Legislature(2023 - 2024)BARNES 124
01/30/2023 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Oil and Gas Assets and Activity | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
[Contains discussion of HB 49, HB 50, and SB 49.]
1:13:21 PM
JOHN BOYLE, Commissioner Designee, Department of Natural
Resources, introduced the PowerPoint to the Oil and Gas Assets
and Authority [hard copy included in the committee packet]. He
said the purpose of the DNR financial forecast is to assist
lawmakers with decision making during the legislative process.
He said the forecast will show what Alaska can look forward to
in the coming decade. He assured the committee that the
forecast will model how oil and gas production can improve the
state's fiscal health. He confirmed the North Slope "legacy"
oil fields Prudhoe Bay, Kuparuk, and Alpine are seeing a healthy
number of investors. He emphasized the legacy producers have
been maintaining the flow of oil to the Trans-Alaska Pipeline
System (TAPS) for 40-50 years and remain the backbone of oil
production in Alaska.
1:16:27 PM
COMMISSIONER DESIGNEE BOYLE highlighted the recent investment by
Australia-based Santos Ltd, to the Pikka Project. He said the
project is estimated to produce roughly 80,000 barrels per day
compared to the 500,000 barrels per day currently. He contended
that volume of oil in TAPS hasn't existed in some time.
Commissioner Designee Boyle cited the Willow Project as another
new source of revenue for Alaska once it is online. He said DNR
is expecting a ruling on the Final Supplemental Environment
Impact Statement (SEIS) from the federal Bureau of Land
Management (BLM) soon. Mr. Boyle imparted the project could
produce upwards of 180,000 barrels per day. Commissioner
Designee Boyle cited the discovery of the Nanushuk [geological]
Formation as a reason for optimism.
1:19:41 PM
DEREK NOTTINGHAM, Director, Division of Oil and Gas, Department
of Natural Resources, described his background in the oil and
gas industry. Mr. Nottingham said he has lived in Alaska for 16
years, employed as a petroleum engineer. He continued the
PowerPoint overview, on Slide 2, which read as follows [original
punctuation provided]:
• Introduction
• North Slope Resources and Activity
• Project Update and Production Forecast
• Natural Gas Trucking
• Willow and ANWR Updates
• Net Zero Goals and Carbon Capture, Utilization, and
Storage
1:22:02 PM
MR. NOTTINGHAM directed attention to Slide 3, "North Slope
Potential," which read as follows [original punctuation
provided]:
United States Geologic Survey (USGS) estimates
that Alaska's North Slope has more oil than any
other Arctic nation:
• Produced Oil: >18.7 billion barrels
• Significant oil production continues from existing
and developing fields
• Recent large discoveries
• Undiscovered Oil: >48 billion barrels
• Discovered Gas: ~ 50 trillion cubic feet
• Undiscovered Conventional Gas: ~194 trillion cubic
feet
• Unconventional Gas: ~125 trillion cubic feet of
methane, hydrates and shale gas
Interest in North Slope has been in steady incline in
the last
several years:
• Recent finds on state lands demonstrate great
potential
• Nanushuk and Torok formations are driving renewed
interest (new data suggests enormous potential)
• Legacy fields including Prudhoe Bay and Kuparuk have
exceeded internal expectations through infield work
1:24:33 PM
REPRESENTATIVE SADDLER asked how the amount of oil could be
estimated if there has not been any exploration yet.
MR. NOTTINGHAM answered that the numbers in the overview do not
have a high degree of precision and are an estimate based on
similar projects. He said based on the size of the North Slope,
it is likely to have significant deposits.
1:25:23 PM
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources, answered questions about oil and gas assets and
activities. He clarified the numbers presented were derived
from the United States Geological Survey (USGS) based on
statistical extrapolations. He claimed there is a lot of
national and international confidence in USGS estimates, noting
the USGS is the premiere assessor of natural resources.
1:26:21 PM
CHAIR MCKAY asked how much of the 48 billion barrels would be on
state land.
1:26:33 PM
MR. NOTTINGHAM said he was unsure how many barrels were on state
land and would get back to Chair McKay with that number.
1:26:42 PM
DEPUTY COMMISSIONER CROWTHER reiterated DNR was unsure of how
many barrels of oil are on state land. He explained that USGS
divided the assessment of the coastal plain of the [National
Petroleum Reserve-Alaska (NPR-A)] and a portion of the Greater
Nanushuk Prospect, which falls within the NPR-A boundary. He
stated there are significant oil and gas deposits on both state
and federal lands.
1:27:41 PM
MR. NOTTINGHAM returned to the PowerPoint and showed where the
19 billion barrels of oil are located on the North Slope on the
map in Slide 4, "North Slope Oil Production". He used the map
to illustrate a number of exciting opportunities ahead for oil
production.
1:29:17 PM
CHAIR MCKAY specifically asked if there are any plans to drill
at West Harrison Bay.
1:29:27 PM
DEPUTY COMMISSIONER CROWTHER answered the West Harrison Bay Unit
was created by DNR with the expectation that an operator will
drill wells in an attempt to delineate that prospect. He
anticipates some drilling activities in that area soon. In
response to a follow-up question, he offered his understanding
that drilling would commence in 2025.
1:30:34 PM
REPRESENTATIVE SADDLER asked, "What is the Alaska Seward
Boundary and why is it important on the map?"
1:30:51 PM
DEPUTY-COMMISSIONER CROWTHER explained the Alaska Seward
boundary is the limit of state-owned and -managed resources
including three miles offshore. He pointed to the West Harrison
Bay Unit and the Liberty Prospect which are offshore oil fields.
He said the Prudhoe Bay [oil field] is primarily on land but
does extend offshore.
CHAIR MCKAY asked if the 48 billion barrels of oil cited on
Slide 3, "North Slope Potential," included offshore wells.
DEPUTY COMMISSIONER CROWTHER responded that the 48 billion
barrels does include on-land and offshore wells. He clarified
that offshore leases also extend into the Chukchi Sea in
addition to the Beaufort Sea.
1:33:17 PM
REPRESENTATIVE SADDLER asked if the 48 billion barrels included
viscous and heavy oil.
1:33:30 PM
MR. NOTTINGHAM affirmed viscous and heavy oils are included in
the 48 billion barrels of potentially undiscovered oil.
1:33:40 PM
MR. NOTTINGHAM returned to the PowerPoint and read from Slide 5,
"Working Interest Ownership of North Slope Units." He pointed
out ConocoPhillips Alaska, Inc. is the main leaseholder and
operator in the NPR-A. He identified Kuparuk River Unit as
primarily owned and operated by ConocoPhillips Alaska, Inc. He
said Prudhoe Bay is operated by Hilcorp, the predominant
operator on the east side of the North Slope.
MR. NOTTINGHAM directed attention to Slide 6, "North Slope
Exploration Drilling 2022-2023," which read as follows [original
punctuation provided]:
Great Bear Pantheon
Completed the Theta West-1 well in April of 2022
targeting the Lower Basin Floor Fan interval seen in
the Talitha-A well. A successful flow test was
achieved from this interval. The well was plugged and
abandoned.
International Hydrates Test Project
Received approval for a methane hydrate drilling
program of up to three wells and well production
testing on lease ADL 47450 in the Prudhoe Bay Unit
taking place in the winter 2022-2023 season. One of
the three wells, Hydrate 2, was completed in November
2022. The project is partnered with US DOE, USGS, ASRC
and Japan OGMEC.
Mr. Nottingham said liquid hydrocarbon flow rates were above 500
barrels per day. He stated North Slope Energy has agreed to
drill two wells in NPR-A known as the West Castle Prospect. He
said the Merlin II well was tested, but the reserve wasn't
economically viable. He said there is also a unit near the
Toolik River that may be developed.
1:39:32 PM
REPRESENTATIVE SADDLER pressed Mr. Nottingham to expound on what
DNR might be looking for in methane hydrates drilling and the
potential benefits.
1:39:42 PM
MR. NOTTINGHAM defined methane hydrates and where they occur.
He related the compound is gas in an ice-like state. He
affirmed DNR knows methane is there [underground] but the
question is whether [Alaska] can produce it. He remarked an
observation well and two test wells have been drilled with the
goal of seeing if DNR's methodologies work.
1:41:09 PM
CHAIR MCKAY considered the state will need a way to get the gas
to market. He asked if methane is "stranded gas" like the other
known deposits on the North Slope that aren't being developed.
1:41:35 PM
COMMISSIONER-DESIGNEE BOYLE acknowledged the methane is
considered a stranded gas. He said the purpose of the test is
"aid our allies," particularly Japan, as a means of energy
security. He explained Japan is aware of the methane deposits
in the deep waters off the coast of Japan. He illuminated the
North Slope offers a good proxy for Japan to study how to
extract the gas. He said the goal would be for Japan to harvest
its own energy to establish domestic security.
1:43:46 PM
MR. NOTTINGHAM narrated the Slide 7, "Status Update of Key
Future Projects: North Slope," which read as follows [original
punctuation provided]:
Pikka
(Santos/Oil Search)
Ongoing front-end engineering and design (FEED);
start of production (Phase 1: 2025; Phase 2 final
investment decision (FID) expected ~2024/2025).
Project FID approved in August 2022 for Pikka
Phase 1. Project first oil anticipated in 2026.
Peak design capacity rate,
Phase 1: 80,000 barrels of
oil per day (bopd)
Willow
(ConocoPhillips)
Addressing AK District Court remand; likely to target
a new BLM Record of Decision anticipated by
YE 2022. Construction expected to start Q1 2023. First
oil post 2025/2026. Awaiting BLM Record of Decision
(ROD) on Supplemental Environmental Impact Statement
(SEIS). FID cannot be made before the ROD. First
oil expected 6 years after FID, if approved.
Peak rate: ~180,000 bopd
CRU Narwhal
CD8
(ConocoPhillips)
Narwhal reservoir first oil December 2021.
Produced ~1600 BOPD. Drilling expected from
CD4 to total ~12 wells. Full development requires a
new pad (CD8) and drilling an additional
2040 wells starting in ~2028 from CD8.
Sustained Unit Production from CD8 could
commence as early as 2028, pending stakeholder
alignment, permitting, internal studies and alignment.
This conceptual first oil date remains consistent with
the 23rd POD submitted in 2021. Peak DNR estimates
>32,000 bopd
MPU Raven Pad
(Hilcorp)
Long-Range Activities of Milne Point Unit (MPU)
40th plan of development (POD) discuss future
drilling opportunities in undeveloped acreage in the
northwest of the unit. November 2022 Hilcorp formally
applied for approval to construct a new drilling and
production pad (R Pad) on ADL 25509 within MPU.
Peak DNR estimates~10,000 bopd. Analogous to 2018 M
Pad development at MPU
KRU Nuna-Torok
(ConocoPhillips)
2021 Kuparuk River Unit (KRU) POD appraisal
activity for two existing wells and seismic data
processing. 2022 KRU POD states rotary drilling is
planned in 2022 Q3 with another injector/producer pair
for Torok reservoir appraisal to inform future
developments. Peak rate up to 25,000 bopd
1:47:09 PM
CHAIR MCKAY recalled there was a polar bear issue regarding the
Willow Project. He had read the polar bear population on the
North Slope is increasing, and said he would expect the project
to move forward if this were true.
1:47:39 PM
DEPUTY COMMISSIONER CROWTHER answered polar bears are protected
by Endangered Species Act (ESA) requirements in the SEIS; the
issue was taken care of in the remand. He offered his
understanding that issues brought to light from litigation have
been resolved in the SEIS document through consultation and the
federal government will be issuing a permit for the Willow
Project soon.
1:48:44 PM
REPRESENTATIVE SADDLER asked if the issue with the Willow
Project SEIS had to do with global warming.
1:49:02 PM
DEPUTY COMMISSIONER CROWTHER said global warming was one of the
issues raised in the remand. He was unsure of the specific
details however, and offered to get the opinion from the
Department of Law to the committee.
1:49:27 PM
MR. NOTTINGHAM described the graph on Slide 8, "Fall 2022: North
Slope Annualized Forecast," which read as follows, [original
punctuation provided]:
Comparison of DNR vs Operator
Forecasts across the same
group of fields.
Operator's numbers in charts
exclude not-yet producing fields,
while Official Forecast includes
production from future projects.
Short Term:
? DNR forecasts FY 2023 annualized average daily
statewide production at 501 thousand barrels of oil
per day (mbopd), and North Slope
production at 492 mbopd, with a range of 448 mbopd and
535 mbopd.
Long term:
? Long term forecast reliability is gauged by general
ballpark comparison between DNR and operators'
aggregate forecasts. Operators' long-term
outlook falls within DNR's long term forecast range.
? Specific differences are expected and do highlight
DNR's ground-up uncertainty analysis on all included
projects.
Outlook on production assumes that operators' plans
and other project drivers stay unchanged.
1:51:30 PM
MR. NOTTINGHAM continued to Slide 9, "Alaska Statewide Oil
Production Forecast Fall 2022 Expected Case And Categories Of
Production," which gives definitions of abbreviations as
follows, [original punctuation provided]:
? Current Production (CP) remains backbone of state
production in near and medium term
? Under Development (UD) segment represents production
expected from wells drilled in FY 2023
? Under Evaluation (UE) begins to play a more
significant role in production in the next 510 years
? Production outlook depends on several factors
including operators' plans, oil price, fiscal system
1:52:27 PM
CHAIR MCKAY understood TAPS is uneconomical if production drops
below 350,000 barrels per day. He pointed to the gray areas on
both graphs, which indicated to him Alaska needs new discoveries
and new developments or the state could be in trouble in about
five years.
1:53:29 PM
COMMISSIONER-DESIGNEE BOYLE confirmed Chair McKay's concern
regarding the need for new development on the North Slope. He
said Alyeska Pipeline Service Company has been hard at work to
ensure oil keeps flowing in the pipeline. He explained that
there have not been any recent studies on throughput volumes.
He emphasized, "more oil through the pipeline is always better"
[than less throughput]. He identified a decrease in gas volumes
means less revenue from tariffs levied to the oil producers.
COMMISSIONER-DESIGNEE BOYLE returned to the topic of forecasting
Alaska's future oil production. He claimed the decline rate on
the North Slope is very minimal. He expected the rate to remain
stable with projects like Willow that will keep oil following
through the pipeline. He maintained the investment climate in
the state needs to attract new producers.
1:56:46 PM
REPRESENTATIVE SADDLER stated he projected the gray lines [on
the graphs in Slide 9] are something to look forward to in the
future, but the committee needs to focus on the declining rate
of current production and how that will reflect on potential
investors.
1:57:29 PM
MR. NOTTINGHAM illustrated the shipping process shown on Slide
9, "Trucking Natural Gas to Market," which read as follows
[original punctuation provided]:
Agreement between Hilcorp North
Slope LLC and the Interior Gas Utility
? Hilcorp subsidiary Harvest Midstream to
produce LNG from Prudhoe Bay gas
? Facilities to produce 150,000 gallons/day
to be built and online in October 2024
? 20-year contract with opportunity to
increase term and capacity
? Plans to truck LNG from Deadhorse to
Fairbanks
Compressed natural gas (CNG) service coming to the
North Slope
? SES Midstream LLC acquired a lease to site a
compression facility for taking Prudhoe Bay
gas and distributing CNG by truck to oilfield
customers across the North Slope.
1:59:25 PM
REPRESENTATIVE MCCABE asked about lawsuits in the North Slope
related to trucking access. He inquired if those lawsuits have
been settled and whether the public has access to those roads.
1:59:50 PM
DEPUTY COMMISSIONER CROWTHER spoke generally about access on the
North Slope for the public; there are challenges to the
administration including litigation regarding access. He said
DNR provided an access permit for the Pikka Project that would
cross the Kuparuk River Unit. He relayed ConocoPhillips Alaska,
Inc. appealed the decision by DNR, which is now in litigation.
2:00:43 PM
REPRESENTATIVE MCCABE synopsized the lawsuit came down to one
oilfield developer blocking access to another oilfield
developer.
2:01:12 PM
DEPUTY COMMISSIONER CROWTHER opined that it was appropriate for
DNR to grant access despite opposition but chose not to comment
further on active litigation. In response to a follow-up
question, he offered his understanding that the lawsuit is
currently in State Superior Court; DNR expects the court to
review the filing and make a decision in due course.
CHAIR MCKAY asked the committee to pay attention to what is
happening in Cook Inlet with respect to providing heat to
Railbelt communities.
2:02:46 PM
MR. BOYLE stated DNR would be presenting the Cook Inlet forecast
for oil production in the Senate and offered to return to the
House Resources Standing Committee to give the same
presentation.
2:03:35 PM
MR. NOTTINGHAM returned to the presentation, on Slide 11,
"Willow Update," which read as follows [original punctuation
provided]:
Permitting
? Comment period for Draft Final Supplemental
Environmental Impact Statement (EIS) closed August 29,
2022
? Final SEIS review completed by cooperating agencies
in January 2023
? Publication of Final SEIS is expected imminently
? A Record of Decision (ROD) should follow as soon as
30 days after Final SEIS publication
? The State Pipeline Coordinator's Section (SPCS) will
begin reviewing permits based on the SEIS shortly
after the ROD
Anticipated performance
? Expected peak production of 180,000 barrels of oil
per day (bopd)
? 600 million barrels of oil estimated (mmboe) total
production over project life
? $817 billion in royalty and property tax payment to
State of Alaska, US, and municipal governments
2:05:15 PM
MR. NOTTINGHAM narrated Slide 12, "ANWR Update," with text and a
map of leaseholders' boundaries on the North Slope, which read
as follows [original punctuation provided]:
AIDEA's leases remain suspended pending
completion of the SEIS. The other two
lessees relinquished their leases, so
AIDEA's are the only remaining (blue in
lease map).
Lease suspension litigation is in briefing
cross-motions for summary judgment.
• Plaintiffs' and State's opening briefs were filed
December 5, 2022.
• BLM's response is due February 3, 2023.
• Briefing should conclude in mid- to late-March.
The leasing program litigation remains
stayed pending completion of the SEIS.
Next status report is due April 28, 2023.
2:06:34 PM
REPRESENTATIVE MCCABE inquired what the Alaska Industrial
Development and Export Authority (AIDEA) plans to do with the
current leases.
2:07:03 PM
DEPUTY COMMISSIONER CROWTHER expressed DNR did not know the path
AIDEA may take regarding existing leases. He believed when
AIDEA took those leases it was with the intent to maximize the
benefits to the state.
2:07:47 PM
REPRESENTATIVE SADDLER asked when the next lease sale might
happen.
DEPUTY COMMISSIONER CROWTHER explained that BLM is obliged to
hold a lease sale by the end of 2024 to remain in compliance
with federal law. He said BLM is currently working on a draft
SEIS that DNR expects to see prior to any further lease sales.
2:09:04 PM
CHAIR MCKAY asked if the filling would be made by 2/3/23.
DEPUTY COMMISSIONER CROWTHER answered that there could be many
filings and the date of a decision is uncertain.
2:09:34 PM
MR. NOTTINGHAM described main points in Slide 13, "Net Zero
Greenhouse Gas (GHG) Initiatives of North Slope Companies." He
explained all major developers are moving in the direction for
zero carbon offsets. He divulged Hilcorp has not publicly
stated the company's goal to real net zero but did release a
statement, which read as follows, [original punctuation
provided]:
"We have to operate to the same high standards as
everyone else. We may be private, but we have capital
providers, we have partners, we have lots of other
people involved in business with us. They're feeling
those pressures (i.e. ESG, emissions reductions), and
we have to be responsive to those as well." Greg
Lalicker, Hilcorp CEO.
2:11:36 PM
REPRESENTATIVE MCCABE pointed out net zero goals are derived
from the boards of directors of given companies without input
from the Department of Natural Resources.
2:12:08 PM
MR. BOYLE affirmed the net zero goals are set by the boards of
directors.
2:12:24 PM
REPRESENTATIVE SADDLER asked if there are sanctions in place to
deter companies from not developing leased oil fields.
MR. BOYLE hesitated to say there were no consequences to not
achieving a company's net zero goals. He said investors and
lending institutions create pressure on oil companies to make a
project successful. He also asserted some of the production
technologies are nascent and still developing. He believed
companies are striving to get to net zero GHG but there is
always an amount of uncertainty in the future.
2:15:03 PM
CHAIR MCKAY offered his understanding that GHG consists of: "n-
ox; s-ox; and CO2" which means, nitrous oxide, sulfur dioxide,
and CO2.
2:15:28 PM
MR. NOTTINGHAM said he thought Chair McKay was correct and added
methane is also a GHG chemical. He said the main concern with
GHG is primarily methane and CO2 emissions.
2:16:01 PM
DEPUTY COMMISSIONER CROWTHER said, historically, nitrous oxide
and sulfur dioxide associated with industrial activity have been
significantly diminished.
2:16:36 PM
MR. NOTTINGHAM returned to the PowerPoint, Slide 12, "Geologic
Carbon Storage," to four maps depicting potential storage
locations and future exploration opportunities throughout the
state. He said the map on the right represented saline aquifer
potential. He attested carbon storage capacities are great and
don't give off a lot of emissions. He said Alaska already has
subsurface data and the advantage of having a large block of
state-owned land. Mr. Nottingham believed SB 49 addresses many
of the state leasing issues.
2:20:10 PM
REPRESENTATIVE MCCABE asked if saline could be injected into
Cook Inlet based on the map on Slide 14, "Geologic Carbon
Storage."
2:20:58 PM
MR. NOTTINGHAM answered CO2 can be injected to create a
condition of enhanced oil recovery (EOR) but imparted that CO2
injection doesn't remedy the Cook Inlet supply issue.
2:21:45 PM
CHAIR MCKAY explained HB 49 and HB 50 are the bills that address
carbon capture and credits; he urged the committee to become
familiar with those bills for future discussions.
2:22:42 PM
REPRESENTATIVE SADDLER asked that the department provide
background information and general reading to committee members.
2:23:01 PM
MR. BOYLE answered DNR would be happy to provide background
information on these topics for the committee.
2:24:11 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:24 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HRES DNR NS Oil and Gas Update 1.30.23.pdf |
HRES 1/30/2023 1:00:00 PM |