Legislature(2023 - 2024)BARNES 124
01/30/2023 01:00 PM House RESOURCES
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|Overview(s): Oil and Gas Assets and Activity
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.
|HRES DNR NS Oil and Gas Update 1.30.23.pdf
HRES 1/30/2023 1:00:00 PM