the top six revenue-producers in history and had an
interesting blend of terms. They went with the full 10 year
term, and after year 7, the lease rates jumped from the current
$10 an acre to $250 acre for years 8, 9 and 10. DOG was trying
to say that 7 years is enough time to do primary exploration and
some delineation and 10 years definitely, but if an operator
isn't interested in moving forward with a project, they probably
also know that by year 5, 6 and 7. If they are not interested in
moving forward but want to retain the land, the DOG imposes the
idea that basically you can keep the land for the 10 years but
it's going to cost you the same amount of money that it would
cost to drill a well. There is a choice and they are trying to
encourage companies to make that choice and make it early. It's
isn't a formula, but strong encouragement to make the right
decision at the right time and for the state's benefit.
CO-CHAIR PASKVAN asked over the next five years how much
additional exploration activity he anticipates due to the
increased cost of holding a lease.
MR. BARRON replied that the additional cost will be in effect in
seven years from the last lease sale, so none in the next five
years.
CO-CHAIR PASKVAN said he knew Cook Inlet had some leases
potentially for five years, but the primary focus of his
question was on exploration on the Central North Slope connected
to existing leases.
MR. BARRON said he would have to look at those numbers when the
leases expire and get him that information.
SENATOR WIELECHOWSKI said a motivated company is capable of
exploring quickly. Great Bear, for example, just took out its
leases a year to two ago and is exploring a dozen or so wells
this year. Royale just acquired shale leases there and will be
exploring next winter, and Repsol just acquired leases from
Pioneer that they are exploring. Did he agree with that or was
something different about those cases that enable them to
explore very rapidly?
MR. BARRON responded that while Great Bear picked up its leases
two years ago, they have yet to do any exploration work.
Hopefully, they will get a rig and be able to do so. He modified
their lease terms to work off the road system so they can work
year-round. Royale may or may not work as planned, either, but
that's the nature of the industry. Repsol is a good example of a
company that picked up leases that were about to expire and,
with their partners, are very motivated to drill quickly,
primarily because of lease exploration terms. They are moving
quickly, because it's either "drill it or lose it."
1:52:58 PM
He presented an exhibit of how a unit works: Company A and B
acquires land over time and have established two wells and an
injector. The red box was the unit boundary. The PA was
represented by the blue line and was established as close to the
reservoir boundaries as possible; its primary purpose is to
establish how much production and, therefore, value will be
allocated to the different parties by tract. So all the players
know how much they are going to get for the land that they own.
1:54:38 PM
SENATOR WIELECHOWSKI asked if the department had figured out how
they are going to unitize shale oil.
MR. BARRON answered no. It will be an interesting discussion,
because he had just shown them a "conventional" reservoir; he
explained that injector wells and producer wells interfere with
each other, because you inject liquids to move the hydrocarbon
to the producer wells. There is well-to-well connection, so you
have tract factors to establish how much is granted to each
tract by that production.
In a shale development, every well has no interference with the
well next to it, because of the nature of the rock which is
extraordinarily tight (very low permeability and porosity). The
reason to form a unit is to protect all interested parties. In
theory for shale, every well is its own unit.
MR. BARRON said he was working closely with the Department of
Law (DOL) to figure out how best to unitize the shale prospects
to protect the state. In a conventional play, a single well can
hold the lease as long as it's producing. One shale well can
hold an entire lease even though you may need 50 or more wells
to fully drain the volume within that lease.
MR. BARRON said given that "hard nut to crack," they quarter-
sectioned all the leases in the areas they deemed to be
primarily shale development plays. So rather than having one
lease of the normal size, they quartered it and sold each
quarter as individual leases and tracts. At least now four wells
have to be drilled to hold that same acreage.
1:57:51 PM
MR. BARRON explained that a PA is formed after unitization and
after sustained production is happening. The reservoir has to be
more fully defined, because going through the allocation process
is very laborious and contentious. A separate PA is required for
every producing horizon within a unit. When you are looking at a
normal reservoir almost anywhere in the world, it's very rare to
have a single horizon as a discovery, he explained. One column
usually has many layers within it that are producible and a PA
is formed for each one.
The approval of the PA includes an apportionment of the cost of
revenue for the protection of all parties, including the state.
1:59:07 PM
Once a PA is formed, a Plan of Development (POD) is required for
each one. It is issued by the operating company on an annual
basis and is reviewed by the DOG. If it is deemed insufficient
for approval, activities can't move forward. The division may
propose modifications and if the operator agrees to them the
project can move forward.
MR. BARRON listed POD requirements:
-must include a long range proposed development activities for
the participating area;
-must describe the plans for exploration and delineation, plans
of reservoir simulation and modeling;
-must include proposed plans of operations for at least one year
-must tell the division where the surface locations are and what
kind of equipment, processing camps, road and additions will be
put on the land, itself.
2:00:45 PM
MR. BARRON's next exhibit indicated that the North Slope has 18
existing producing units and 42 PAs. He said that a lot of
activity is managed by the DNR and the operating companies on an
annual basis and that every year the division looks at all of
the plans. He said that a lot of data is required in a PA,
because they are plans for the next 12 months.
He reviewed the POD approval process:
-annually submitted by the operating companies
-technical review of POD by the DOG
-DOG develops a series of questions and information requests
involving many meetings with the operators
-DOG completes a POD matrix score sheet and attaches bubble maps
and decline curves for internal use
MR. BARRON said if all of those things seem to fit and fall into
place, they approve the POD and the operators proceed with them.
If the DOG is not satisfied, they sit down with the operator and
devise ways and means to get the state satisfied and come to a
negotiated settlement with them. These plans are approved by
both parties, but most of these companies have working interest
owners and sometimes the plans change because of them.
2:03:43 PM
CO-CHAIR WAGONER asked if the state ever gets involved in
disputes between a unit operator and its partners.
MR. BARRON answered yes. Typically unit agreements have stand-
down clauses for parties that don't want to participate in
projects. In those cases, there is usually a rather significant
(400-500 percent) penalty for them to ever "back into" that
project. It is their own self-policing mechanism and part of an
operating agreement that most companies don't want to go
through.
SENATOR WIELECHOWSKI asked if the department performs any
economic analysis when determining what the POD should look
like.
MR. BARRON answered no; they look at the overall direction of
whatever activities are taking place, not necessarily their
economics.
SENATOR WIELECHOWSKI asked if performing an economic analysis
wouldn't be helpful in terms of the state managing its resource
and making sure it gets maximum benefit from it.
MR. BARRON replied that sometimes they have that dialogue with
the operators, but the division can see whether a plan seems
reasonable and would be profitable or not without doing a great
deal of economic review. He pointed out that companies will not
bring projects forward that aren't going to be profitable for
them, and therefore, profitable for the state, too. And while
having an economic model in conjunction with the POD might have
some benefit, it doesn't sway the needle much at all in terms of
the DOG's ability to encourage that development.
2:07:44 PM
SENATOR WIELECHOWSKI said if the state had an understanding of
the economics of a field it would have a much stronger leg to
stand on in terms of forcing a company to develop.
MR. BARRON responded that it's not a question of agreeing or
not; the process they are trying to encourage is prudent
economic development in a field and not encourage waste. The
North Slope has 42 PAs, primarily driven by three main
companies. They are doing allocation of resources internal to
their companies including asset allocation throughout the rest
of their portfolios. For the state to look at a single project
and say it is economic, go do it, the company could agree, but
it could also say that it doesn't meet their threshold for
investment at this time and that they are going to do a
development somewhere else in Prudhoe Bay. These companies are
trying to do reservoir management, long-term field management
and portfolio analysis all at the same time, not for just the
fields in this state but in other areas, too.
CO-CHAIR PASKVAN asked if all three owners must agree in order
for a development to proceed.
MR. BARRON replied that he didn't know of specific examples, but
the approval of the POD is the DOG's responsibility and the
operator presents them their plans. In theory, the operator has
had those discussions with their co-owners prior to submitting
the POD. But things change from one project to another within a
plan, and that change might require the plan to change and not
move forward on some part of it at all. It's possible that one
partner might want to rethink it.
CO-CHAIR PASKVAN asked if that was another way of saying unless
there is agreement with all three working interest owners, the
state would not receive the POD.
2:12:44 PM
MR. BARRON answered no. The DOG still receives the POD on an
annual basis per the lease terms. Once the POD is approved, the
operator has approval to proceed with those plans. But in a risk
business, anywhere in that 12-month timeframe things can change.
The DOG would be advised of the change and then the next year
upon the new POD, they would have that dialogue about what
happened. The companies don't have to get working interest owner
approval to present the plan; they have to get that working
interest approval to progress the plan after it is approved.
He said the division has a process by which it keeps track of
historic PODs, what has been approved and what they said they
were going to do. Their "bubble map" gives staff a quick visual
of which wells are producers and which are injectors and the
relative size of the bubble indicates how much water has been
put in or how much oil has been extracted.
MR. BARRON said he would talk about three primary case studies:
ConocoPhillips' Kuparuk Unit (discovered in 1969 and has
recovered 2.4 billion barrels of oil), BP's Milne Point
(recovered over 300 million barrels), BP's Prudhoe Bay
(discovered in 1967 and recovered 12.2 billion barrels of oil),
satellites and all of the associated PAs so they could get a
sense of some of the dialogue and activities they work through.
2:14:30 PM
ConocoPhillips' PAs include Kuparuk, Tarn, West Sak and News.
POD topics reviewed are: development of West Sak and Kuparuk,
their infield drilling program, their side track opportunities,
the coil tubing drilling, the impacts to the operation relative
to surface casing corrosion, subsidence, pipeline integrity,
flow line integrity and general facility maintenance. They talk
about gas management and the impact of production on their
overall gas management and reservoir management of gas wells.
MR. BARRON said a Matric Breakthrough Event (MBE) is when an
injection well is tied to a producing well and the injectant
breaks through into the producer very rapidly; and "It's not a
good thing." Part of the problem is that you have an entire POD
laid out for a water flood, for instance, and a MBE can
completely change the direction of where you are going to put
liquid and the entire pattern.
SENATOR FRENCH asked how one well can hold a lease when more
than one reservoir is under the lease; Kuparuk was a good
example with Melt Water and Tobasco.
MR. BARRON answered that happens and it is referred to as
stacking of PAs. A single well holds the whole surface unit and,
therefore, it holds everything in that column.
2:17:36 PM
He showed a bubble map (slides 13, 14), a "beautiful
presentation" of picture perfect ConocoPhillips' Kuparuk water
flood profile: the green bubbles are oil producers and the blue
ones are water. You can see development scenarios of water being
pushed to the producers making them produce more oil as the
water front moves out along with areas that didn't have a lot of
work done in them. In looking for opportunities for additional
drilling and expansion, the state builds a rapport and trust
with the operator and it takes place over many years. "Sharks
Tooth" in the lower left hand corner of the unit was one of
those, and he said that ConocoPhillips was moving forward and
drilling it right now.
2:19:49 PM
Moving to BP's Milne Point Unit, he noted that it had a Kuparuk
PA, a Schrader Bluff PA and an Ugnu Pilot program. Slide 15
showed the typical discussion they have with the operator
looking back on the last several PODs and looking forward,
looking at their enhanced oil recovery (EOR) treatments and
projects, their low-saline injection treatment and their water
alternating gas treatments. They also talk about drilling rig
activity, availability and mobilization. How to get all the work
done with the limitation of rigs on the North Slope has become
quite a healthy dialogue. So even if the project is robustly
economically viable on paper, if there is no rig to drill it, it
really doesn't matter.
MR. BARRON said they talk to BP and ConocoPhillips relative to
mechanical issues: gas injection, corrosion and work over plan
issues. In a very mature oil field like Kuparuk, Prudhoe Bay and
Milne Point, work-overs become a great deal of the activity.
They talk about the electrical submersible pump (ESP) failure
rate at Schrader Bluff and what kind of new technologies they
are working on with the service companies in terms of reducing
that failure rate - in trying to understand how to encourage the
continuation of those operations.
In terms of Ugnu, the DOG is talking to them about CHOPS and the
five-year pilot program there. Field activity is an offshoot of
that entire discussion. They talk about the reprocessing of 4D
seismic (on the POD) and securing potentially another one or two
rigs. In fact, he said they are trying to secure a special rig
just for CHOPS. They talk about well programs for the four wells
that are planned and continue talks about MBEs.
SENATOR FRENCH said the last time he got an update on CHOPS was
in the Petroleum News and it was very positive. He asked if Mr.
Barron had heard anything more recent about it. Do you see
monthly updates or production totals from that project?
MR. BARRON replied that he keeps tabs on CHOPS, because it is a
technically fascinating project. Right now, they are still
trying to figure how the pump at their last well created a hole
in the tubing through its rotation and are working with the pipe
manufacturer to come up with a different type of seal and
"centerizing" tools to keep the pump from wobbling inside the
tubing. There is no production; so they are basically shut in
waiting for a new design.
SENATOR FRENCH asked if it's the same original well, because he
saw a production report indicating a well with lengthy
production.
MR. BARRON answered yes. The expectations of that well far
exceeded anyone's imagination. He said CHOPS heavy oil has to be
done in concert with lighter production, because its diluent is
needed to produce it.
He said as they talk about these PODs, the division can't look
at any one project in isolation. They must look at the broad
picture of what is going on in a field to make sure that a
project like CHOPS is developed in a simultaneous sort of dance
with the other fields so that they have that diluent available
to flow the heavy oil into the pipeline. They try to help
orchestrate all of those activities throughout all of the PAs.
2:43:33 PM
CO-CHAIR PASKVAN said last year at a "Lunch and Learn," Erik
West from BP talked about the blending process and how it holds
great promise for Alaska to potentially increase throughput.
MR. BARRON emphatically agreed.
SENATOR FRENCH asked what the plan is if they have just one well
and it's shut in, because the POD calls for four wells.
MR. BARRON answered that he didn't have that available, but
would get that part of the plan for him.
SENATOR WIELECHOWSKI asked if slide 16 indicated dry holes.
MR. BARRON replied this type of exhibit is over the Milne Point
area and it didn't include any production or injection numbers.
A dry hole would show up as a black dot with no resource tied to
it on the rest of them.
SENATOR WIELECHOWSKI asked for the rough percentage of dry holes
on the North Slope.
MR. BARRON replied that he didn't have that figure, but that it
does happen and it is amazingly frustrating. Beaver Creek on the
Kenai Peninsula is a textbook example where one well was drilled
between two robust oil producers; everyone was certain it would
be a good producer, too, but it was dry. You just sit there and
scratch your head. He added that these are incredibly well-
managed reservoirs by any stretch of the imagination; it's very
high activity in a very mature basin.
2:28:15 PM
MR. BARRON said PODs were submitted for the previous two case
studies he talked about; the DOG had lengthy dialogue and made
modifications made to each one. Then the PODs were approved.
The Borealis and Orion PAs were sent to the division in November
or December of last year for their annual review and they are
still in very healthy negotiations with BP over them. The IPA PA
is due in March; I-pad is part of that and was first proposed in
the 2006 POD. The activity was sanctioned and it moved forward
on some civil work. It has paused on shallow ice lenses issues
and has been on the POD ever since but with no activity. DOG has
been in very deep negotiations with BP over it as well as the
gas partial pressure issue over the last three months to
understand their plans and their intent.
2:30:07 PM
CO-CHAIR PASKVAN said in reviewing the 2010 POD for Orion PA it
says "gas partial processing plant (GPP) is midway through the
execute engineering for the plant design and installation." He
asked what that meant. And then it continues: "Gravel has been
installed on Z-pad. Long lead times have been procured and the
turbine compressor has been constructed." What are long lead
times and what is a "turbine compressor" and where is it?
MR. BARRON answered that he had no clue where the compressor is
right now. This project is in the final design and final
engineering stage; the long lead time items would be the
compressor or the turbine. This project is designed to take some
gas, process it and then compress and use it for gas lift to
augment the overall recovery of that area. This is a very
typical project plan as generated by a project manager. The
civil work they are talking about at Z-pad is just the work that
is done to move gravel and level and compact it in preparation
for the physical installation of the equipment. That equipment
has not been installed, yet.
2:32:37 PM
CO-CHAIR PASKVAN said his understanding of the gas partial
processing plant is that it is to divert the gas from the GHX 2
treatment facility so it can produce more oil. His overall
understanding was that there would be about 40,000 more barrels
of oil per day of output if the GPP were operating.
MR. BARRON replied that he didn't know the specific numbers, but
that is where he understand the process was heading and it was
in the right direction.
SENATOR WIELECHOWSKI asked if I-pad and GPP had been promised by
the producers if oil taxes were rolled back.
MR. BARRON replied that he didn't know; the tax question is best
answered by the operator.
SENATOR WIELECHOWSKI asked if I-pad was included in the last POD
that was approved.
MR. BARRON answered yes.
SENATOR WIELECHOWSKI asked when the producers had promised to
undertake that project.
MR. BARRON replied that the plans are plans; they are not
promises or commitments. It's a scenario that is presented in
terms of their planning purposes and for the state's planning
purposes.
SENATOR WIELECHOWSKI asked when that plan was submitted.
MR. BARRON answered that the I-pad Orion/Borealis plan was
submitted last year and I-pad had been on the PODs for the last
four or five years.
SENATOR WIELECHOWSKI asked the rationale he is getting for them
not going forward with the plan since it has been on the books
for four years.
2:35:42 PM
MR. BARRON used slides 18 and 19 to explain the problematic
issues; slide 18 showed a cross section of the Prudhoe Bay Unit
and how things are stacked and how they can be retained in
acreage - roughly to scale. Orion and Borealis were on the upper
left hand side of the top two layers of the exhibit. Slide 19
was a bubble map of Orion and Borealis PAs showing that a great
deal of work had been done in the center section and to the
lower right, primarily in Borealis and to a lesser degree in
Orion. The little square in the upper left hand side was a rough
estimated location of I-pad (very far western pad put in place
to try and capture the resource within the PA).
CO-CHAIR PASKVAN asked if he was referencing Orion or Borealis.
MR. BARRON replied in both; they are on top of each other. That
is why he showed them the stacked exhibit first. He took them to
the next bubble map of IPA (slide 20) that was "the telling
story" of why some of these things are moved around in time. It
is the large oil reservoir within the greater Prudhoe Bay area.
It indicated a tremendous amount of activity in the main part of
the field and some gas activity to the east. The western
development will continue being challenging with not only costs
and remoteness but also activities associated with the primary
function of greater Prudhoe Bay - asset allocation, reservoir
management, gas processing, oil processing and water processing.
While the activities associated with Orion and Borealis are
important (now they are talking about value), the companies have
to decide if they are going to get more oil out of those or out
of continued efforts in the IPA, and they have continuing
dialogues with the state about it. For every dollar the
companies spend, the division wants them to maximize value to
state. But they want to maximize value to the corporation.
Whether it has been pushed back or delayed, the answer is this
question: for the money you are spending are you bringing the
greatest value to the state? And the answer is a blend of those
three bubble maps.
SENATOR WIELECHOWSKI asked if he had been told the reason I-pad
hasn't gone forward is economic or technical.
2:40:13 PM
MR. BARRON answered he had been told technical reasons.
He summarized that the state is in negotiations over Orion and
Borealis. He had asked for a lot more technical data, detailed
scoping plans, milestones and deliverables. As sloppy as this
approach may seem, he said this POD process has generated a
tremendous reserve base for the state. Slide 22 indicated BP's
PODs that showed the original recoverable reserves and
everything that has been proven and developed above and beyond
the original forecast; it was driven by the entire process, of
continuing "artful" dialogue and negotiation, of "prodding" the
companies to continue to do work and continue to push the
envelope on a lot of these activities. Continuation of
production, the extension of field life and the absolute higher
recovery factors in the field is the end result that you want
from a robust plan of development and as messy as the process
is, it has yielded tremendous value to the state, he stated.
2:42:22 PM
In summary, Mr. Barron said that lease utilization is critical
to the state; formations of PAs are required once they have
producible hydrocarbons and sustained flow; PODs follow
immediately after that on an annual basis. There are detailed
technical reviews by the DOG and sometimes outside consultants
are hired for support. Stacked PAs in one unit is very complex
and it gets back to the value assessment. All developments have
to be conducted under the terms of an approved POD.
2:43:08 PM
CO-CHAIR PASKVAN said on page 22 it appears that somewhere in
2009 an event caused an increased delineation of proven reserves
and asked where that came from.
MR. BARRON answered that he didn't know, but BP might.
CO-CHAIR PASKVAN asked if it could coincide with proven reserves
transferred to booked reserves.
MR. BARRON replied that this is nothing about booked reserves;
this is cumulative recovery (production that has been put
through the line).
CO-CHAIR PASKVAN thanked the participants and held SB 192 in
committee.
2:45:41 PM
CO-CHAIR PASKVAN recessed the Senate Resources Standing
Committee meeting until 3:30 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES_DNR-DOG_Plans of Development_2_22_12_final.pdf |
SRES 2/22/2012 1:30:00 PM |
SB 192 |