Legislature(2017 - 2018)SENATE FINANCE 532

04/25/2017 09:00 AM FINANCE

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09:03:46 AM Start
09:05:00 AM Presentation: Oil and Gas Field Development; Department of Natural Resources, Division of Oil and Gas
10:01:18 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Presentation: Oil and Gas Field Development
Department of Natural Resources, Division
of Oil and Gas
<Bill Hearing Canceled>
<Pending Referral>
+ Bills Previously Heard/Scheduled TELECONFERENCED
                 SENATE FINANCE COMMITTEE                                                                                       
                      April 25, 2017                                                                                            
                         9:03 a.m.                                                                                              
9:03:46 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair  MacKinnon  called  the  Senate  Finance  Committee                                                                    
meeting to order at 9:03 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Anna MacKinnon, Co-Chair                                                                                                
Senator Click Bishop, Vice-Chair                                                                                                
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Natasha von Imhof                                                                                                       
MEMBERS ABSENT                                                                                                                
Senator Shelley Hughes                                                                                                          
ALSO PRESENT                                                                                                                  
Paul Decker,  Resource Evaluation  Manager, Division  of Oil                                                                    
and  Gas, Department  of  Natural  Resources; Senator  Cathy                                                                    
Giessel; Representative Tammie  Wilson; Representative Cathy                                                                    
Tilton; Senator Pete Kelly.                                                                                                     
^PRESENTATION: OIL and GAS  FIELD DEVELOPMENT; DEPARTMENT OF                                                                  
NATURAL RESOURCES, DIVISION OF OIL and GAS                                                                                    
9:05:00 AM                                                                                                                    
PAUL DECKER,  RESOURCE EVALUATION  MANAGER, DIVISION  OF OIL                                                                    
AND  GAS, DEPARTMENT  OF  NATURAL  RESOURCES, discussed  the                                                                    
presentation,  "North  Slope   Development  Outlook;  Senate                                                                    
Finance Committee; April 25, 2017" (copy on file).                                                                              
Mr. Decker  highlighted slide  2, "North  Slope Oil  and Gas                                                                    
Activity." He  stated that  the map  was updated  earlier in                                                                    
the month.  He stated that  the Pikka Unit was  expanding to                                                                    
add 17 leases to west and  seven to the east. He shared that                                                                    
there  were   some  interesting  finds.  He   remarked  that                                                                    
Armstrong  Energy was  working to  delineate the  wells, and                                                                    
had garnered production tests with  encouraging flow rate at                                                                    
up to 4600  barrels per day. He stressed  that the Horseshoe                                                                    
Well was  recently drilled,  and there  was an  extension in                                                                    
the  Pikka Unit  by  more than  20 miles  to  the south.  He                                                                    
looked   at  the   Moose's  Tooth   Unit.  He   shared  that                                                                    
ConocoPhillips had  delineated a  discovery of the  Hunter A                                                                    
well. The two extra wells  were called the Willow Discovery,                                                                    
and was a  separate compartment in the  formation. He looked                                                                    
at Smith  Bay, with two  wells drilled in the  shallow water                                                                    
of the  bay, barely offshore.  The onshore at  that location                                                                    
was  considered the  National  Petroleum  Reserve. He  noted                                                                    
that  further out  in  the water  was  considered the  Outer                                                                    
Continental Shelf (OCS). He noted  that the two wells showed                                                                    
some  interesting   sand  developments,  and  had   not  yet                                                                    
achieved  a  flow test.  It  was  known that  the  reservoir                                                                    
looked  challenging to  produce.  There was  a  hope that  a                                                                    
hydraulic fracture  stimulation could  overcome some  of the                                                                    
reservoir quality challenges. He  stressed that the distance                                                                    
of 100 miles was the greatest challenge to the reservoir.                                                                       
Mr. Decker looked  at the southeast portion of  the map, and                                                                    
shared that  Accumulate Energy Alaska  planned to  drill the                                                                    
Icewine 2 well  next to the Icewine 1 well.  The goal was to                                                                    
drill back into the  source rock, hydraulically fracture it,                                                                    
and  flow  test  it  to potentially  recover  oil  that  was                                                                    
generated  in the  source rocks  as residual  saturation. He                                                                    
stated that  it was the  first time a source  rock reservoir                                                                    
play  concept  had been  deliberately  tested  on the  North                                                                    
Slope.  He looked  at  the shoreline  above  Kuparuk at  the                                                                    
Nikaitchuq Unit.  The Italian Major was  looking at drilling                                                                    
from their  production facility at  Spy Island  into federal                                                                    
leases  north of  the  three-mile boundary  in  the OCS.  He                                                                    
stated  that they  would build  a  long departure  extended-                                                                    
reach rig  operation later  in the  year with  the potential                                                                    
for up to six total wells called Nikaitchuq North.                                                                              
Mr.  Decker  shared that  Senator  Lisa  Murkowski had  been                                                                    
hoping to  open the  Alaska National Wildlife  Refuge (ANWR)                                                                    
for development.  He felt  that it  would be  interesting to                                                                    
see how that might advance.                                                                                                     
9:13:39 AM                                                                                                                    
Vice-Chair  Bishop  noted  that there  were  sixteen  legacy                                                                    
wells that were "cleaned up"  in 2016 and an additional five                                                                    
in 2017.  He queried the  status of those legacy  wells. Mr.                                                                    
Decker  responded that  the  wells were  in  Bureau of  Land                                                                    
Management (BLM) territory. The Division  of Oil and Gas did                                                                    
not  have  oversight  of that  operation.  The  question  is                                                                    
better  directed  at the  Alaska  Oil  and Gas  Conservation                                                                    
Commission   (AOGCC).   He   agreed   to   provide   further                                                                    
Mr.  Decker   addressed  slide  3,  "North   Slope  Brookian                                                                    
Discoveries."  He stated  that there  was excitement  around                                                                    
the  Nanushuk  discoveries.  The  slide was  from  the  U.S.                                                                    
Geological  Survey.   He  pointed  out  that   the  Brookian                                                                    
potential was in two different  formations: the Nanushuk and                                                                    
the  Torok Formations.  These formations  were at  different                                                                    
stages of development and delineation.                                                                                          
9:18:12 AM                                                                                                                    
Senator Micciche  wondered whether  the geology  was similar                                                                    
to the  area southeast  of the  restricted area.  Mr. Decker                                                                    
replied in the affirmative.  There was information about the                                                                    
subsurface  that  showed  similarities,  but  not  identical                                                                    
Mr. Decker looked at slide  4, "Brookian Play Fairways; Line                                                                    
A,  State Lands."  The slide  outlined three  different play                                                                    
fairways as  they appeared in  the seismic data,  which were                                                                    
all Brookian play fairways. He  remarked that the white oval                                                                    
encompassed  the Nanushuk  shelf-margin wedges  and incised,                                                                    
back-stepping facies.  The blue oval encompassed  the Seabee                                                                    
and younger  slop-apron fans and slope-incision  facies. The                                                                    
green  oval encompassed  the  Torok  slope-apron and  basin-                                                                    
floor fans.                                                                                                                     
Mr. Decker  displayed slide 5,  "Pikka Discovery  - Nanushuk                                                                    
Fm." He stated that Qugruk  3 was announced as multi-horizon                                                                    
discovery in  April 2013. He  shared that the play  type was                                                                    
characterized by stratigraphically  trapped shelf margin/low                                                                    
stand  wedge sandstones  in  lower  Nanushuk and  underlying                                                                    
sandy slope Torok Formation.                                                                                                    
9:23:25 AM                                                                                                                    
Vice-Chair Bishop queried a walkthrough  of the API and MDT,                                                                    
and  its  significance. He  requested  a  comparison of  the                                                                    
quality of  the oil. Mr.  Decker replied the 30  degrees API                                                                    
was a measurement  of the density of the  recovered oil; and                                                                    
the MDT  was the modular  dynamic testing tool. The  MDT was                                                                    
shaped like a pencil with a  probe to press into the edge of                                                                    
the formation  on the  edge of  the well,  and draws  in the                                                                    
fluid to the  probe. This was done until  a continual stream                                                                    
of fluid was achieved.                                                                                                          
Mr.  Decker highlighted  slide  6,  "Basal Nanushuk  Seismic                                                                    
Anomalies;  Line  B,  Northeast  NPRA." He  noted  that  the                                                                    
seismic line  went through  three wells.  The Inigok  1 well                                                                    
tagged the edge of one  of the seismic anomalies. The yellow                                                                    
portions  represented   interpretive  extents   of  possible                                                                    
reservoir quality sands. He remarked  that the Inigok 1 well                                                                    
had "punched"  the edge  of one  of the  anomalies indicated                                                                    
that the yellow portion might  be reservoir quality sand. He                                                                    
remarked  that   the  various   shingles  of   yellow  sands                                                                    
represented  potential  stratigraphically trapped  prospects                                                                    
were different ages  from one another. He  remarked that the                                                                    
slide could  conceptually be Pikka  on the right  and Willow                                                                    
on the left, when it comes to age.                                                                                              
9:28:37 AM                                                                                                                    
Mr. Decker addressed slide 7,  "First Oil Estimated in 2018-                                                                    
2021; Projects in Blue have  Been Postponed." He shared that                                                                    
the right-hand  column was  estimates of  Peak Rate  for the                                                                    
various  projects and  developments  in barrels  of oil  per                                                                    
day. He stressed that the  estimates were provided by public                                                                    
sources  such  as  press  releases  and  whatever  form  the                                                                    
operator made available to the public.                                                                                          
Mr.  Decker looked  at  line 1:  Add'l  CD5 wells,  Colville                                                                    
River Unit.  He remarked  that ConocoPhillips  was currently                                                                    
drilling the CD 5 drill  site. He stated that ConocoPhillips                                                                    
had  already  drilled  several wells  into  the  Alpine  and                                                                    
Kuparuk formations  with good results. It  was expected that                                                                    
the development would produce over 15,000 barrels a day.                                                                        
Mr. Decker looked  at lines 2 and 3: Greater  Mooses Tooth 1                                                                    
and 2. He stated that  the reservoirs were in BLM territory.                                                                    
He remarked that the Alpine  Sands Spark-Rendezvous may have                                                                    
some evidence for some  compartmentalization between the two                                                                    
Mr.  Decker  looked at  lines  4  through 7:  Nuna  Project,                                                                    
Oooguruk  Unit; Nuiqsut  Expansion,  Oooguruk Unit;  Mustang                                                                    
Project,  S  Miluveach  Unit; and  Add'l  wells,  Nikaitchuq                                                                    
Unit. The  projects were  listed in  blue, which  meant that                                                                    
they were postponed, deferred, or delayed.                                                                                      
9:33:48 AM                                                                                                                    
Mr. Decker addressed line 8, Moose Pad, Milne Point Unit.                                                                       
Mr. Decker looked at line 9, Moraine Project, Kuparuk Unit.                                                                     
Mr. Decker highlighted line 10, "1H NEWS, Kuparuk Unit.                                                                         
Mr. Decker  looked at slide  8, "First Oil  Potentially 2022                                                                    
or Later, Some Projects May Not Occur."                                                                                         
9:46:23 AM                                                                                                                    
Senator  Micciche   remarked  that   the  projects   in  the                                                                    
presentation had a relatively  high probability from 2018 to                                                                    
2021  of 105,000  to  115,000 barrels  a  day of  additional                                                                    
production.  He  also  noted  the  discussion  of  post-2022                                                                    
production  of  290,000  to  350,000   barrels  a  day,  not                                                                    
including  Smith Bay.  He  wondered  whether the  department                                                                    
evaluated transporting  and processing  oil west  of current                                                                    
development, and  how the state  could expedite some  of the                                                                    
production.  Mr. Decker  replied that  the department  could                                                                    
potentially leverage or provide insight.                                                                                        
Senator   Micciche  felt   that   the   state  was   greatly                                                                    
benefitting from  even flat production.  He felt  that there                                                                    
was a  potential for  an increase  with a  high probability.                                                                    
Mr.  Decker stressed  that there  was  a difference  between                                                                    
peak and  plateau. He  agreed that  there was  "a lot  to be                                                                    
optimistic about."                                                                                                              
Senator  Olson wondered  whether  there was  input from  the                                                                    
local people about fracking and  its effect on wildlife. Mr.                                                                    
Decker  replied  that  he  was not  aware  of  any  specific                                                                    
objections.  He shared  that hydraulic  fracturing had  been                                                                    
conducted  for  decades on  the  North  Slope, and  had  not                                                                    
created a significant concern.                                                                                                  
9:51:30 AM                                                                                                                    
Senator  von Imhof  looked  at slide  7.  She recalled  that                                                                    
475,000 was  a more realistic  estimate for 2018.  She noted                                                                    
that a  5 percent decline  would be 23,000 barrels  per day.                                                                    
She felt  that the  forecast could  hold steady  or increase                                                                    
with  the  estimates   on  slide  7.  She   hoped  that  the                                                                    
information may  provide a  more robust  production schedule                                                                    
in  the upcoming  revenue forecast.  Mr. Decker  shared that                                                                    
the considerations would be in the forecast.                                                                                    
Vice-Chair  Bishop   wondered  whether  Mr.  Decker   was  a                                                                    
biologist. Mr. Decker replied in the affirmative.                                                                               
Vice-Chair Bishop  felt that the  frost would help  with the                                                                    
fracking operation.  Mr. Decker replied that  the permafrost                                                                    
may help contain the fluids.  He stated that, realistically,                                                                    
all  the   production  was  at   deep  enough   depths  that                                                                    
interaction with  the stimulation zones would  not penetrate                                                                    
the permafrost.                                                                                                                 
9:56:10 AM                                                                                                                    
Co-Chair  MacKinnon   queried  the  anticipated   2017  well                                                                    
drilling permits.  Mr. Decker replied that  AOGCC issued the                                                                    
drilling permits.                                                                                                               
Co-Chair  MacKinnon wanted  to know  the number  of proposed                                                                    
wells for 2017.                                                                                                                 
Senator Micciche  shared that there  was an  update expected                                                                    
on  the  12  percent  production  decline.  He  queried  the                                                                    
involvement  in that  update. Mr.  Decker responded  that he                                                                    
was aware of other people working on that update.                                                                               
Vice-Chair Bishop wondered if the  44 wells at Moose Pad was                                                                    
permitted for the 2017/2018 winter  work. Mr. Decker replied                                                                    
in the negative. He did not  believe that all the wells were                                                                    
permitted. He stated that the  Moose Pad permit was only for                                                                    
the pad.                                                                                                                        
Co-Chair  MacKinnon  remarked  that  it  was  important  for                                                                    
Alaska to be attractive for explorers to the state.                                                                             
10:01:18 AM                                                                                                                   
The meeting was adjourned at 10:01 a.m.                                                                                         

Document Name Date/Time Subjects
20170425_SFIN_Outlook NS Devel.pdf SFIN 4/25/2017 9:00:00 AM
HB 111