Legislature(2011 - 2012)Anch LIO Rm 220
11/01/2011 10:00 AM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Impediments to Filling the Trans-alaska Pipeline; Interagency Shale Task Force | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
Anchorage, Alaska
November 1, 2011
10:01 a.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Alan Dick
Representative Bob Herron
Representative Scott Kawasaki
MEMBERS ABSENT
Representative Neal Foster
Representative Cathy Engstrom Munoz
Representative Berta Gardner
OTHER LEGISLATORS PRESENT
Representative Carl Gatto
Representative Mike Hawker
Representative Charisse Millett (via teleconference)
Senator Tom Wagoner
Senator Cathy Giessel
Senator Lyman Hoffman
COMMITTEE CALENDAR
OVERVIEW(S): IMPEDIMENTS TO FILLING THE TRANS-ALASKA PIPELINE;
INTERAGENCY SHALE TASK FORCE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
WILLIAM BARRON, Director
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided overviews entitled "Shale Oil
Development on the North Slope" and "Changing Dynamics of North
Slope Development."
ED DUNCAN, President & Chief Operating Officer
Great Bear Petroleum LLC
Anchorage, Alaska
POSITION STATEMENT: Provided an update regarding the shale play
in Alaska.
BOB HEINRICK, Vice President of Finance and Administration
ConocoPhillips
Anchorage, Alaska
POSITION STATEMENT: Discussed impediments to filling the
pipeline and achieving the governor's goal of increasing North
Slope production over the next 10 years.
ACTION NARRATIVE
10:01:38 AM
CO-CHAIR PAUL SEATON called the House Resources Standing
Committee meeting to order at 10:01 a.m. Representatives
Seaton, Feige, P. Wilson, and Herron were present at the call to
order. Representatives Dick and Kawasaki arrived as the meeting
was in progress. Representatives Gatto, Hawker, and Millett
(via teleconference), and Senators Wagoner, Hoffman, and Giessel
were also in attendance.
^Overview(s): Impediments to Filling the Trans-Alaska Pipeline;
Interagency Shale Task Force
Overview(s): Impediments to Filling the Trans-Alaska Pipeline;
Interagency Shale Task Force
10:02:15 AM
CO-CHAIR SEATON announced that the committee would receive an
overview regarding shale development and impediments to filling
the Trans-Alaska Pipeline System (TAPS).
10:05:29 AM
WILLIAM BARRON, Director, Division of Oil and Gas, Department of
Natural Resources, began by referring to his presentation
entitled "Shale Oil Development on the North Slope". He
reminded the committee that the State of Alaska created a multi-
agency task force, the members of which represent DNR, the
Department of Environmental Conservation (DEC), the Alaska Oil
and Gas Conservation Commission (AOGCC), the Alaska Department
of Fish & Game (ADF&G), the Department of Transportation &
Public Facilities (DOT&PF), and the governor's office. The
intent of the task force was to review the conditions,
obstacles, permitting, and requirements associated with shale.
The task force was also to consider whether the state was
adequately prepared to move forward with shale development, and
if not, to identify the gaps. The most critical point is that
the state is well positioned to manage the shale resource play
based on current statutes and regulations. He then emphasized
that the drilling of a shale well is no different than the
drilling of a conventional well. The requirements associated
with the state's permits and regulations to drill a conventional
well more than adequately cover the conditions and issues
associated with drilling a shale well. He highlighted that the
total well count for a shale development could be about the same
as the number of wells currently drilled on the North Slope.
Although the shale wells could be drilled in the third of the
time it takes to drill a conventional well, the pace and
magnitude of permitting could be significant. Therefore, the
process is something that will need to be managed.
10:09:27 AM
MR. BARRON then explained that a task force is necessary because
there have been a lot of shale plays, many of which have been
fairly well known. Although Alaska has never had a shale play,
Alaska wants to be sure it's "ahead of the game." The interest
in Alaska shale significantly increased after Great Bear secured
a 500,000 acre lease sale last year about this time.
10:10:28 AM
CO-CHAIR SEATON recalled that Great Bear proposed 200 wells a
year for 15 years for its first phase of development. He then
asked if that amount of wells represents what has been drilled
on the North Slope in the past 30 years or is DNR not
considering Great Bear's proposal as what will go forward.
MR. BARRON stated that if 200 wells are drilled a year over 10
years, that amounts to 2,000 wells and there are roughly 2,000
wells already drilled on the North Slope. However, he pointed
out that all those wells won't be active simultaneously.
10:11:44 AM
MR. BARRON, in response to P. Wilson, said that the department
doesn't yet know its staffing needs. After only four meetings
of the task force, it has identified the structure and framework
of the programs. Now, the task force is addressing the resource
load to establish the man power that's necessary. In further
response to Representative P. Wilson, Mr. Barron confirmed that
he will have a better idea of the man power that's necessary
between now and February or March.
10:12:47 AM
REPRESENTATIVE GATTO asked if the 2,000 wells on the North Slope
includes those wells that have been discontinued, capped, and
out of service.
MR. BARRON responded that he would have to double check the
numbers. The numbers he recently reviewed indicate that there
have been 2,000-2,500 wells that have been drilled on the North
Slope; that is holes in the ground and includes those that are
abandoned.
10:13:32 AM
MR. BARRON, returning to the presentation, reiterated that the
interest in the lease sale for shale has increased since Great
Bear's robust entry into the market. Therefore, successful
exploration could lead to immediate development. However, he
emphasized that "the true viability of the Great Bear Petroleum
acreage is yet unknown until exploration occurs." Until Great
Bear does its initial test, the viability of its shale play will
remain unknown. Still, he characterized it as a great
opportunity. The task force is assuming success and trying to
determine what's necessary to be ahead of it and prepared for
it.
10:14:50 AM
MR. BARRON informed the committee that the state agencies
currently regulate the following:
· Well design and construction
· Gas flaring and venting
· Water discharge and storage
· Air quality monitoring
· Ice road and ice pad construction
· Plans of Operation and Plans of Development
· Habitat and wildlife management
· Environmental safeguards including spill prevention
and control
MR. BARRON remarked that the aforementioned basically covers the
breadth of a drilling and production operation. He then
directed attention to the slide entitled "Future work" and told
the committee that the task force's future will focus on the
following:
· Water Management - Source, Recycle, Disposal
· Hydraulic Fracturing Chemical Disclosure -
FracFocus.org
· Infrastructure - common facilities such as roads,
gathering lines, power, transit lines to TAPS, etc.
· Gas Disposition: Use, Vent, Flare
10:17:05 AM
CO-CHAIR SEATON opined that the formation of units based on a
pool doesn't seem to have much meaning for shale development
because the pool becomes that which is fractured and drained to
the pipe. Therefore, he asked whether the division has reviewed
how the state will adopt its procedures for unitization. He
then requested clarification as to what a unit is [in regard to
shale plays].
MR. BARRON reminded the committee that the presentation he is
providing now is in reference to the task force. The question
of unitization and its purpose would remain under the auspices
of the Division of Oil & Gas. In response to Co-Chair Seaton's
question regarding [the definition of] unitization, the original
and sole intent of unitization is for the proper reservoir
management and ultimate increase in recovery of a hydrocarbon in
a common pool. He confirmed that the question whether
unitization is appropriate for a shale play is in doubt in as
much as well-to-well intercommunication and connection doesn't
exist. In order to establish a unit for proper reservoir
management each well would be its own unit. Therefore, [the task
force] is reviewing whether that is the right avenue for proper
reservoir management and doesn't interfere with a neighboring
unit. Unitization doesn't necessarily encourage or discourage
development in this regard, and thus it's not necessarily an
advantage or disadvantage for a shale play.
CO-CHAIR SEATON questioned whether [DNR] has the regulatory
authority to dispose of the unitization process if it's
determined that unitization is of no use.
MR. BARRON answered that at this point it's important for the
Division of Oil & Gas to work closely with AOGCC to establish
spacing rules for the drilling and the ultimate layout of the
wells relative to the shale. He offered to provide further
information to the committee as this process is ongoing. He
noted that most of his counterparts in North Dakota and Texas
have addressed it by "stepping away" from unitization and
changing the spacing rules required for drilling.
CO-CHAIR SEATON expressed interest in the committee being kept
up to date on that process in case it's necessary for the
legislature to be involved.
10:21:57 AM
REPRESENTATIVE P. WILSON inquired as to whether there is a
difference between shale drilling and gas.
MR. BARRON replied no, adding that the rules are about the same.
The difference is the thermal maturity geologically, which is
whether the source rock generated gas or oil. The [division]
believes the thermal maturity of Alaska's basin, is an oil play.
Although to the north it may be a gas play, it's likely overrun
by a migration of oil.
REPRESENTATIVE P. WILSON asked which comes first the oil or the
gas.
MR. BARRON answered that it's in situ in the rock/shale itself
and depends upon "how it's cooked in geologic time."
10:23:45 AM
REPRESENTATIVE HERRON asked whether there's an exotic chemical
that's not currently being used or is it a function of how the
state is going to disclose.
MR. BARRON clarified that there is nothing unique about fracking
a shale well versus a conventional well. The [task force] is
trying to ensure that the state is progressive in its approach
to public outreach. Fracking has become a big issue in other
states and not necessarily in an appropriate way.
CO-CHAIR SEATON inquired as to whether the disclosure of that
information can be made via regulation or legislation.
MR. BARRON explained that currently the disclosure is voluntary
for the companies, which is the point of FracFocus.org. The
material safety data sheet (MSDS) of any chemical brought onto
the worksite can be required. That data is also public
information. He opined that at this juncture there aren't any
regulatory or statutory requirements to disclose that
information, nor is there the necessity to do so if companies
are doing so.
CO-CHAIR SEATON asked if that disclosure is occurring in Alaska
for fracking on conventional wells.
MR. BARRON related that the companies that are fracking in
Alaska have published material regarding the chemical components
of wells that they are fracking outside of Alaska.
10:26:27 AM
REPRESENTATIVE P. WILSON related her understanding that in the
Lower 48 some companies don't want to disclose the chemicals
used in fracking.
MR. BARRON explained that the struggle for those companies is
the proprietary mix of those chemicals. The companies are
trying to ensure that the public knows what products are used,
but not necessarily in which part of the mixture or how the
mixture is blended. He mentioned that most of the major service
suppliers have identified ways and means to satisfy most
organizations in terms of what materials are being used and how
much of it is in the product stream without allowing the reverse
engineering of their product.
REPRESENTATIVE P. WILSON surmised then that there will be
knowledge as to the toxic materials being used, but there won't
be any knowledge as to how much is being used.
MR. BARRON said that although that's a fair point, 98 percent of
a frac fluid is sand and water. Furthermore, almost all of the
chemicals can be found in household products.
10:28:12 AM
SENATOR GIESSEL related her understanding that with fracking
work, the companies consider 12-month gravel roads. Therefore,
she inquired as to the implications of fracking in terms of the
ice roads in Alaska.
10:28:38 AM
MR. BARRON informed the committee that the best interest
findings mitigation standard recommend ice roads for
exploration, but not for development. He then opined that shale
is interesting in that there will be much development from the
inception. In fact, many strongly believe that after Great Bear
drills its first four wells to establish the viability of the
shale, in concept there will never be another exploratory well
drilled for shale. Once the resource has been identified as a
payable and frackable resource and it has been mapped, every
well drilled will be turned and drilled vertically, then
horizontally, and then fracked. "Every well will be produced,"
he said. He pointed out that all current operations and
development on the North Slope is done via gravel roads, except
for those roadless operations. Therefore, these [shale
developments] will be ongoing development operations.
CO-CHAIR SEATON related his understanding that the size of the
area and the number of wells to be drilled over an expansive
area are going to make a scale difference. Therefore, he wanted
the legislature to be involved from the beginning with regard to
the types of roads used and for what purpose as well as any
restrictions on the roads.
MR. BARRON indicated that the legislature would be informed.
10:33:13 AM
REPRESENTATIVE FEIGE surmised that if Great Bear's acreage goes
into production mode, it would fall under existing production
rules and standards on the North Slope. He then asked if
there's really reason to change the existing rules for
production facilities. There are plenty of roads to access the
facilities that are already in place on the North Slope; most of
those roads are categorized as industrial use roads and have a
security gate. Therefore, he asked if Great Bear's operation
will be any different other than the rate and the overall size.
MR. BARRON responded that he didn't foresee any difference in
operation.
10:34:41 AM
CO-CHAIR SEATON recalled that at last year's Energy Conference
there was an interesting presentation by North Dakota entitled
"Fracking 101," which is posted on Co-Chair Seaton's website.
He then recalled that when the Department of Revenue (DOR) was
considering [the shale play], it included new processing
facilities. He asked if [the task force] is also.
MR. BARRON answered that the focus of this work is to identify
the infrastructure that can be deemed as common. He pointed out
that every company will have a different model in terms of
production facilities. In concept, each pad will have its own
bit of a self-contained production facility. Still, [the task
force] is trying to determine how to assist the companies in
terms of a general dialogue regarding minimizing their general
footprint and impact on the environment by using shared common
infrastructure resources. The aforementioned would be similar
to the shared infrastructure resources on the North Slope, such
as common roads, gathering lines, delivery points, and power
facilities. However, that doesn't necessarily mean shared
production facilities.
10:37:52 AM
CO-CHAIR SEATON, regarding water use management, recalled that
there has been some discussion of water coming from just below
the permafrost. He asked if the task force has addressed the
use of subsurface water versus surface water and the recycling
or disposal of water from either source.
MR. BARRON said that the task force has identified that water
management is an issue. The state's regulatory framework seems
to be robust and adequate in terms of a well-by-well basis.
Now, the task force is reviewing whether the state has the
appropriate process in place for water source management, and
disposal. To Co-Chair Seaton, Mr. Baron explained that although
the carrying fluid in a frac program can be many different
sources, it's typically fresh water. The water immediately
below the permafrost is slightly brackish, which isn't
necessarily a problem. Many service companies are reformulating
their product stream to use the brackish water as the water
source. The amount of brackish water on the North Slope is
quiet large and wouldn't impact any rivers, streams, or lakes,
which would be most helpful. With regard to recycling, it's
being done in many of the shale plays in the Lower 48. The task
force is reviewing the recycling options, ways in which to
encourage recycling, and determine the pros and cons of
recycling. In terms of disposal, Mr. Barron stated that at this
point there has been no discussion of surface discharge and
disposal as it has all been considered to be reinjected into
permitted disposal wells.
CO-CHAIR SEATON expressed interest in the task force maintaining
communication with the legislature throughout the process.
10:41:29 AM
REPRESENTATIVE P. WILSON asked if the land at the shale play is
similar to the flat land of the North Slope.
MR. BARRON answered that the land is about the same. He then
acknowledged the others involved with the task force.
10:42:57 AM
CO-CHAIR SEATON turned the committee's attention to the gas
disposition. He related his understanding that currently any
gas used on the lease is used for production and power
generation. Therefore, he inquired as to the discussion
regarding venting and flaring.
MR. BARRON stated that a couple of issues/concerns have arisen
in the Bakken shale play in North Dakota. The wells in Bakken
are low rate wells. If the oil rate is low, the gas rate is
low. Reinjection of gas in a shale development doesn't play the
same as it does in a conventional sand stone or carbonate
reservoir. Therefore, the question before the task force is:
What is the best use of the residual gas that isn't used for
fuel?
CO-CHAIR SEATON told Mr. Barron that the legislature will want
to be involved in any choice of venting or flaring.
10:45:21 AM
REPRESENTATIVE P. WILSON deducted that if [the shale play] has a
lot of oil, then it will have a lot of gas. Therefore, she
surmised that the goal would be to save the oil. In such a
case, she inquired as to what would occur.
MR. BARRON indicated that he doesn't have answers to some of
these questions at this time. He agreed that the more oil
that's produced generates more gas, while the more gas there is
creates more complexity in its disposition. Furthermore, the
more wells one drills, the more power one needs because pumps
have to be used to recover the oil. The more wells, the more
pumps, the more power, and the more gas is necessary for power
generation. Therefore, it becomes a question of what to do with
it once it starts. At this point, there isn't any knowledge of
the oil:gas ratio since the wells haven't been tested. At this
point, the task force is trying to determine the options based
on sound engineering and geoscience. As soon as the resource
base is determined, the task force can bring forward ideas on
how to utilize the gas.
CO-CHAIR SEATON suggested that there can be some interplays of
use such as for heating from the TAPS line oil because low
temperature oil is an existing problem. Therefore, a proposal
to vent or flare oil would likely meet resistance.
MR. BARRON agreed.
10:49:01 AM
REPRESENTATIVE GATTO related his understanding that AOGCC
requires that when there is oil and gas together, the gas must
be used to obtain as much oil as possible. He asked if the
aforementioned would play into a production scheme.
MR. BARRON said the rules of resource and reservoir management
currently used by AOGCC need to be carefully thought through
because gas use in a conventional sandstone or carbonate
reservoir is uniquely different than it is for shale.
Reinjection of the gas for pressure maintenance or enhanced oil
recovery doesn't work for shale. At 50 barrels a day, the
aforementioned becomes an economic question relative to oil.
The aforementioned is why the task force is reviewing how it can
assist and encourage the companies to join together and help
reduce the overall cost of operations.
REPRESENTATIVE GATTO asked then if a different set of rules for
shale are necessary.
MR. BARRON answered that he believes any rule changes will be
very subtle, not dramatic. He opined that it's really a matter
of what one does with the product; one must find a use for the
product. Mr. Barron opined that isn't an issue the AOGCC would
"lean into." "That is not a resource management discussion,
that is a marketing utilization issue," he stated.
10:51:57 AM
MR. BARRON, returning to his presentation, explained that the
key point is that the task force believes at this juncture the
statutory and regulatory requirements to drill shale are
adequately covered by what is already in place for conventional
drilling. He then directed attention to the slide entitled
"North American shale plays (as of May 2011)", which illustrates
that there are many shale plays within the continental U.S. and
Canada. He highlighted the following shale plays: Marcellus,
Eagle Ford, and Bakken all of which work fairly well. On the
other hand, the Niobrara in the Central U.S. is a shale play
that hasn't worked very well and there isn't knowledge as to
why. The Barnett and the Woodford shale plays have both worked,
but not in the same size, magnitude, or robustness as the Bakken
or Marcellus. The North Slope shale play is larger in terms of
size than the Bakken or Marcellus. Still, he reiterated that
Alaska's shale play hasn't been tested. In terms of comparison,
the task force believes that the Eagle Ford shale should be the
analog for the Shublik as many of the parameters on the chart
entitled "Well Facts" are very similar on a geologic basis.
However, there is no clear example of an Eagle Ford production
well because they haven't been online long enough to provide any
validity. An exhibit of a Bakken well, as related on the graph
entitled "Bakken Operator Type Curves", illustrates that EOG has
"either figured it out or its acreage is in the sweet spot of
the shale play." Mr. Barron emphasized that's what is really
important is the decline curve. Even the EOG curve crosses the
100 barrel a day mark within two years and ultimately all the
wells end up in the 50 barrels a day range after 30 months.
However, the length of that "tail" is unknown. Therefore, when
developing an area one must be sure there is an economy of scale
based on the number of wells based on 50 barrels a day to
increase overall capacity.
10:56:31 AM
MR. BARRON informed the committee that a typical North Slope
well will start out at 1,000-2,000 barrels per day. A typical
North Slope well stays flat for about three to five years and
then they begin to decline at a rate of 5-8 percent per year.
The aforementioned is a uniquely different curve than what
occurs for shale. The play being reviewed has unique production
characteristics that are different than to what the state is
accustomed, which drives much of the discussion regarding future
development plans. Mr. Barron then turned to the issue of well
drainage and informed the committee that well drainage is
limited and well-to-well pressure communication doesn't exist,
which is why the wells are drilled horizontally and are fracked.
10:57:51 AM
SENATOR WAGONER posed a scenario in which there is a 600 foot
shale play and inquired as to how many lateral drillings would
be drilled from the vertical drilling.
MR. BARRON answered that currently the plan would be for two
lateral drillings.
SENATOR WAGONER surmised then that each lateral drilling could
take care of about 300 foot of shale, after fracking. He
further surmised that the [600 foot] well would produce double
what a single well would.
MR. BARRON noted his agreement. He said that this is similar to
a dual completion in that the vertical drillings would go in
different directions to recover the same product from the same
shale, but from a different fetch basin. Mr. Barron told the
committee that lack of well-to-well communication and the low
rate requires a high number of multistage frac wells.
10:59:12 AM
MR. BARRON then turned the committee's attention to the slide
entitled "Hydraulic Fracturing" and informed the committee that
the first "frac" in the United States occurred in 1903. The
first commercial application was in the 1940s. Technology has
advanced considerably since the 1940s and fracking has become a
very common completion technique in the industry worldwide. In
fact, over 25 percent of the wells in Alaska have been
hydraulically fractured. Per AOGCC records, the earliest
fractured well in Alaska was Gubik 1 well in 1963. The well
design and construction, he added, is the purview of AOGCC,
which is primarily focused on the safety of the well, those
drilling the well, and protection of the ground water. He then
shared an illustration of a horizontal well and the associated
frac zone. He explained that the wells drilled are no different
than a conventional well in which a series of steel pipe is
drilled and cemented in place, with each pipe decreasing in
diameter and fitting inside the next. Therefore, as the
drilling goes deeper, the protection for the ground water
increases with the depth of the well. Shale plays, natural gas,
or oil are deep. Those the state is considering are about 9,000
feet deep. Mr. Barron then shared a slide entitled "Fracturing
Height," which is an Eagle Ford frac height model that was
developed by microsiesmic technology. The model reviewed the
height of the fracture. He explained that in terms of depth
fractures grow vertically. He noted that the fracture height
can be controlled by the frac design. In the model presented,
the frac is growing about 300-400 feet vertically. Although
fracs grow up and down, they mainly grow up. Mr. Barron
highlighted that the Eagle Ford example is at 9,000 feet, which
is similar to what Alaska's would be, and grows only a few
hundred feet. He also highlighted that roughly around 1,500-
2,000 feet fracs don't grow vertically but rather grow
horizontally. The overburden is to the point at which the
fracture is predisposed to spread out like a pancake.
Therefore, breaching into the ground water is even a more remote
possibility.
11:04:13 AM
REPRESENTATIVE FEIGE, referring to the slide entitled
"Horizontal Drilling & Hydraulic Fracturing," related his
assumption that it illustrates a maximum performance frac job.
If the layer of shale isn't as thick, by dialing back the
pressure one can frac less for more.
MR. BARRON said that from recent discussions with service
companies he has come to understand that one can "dial in" the
fracture such that it can be designed to stay within certain
boundaries. In the Cook Inlet, the coal seams work as barriers
for fractures because they plastically deform rather than
fracture. As the companies frac in the Belugas and Tyoneks to
increase gas production, the coal seams that are located at the
top and bottom of those sandstones form good barriers because
they yield rather than crack. The pad, which is the front part
of the pump job, can be designed to induce the frac and the
slurry, which contains the sand, holds the frac open.
11:06:32 AM
MR. BARRON moved on to the slide entitled "Wrap-up." He
reminded the committee that this will be Alaska's first shale
play, which he characterized as an exciting opportunity for the
state. However, he emphasized the need to do it the right way.
He reiterated that the permitting required for conventional
wells is applicable for shale development. Although the state's
current permits are sufficient, the pace and load on the
agencies needs to be addressed. He concluded by highlighting
the importance if planning and management of infrastructure to
reduce the impact and decrease the overall cost.
11:07:28 AM
CO-CHAIR SEATON returned to the issue of unitization, which has
been used to not only provide continuity but also to hold the
play. He asked if the task force is addressing the
aforementioned with the shale play. He expressed the need to
achieve development without establishing a system by which
[acreage] could be warehoused by the new system and not
developed.
MR. BARRON reiterated that unitization shouldn't be used as a
vehicle to warehouse acreage; rather it should be used as a
vehicle to increase overall recovery and proper reservoir
management of a known hydrocarbon area. He said the
aforementioned is being discussed.
11:09:38 AM
The committee took an at-ease from 11:09 a.m. to 11:13 a.m.
11:13:21 AM
ED DUNCAN, President & Chief Operating Officer, Great Bear
Petroleum LLC, began by reminding the committee that Great Bear
Petroleum LLC ("Great Bear") started this process officially at
the lease sale just a little over a year ago. He then directed
attention to the map entitled "Regionally Vested Lease Holders,"
which specifies the regional distribution of the lease holdings
in and around the central North Slope area. The leases of Great
Bear are shown in yellow. In general, the core of Great Bear's
leases are immediately south of Prudhoe Bay and Kuparuk with a
few areas close to the Colville River south of Nuiqsut. These
leases were technically chosen based on bountiful data from the
State of Alaska and the United States Geological Survey (USGS).
At present, Great Bear holds 500,000 acres. He then directed
attention to the slide entitled "North Alaska Shale Resource
Play Realization: Challenges and Business Development
Opportunities," which lists various topics and Great Bear's
general position. With regard to water use, Great Bear has
performed a considerable amount of work in terms of access to
process water that would make 98 percent of the frac. Mr.
Duncan related Great Bear's opinion that the brackish water
subsurface located in the middle of the North Slope, 2,000-5,000
feet beneath the permafrost, is likely ideal for frac makeup.
The aforementioned has been repeatedly confirmed over the past
several months of work and Great Bear believes that fact will
allow Great Bear to minimize surface water use for frac makeup.
This fact is great for Alaska and is unique in terms of the
major shale resource play developments in North America. Alaska
has a nonpotable water source and an extremely large volume of
recoverable brackish water from the subsurface that may be
ideal. Additionally, the recycling and clean stream
technologies that are currently employed allow the recovery of
about 90 percent of the used water for reuse with the remaining
water being disposed of in either existing disposal facilities
in North Alaska or Great Bear's own in-field custom-built
facilities as Great Bear's program grows and requires such
facilities. Mr. Duncan then moved on to the modular processing
shared facilities approach. As the presentation will relate,
Great Bear has incorporated a hydrocarbon process and fluid
process into its forward plan. At this point, Great Bear's plan
is comprehensive, he remarked.
11:21:27 AM
MR. DUNCAN, in response to Representative Feige, confirmed that
the well would be produced through a separator, much like those
in a normal gas producing area. Produced water would be
separated, regardless of whether its formation water that comes
up with the oil and gas from the subsurface or water that is
introduced during the course of fracking. The water will be
recovered, separated, processed, and reused to the greatest
extent possible. The material that can't be used will be
disposed of in existing facilities in North Alaska or in Great
Bear's own facilities.
11:23:01 AM
REPRESENTATIVE P. WILSON inquired as to the result of taking
water out from under the permafrost.
MR. DUNCAN answered that he expects there to be nominal impact
from the water withdrawal from the subsurface at the volumes and
spatial distribution that Great Bear is considering. In the
context of degradation of the permafrost, Mr. Duncan didn't
expect impact as Great Bear isn't injecting anything warm. In
fact, something warmer than the permafrost is being withdrawn.
He clarified the aforementioned is an assertion on his part and
isn't based on independent study and thus would be a good
question to pose to industry and academic partners.
11:25:06 AM
MR. DUNCAN, in response to Co-Chair Seaton, said that roads to
resources are a topic high on Great Bear's list. Gravel road
and pad infrastructure will be fundamentally important, a
requirement, for the development of the shale resources. Mr.
Duncan said doesn't have a strong opinion in terms of state-
funded roads or roads funded by other methods but rather tends
to consider safety first. These are busy industrial roads and
in fact, will likely be busier than Prudhoe Bay and Kuparuk
River Unit during the earlier stages of the shale play. He
related his difficulty with the notion that 24/7 absolute public
access is safe. Although Great Bear hasn't heavily deliberated
this topic, it realizes that a road network to the gravel pads
for development is a fundamental requirement and Great Bear is
open for discussion on the topic.
CO-CHAIR SEATON agreed that it's a critical issue, but added
that the state doesn't want such issues to arise for the first
time during the permitting process.
11:28:40 AM
REPRESENTATIVE P. WILSON asked if Great Bear plans to airlift
the machinery to begin the process.
MR. DUNCAN informed the committee that over the last several
months Great Bear has been in the process of permitting six
locations along the Dalton Highway, primarily on previously
disturbed gravel. He opined that those locations are
environmentally preferred as they don't require any or
significant ice road construction or ice pad construction. At
this time, the work plan is to regionally test the efficacy of
the play. He noted that unconventional resource play testing
isn't like conventional prospect testing, which is a singular
well drilled and the outcome is usually binary in that the
prospect either works or it doesn't. Great Bear's play requires
a broader swath of testing to establish thermal gradient. The
state and the industry need to establish how much of the fairway
is main phase oil productive, natural gas liquids productive, or
dry gas productive. Great Bear's early program is designed to
build a model of what the subsurface is likely to deliver
regionally. Mr. Duncan emphasized that a single well test is
philosophically very different from how one would prove
productivity in a resource play relative to a conventional
prospect that is generally binary.
11:31:01 AM
MR. DUNCAN, continuing his presentation, directed attention to
the timeline entitled "Plan of Development" and remarked, "We're
all in this together." He began with Phase 1 in 2011-2012,
which he referred to as Proof of Concept. As pointed out
earlier, until the wells are drilled and tested and they
actually calibrate the rocks, the discussion is well-founded
theory. This time next year he expected the conversation to be
one in which the test results are in hand and backed by real
science. The hope is that this time next year Great Bear will
construct a pilot development pad with a modular processing unit
on it that's capable of processing the produced fluids to tap
spec oil. The aforementioned will be a trucking operation.
Great Bear is optimistic that in a success case, such a pad will
have six or more wells and one processing module that are
capable of handling about 5,000 barrels a day of fluid. He
clarified that the aforementioned is moving oil to sales to pump
station 1 and that development pad will be produced for one year
in order to obtain a tight curve. Therefore, the desire, he
related, is to have a collection of Bakken well curves for North
Slope shale oil development, which will provide a basis for an
educated judgment in terms of how aggressively full field
development is pursued. During this time, two years from now,
Great Bear will be in close contact with the legislature, he
said. He explained that one year from now Great Bear will be in
the pilot development and a year after that, 2014, the hope is
that Great Bear will be sanctioning corridor development, which
is the 200 wells a year scenario.
11:37:06 AM
SENATOR WAGONER inquired as to the cut of the 5,000 barrels of
fluid per day [that is water].
MR. DUNCAN responded that although he would be able to provide a
better answer after the test wells are drilled, he didn't expect
it to be significant. He stated that a certain amount of water
production and a certain amount of gas production is expected.
He emphasized that gas production is good because it provides
reservoir energy to lift oil to the surface. Furthermore,
virtually all the equipment is run on electricity and thus there
will be a large power demand from the in-field operations.
Therefore, he expected that much of the gas production will be
burned for in-field use. Great Bear's plan, he highlighted,
also includes a gasline to Prudhoe Bay. Mr. Duncan clarified
that if there is excess gas production, there is no intention to
vent it or flare it. Great Bear's gas will be taken to Prudhoe
Bay or will be stored in a subsurface facility on its own
acreage. "Our objective is not to waste a molecule," he
stressed.
CO-CHAIR SEATON recalled that Mr. Duncan referred to six wells,
and inquired as to the design layout of those wells.
MR. DUNCAN clarified that the design and orientation of the bore
holes is backed by science. He explained that the horizontal
leg will be drilled perpendicular to the principle fracture
orientation in the subsurface. Therefore, there will tend to be
a specific orientation of the horizontal legs. He said that
it's unlikely that there will be a random orientation or a
consistent radial pattern around the well heads; the geology
suggests the aforementioned isn't an effective way in which to
drain/test the resource. In terms of the number of laterals
drilled, Mr. Duncan offered that Great Bear will keep those as
simple as it can initially in order to ensure that an effective
bore hole is drilled and the test is done well. The rocks will
guide the process in terms of how complicated it can get, he
said. However, he offered that the notion of drilling multiple
laterals is something that Great Bear is considering as a strong
likelihood.
11:40:59 AM
SENATOR GIESSEL asked if the skill set necessary for fracking in
Alaska is available in Alaska.
MR. DUNCAN answered that although such a trained work force
doesn't exist today in Alaska, he believes the potential work
force is in Alaska. This program will generate thousands of
long-term jobs and there will be a constant upward pressure on
activity. Furthermore, Great Bear will constantly be
reinvesting. The backdrop of activity will require a tremendous
number of skilled people and everything that accompanies such
work force growth, such as grocery store clerks, teachers, and
etcetera. He related that Great Bear is sponsoring a science
and engineering education initiative, GeoForce Alaska, which is
being run through the University of Alaska Fairbanks. Great
Bear was involved with the GeoForce program when it began eight
years ago in the Eagle Ford area of south Texas, which was a
very depressed area at the time. Now, the Eagle Ford area is
exploding with activity, income, and revenue. In fact, he
highlighted that unemployment is almost nonexistent in south
Texas. The impact of such long-term activity on the regional
communities and government as well as the country is huge. He
explained that with GeoForce emerging ninth graders are targeted
to excite them about science and engineering because this shale
play in north Alaska has "those kinds of legs." Although the
Fairbanks Pipeline Training Center is engaged with the [lack of
a work force], it's not producing the amount of work force
necessary for this shale play. Mr. Duncan then told the
committee that Great Bear expects to see a different class of
drill rigs in Alaska than those conventional drilling rigs in
north Alaska over the last 40 years. Therefore, existing
drilling staff would need to be retrained. The sheer lifespan
of Great Bear's proposal, 20 to 40 years - plus, creates a
generational [work force] that's dependent upon starting now in
a focused manner, such that this year 200 new work force members
are created followed by 500, 1,000, and 2,000 in subsequent
years. The timeline presented considers such activity.
11:47:03 AM
REPRESENTATIVE P. WILSON related her belief that Alaskans will
have to be trained in Alaska.
MR. DUNCAN stated his agreement. Drawing upon his experience,
he noted that there have been a number of principles of
companies that have moved the bulk of their business to North
Dakota. When employees feel gainfully employed and are able to
provide for their family, those employees are unlikely to return
to Alaska. Therefore, Great Bear will have to be very good
about how it attracts and trains new people, which will require
collaboration across the industry and the state. He emphasized
that the development has to be presented such that it
illustrates to people that it's a long-term and stable future.
11:48:57 AM
MR. DUNCAN returned to the slide 5 entitled "Plan of Development
Proof of Concept - Dual Multi Well Programs." He informed the
committee that in the last year Great Bear has worked very hard
to develop a testing program that will allow Great Bear to have
a technically based, hard science discussion regarding what this
shale play means to Alaska. In response to Co-Chair Seaton, Mr.
Duncan the blocks on slide 5 form a subset of those on slide 2,
specifically the pipeline and Hall Road. The cut out area [on
slide 5] matches the key hole in the regional map. He noted
that the red dots are schematic and don't relate the specific
location. Mr. Duncan opined that although there are challenges,
it's important to note that Great Bear's activity is ready. In
fact, Great Bear has already spent $1 million on permitting the
location.
11:51:15 AM
CO-CHAIR FEIGE asked if Great Bear is partnering with a specific
oil field service company.
MR. DUNCAN specified that Great Bear is partnering with
Halliburton on an area-limited basis. Halliburton is bringing
the best in class technology to the challenges [Great Bear will
face with the north Alaska shale play].
11:52:02 AM
MR. DUNCAN moved on to slide 6 entitled "Plan of Development
Phased Development Approach - 3 Main Phases," which presumes
success in Great Bear's initial testing program. The slide
encompasses the concept of a single pilot pad adjacent to the
road for easy road access, trucking, and production north to
pump station 1. The slide also illustrates what Great Bear
considers to be a corridor based, full field development
program. However, he emphasized that the corridor illustration
is schematic and may not necessarily be north-south continuous
but rather may have a series of spurs in other directions. The
notion, still, is that once the full field development program
is reached, Great Bear will have a large activity set connected
with infrastructure. Great Bear's current proposal and budget
calls for a dedicated Great Bear pipeline system that connects
all of its corridor wells to the north, to TAPS. The
aforementioned would result in a parallel system of oil and gas
transmission. If others move at the same pace as Great Bear and
develop oil and gas in the general area of Great Bear's proposed
central processing facility (CPF) simultaneously, discussions
regarding shared central facilities could take place.
Currently, Great Bear is planning a central processing facility
for its production since no one else is doing it now. In
response to Co-Chair Feige, Mr. Duncan clarified that the
acronym MPU stands for modular processing unit that would be pad
specific. The reference to Connected PAD system on slide 7, he
further clarified, refers to the multi-wellhead pads. Although
the specific number of wellheads on the pads is unknown at this
point, he estimated a range of 8 to 24 or more wellheads.
MR. DUNCAN, referring to slide 8 entitled "Drilling and
Completion Operations Safety and Environmental," related that
Great Bear is a safety first company. The statements on slide 8
relate how Great Bear behaves as a company regardless of whether
there are regulatory or statutory requirements. To the degree
Great Bear can aid/assist the state; it's ready to do so.
11:57:40 AM
CO-CHAIR SEATON, returning to slide 3, asked if any one of the
issues listed that Great Bear will be addressing is an issue
requiring more lead time in terms of the legislature raising
awareness in order to avoid an impediment to moving forward in a
reasonable manner.
MR. DUNCAN related his high confidence in the Department of
Natural Resources and [Division of Oil & Gas] in terms of their
ability to capture critical issues and ascertain reasonable
solutions. He noted that the enthusiasm at the state agency
level is high and their focus is very high. Any concerns held
by Great Bear aren't associated with the state understanding the
magnitude of what Great Bear is proposing. He expressed
confidence that any issues relating to permitting and
communication and how unitization will function will be overcome
and aren't currently impediments to Great Bear. Great Bear
believes its program is ready to go and is appropriate for both
Great Bear and Alaska. However, the [shale play] needs to be
tested and understood as soon as possible given the enormity of
the project. In further response to Co-Chair Seaton, Mr. Duncan
suggested the committee encourage an industry that is ready,
willing, and able to help the state educate the public regarding
what the program is really about. "Let's put good, solid
information in front of the citizens of the state and allow them
to make decisions from a high knowledge basis rather than some
of the scare things that go on or some of the maybe purpose[ful]
misinformation that occurs," he said.
12:03:00 PM
CO-CHAIR SEATON stated that's the purpose of this meeting to
which all the industry players have been invited to discuss
these issues. If matters arise in the future, he encouraged Mr.
Duncan to communicate those with the committee.
12:03:31 PM
REPRESENTATIVE P. WILSON, noting that Alaska has quite a few
vocational organizations, asked if the state needs to do more in
the realm [of vocational organizations that would create the
necessary workforce].
MR. DUNCAN relayed that Great Bear is proposing drilling and
completing 200 wells per year, which is less than the number of
wells that are drilled and completed per month in Eagle Ford or
the Bakken. However, drilling and completing 200 wells in
Alaska is so much more than has ever happened in Alaska. To
Representative P. Wilson's question, Mr. Duncan emphasized the
need to begin lining up the work force and how to train them
now. He opined that it isn't impossible to recruit people to
move to Alaska, although it may be impossible to buy them out of
their activity in Eagle Ford, Bakken, or other shale plays.
Still, there is a tremendous unemployment problem in the U.S.,
much of which is highly skilled and underemployed, which is a
group that may prove to be a good target. Furthermore, military
campaigns are winding down, which will result in lots of
veterans returning from overseas. The military would provide a
tremendous pool of highly skilled, disciplined, mature workers
that bear review. He said that obtaining/creating the work
force is something that Great Bear and the state would do hand-
in-hand. However, he emphasized that it needs to start now.
12:06:52 PM
REPRESENTATIVE P. WILSON acknowledged that there are potential
employees from the Lower 48, but previous experience has
illustrated that bringing employees from the Lower 48 leaves
Alaskans without jobs. She emphasized the need to train
Alaskans for these jobs.
MR. DUNCAN agreed.
12:07:57 PM
SENATOR GIESSEL recalled that Mr. Duncan discussed that Great
Bear has spent $1 million on permitting and needing a new style
of drill rig. She further recalled that when Great Bear spoke
with the legislature eight to nine months ago it was related
that Great Bear's financing was from friends and family and it
was seeking other investors. Senator Giessel asked if Great
Bear has found any other investors.
MR. DUNCAN replied yes, and then pointed out that the
Halliburton venture project is a good example of another
investor.
12:08:36 PM
REPRESENTATIVE HERRON inquired as to the catalyst that drove
Great Bear to propose development in the north Alaska shale
resource play.
MR. DUNCAN relayed that he began his career in north Alaska
where he studied the rock formations in north Alaska, albeit not
in the context of being oil and gas reservoirs. The technology
for that evolved in the last four to five years. The epiphany
was part of his training as a new ventures geologist with BP in
London where he considered how to create new geography. For
north Alaska, new technology allowed Great Bear to create the
new geography in which it was interested. The rocks in north
Alaska are ready for testing, the technology is available, the
rocks are drillable, the production infrastructure is present,
and the state is a willing partner. He said he didn't see
anything technically that's a "show stopper."
12:12:45 PM
CO-CHAIR SEATON announced that now the committee would hear a
presentation regarding conventional oil and gas in terms of
impediments to filling the pipe.
12:13:39 PM
MR. BARRON directed attention the presentation entitled
"Changing Dynamics of North Slope Development." Referring to
the slide entitled "Issues Impacting North Slope Development,"
pointed out that the issues the state and industry have to work
through include opposition from local and national environmental
groups, remoteness, harsh conditions, and technological issues.
However, he highlighted that one man's impediment is another
man's protection, which the division considers as it works
through issues. He then pointed out that smaller companies new
to Alaska are bidding on leases. The new players to the state
have little experience in permit sequencing and timeframes;
haven't allotted enough time to address public concerns, local
government requirements, etcetera; and aren't familiar with
conducting business in Alaska, primarily in terms of logistics;
and aren't the prime clients for services, etcetera. The last
point is critical because companies such as BP, ConocoPhillips
Alaska, Inc., and others have been on the North Slope for some
time and can establish long-term contracts with the service
companies, which places them in a prime position contractually
on a financial basis. Since the new companies aren't the prime
source for a contractor's revenue, the contractual arrangements
tend to be different and it impacts the cost associated with the
newer/smaller players. He then related that roadless
developments haven't supported adjacent lease
exploration/development.
12:18:03 PM
MR. BARRON moved on to the slide entitled "Permitting." He
related that a Permitting Task Force is undertaking a huge
effort to improve permitting activities and efficiencies. The
department has an aggressive, ongoing public outreach program
for which one of the DNR deputy commissioners or directors have
traveled to half a dozen different cities and villages within
the state seeking public input and comment associated with
permitting, whether it is related to oil and gas, mining, land,
or water. He then related that 26 of the 27 vacant positions in
the Division of Mining, Land and Water have been filled. The
department is also reviewing software applications that could be
used for the purpose of modeling the actual permitting process
and linking those processes regardless of the agency associated
with it. The goal is to identify overlaps and gaps in order to
streamline and increase the efficiency and effectiveness of the
permitting process. Post Alaska Coastal Management Program
(ACMP), the applicant is now responsible to independently
coordinate the project with local, state, and federal agencies.
The aforementioned is an issue and it's a high priority of the
task force to develop a way in which individual applicants don't
have to coordinate the activities but rather there is a
framework that encourages the dialogue upfront in terms of what
the project is. In fact, DNR staff will be travelling to Barrow
to listen to the concerns and possible solutions for the North
Slope Borough. That experience may be helpful in developing the
Alaska Project Questionnaire that's intended to serve as a "road
map," such that it would identify contacts, timeframes, and the
path through the road map.
12:22:19 PM
CO-CHAIR SEATON asked if DNR is considering a regional general
permit, which establishes procedures that can be used within an
area and requires a report on activities every 90 days, rather
than an individual permit on every development [on the North
Slope].
MR. BARRON responded that DNR is open to all ideas. In fact,
DNR is considering something similar to a regional general
permit based on a company's plan of development. The department
would consider what's needed in the first three years of the
company's plan of development and permitting all those
activities upfront in order to avoid the company having to come
to the department annually. The structure around such a permit
is still being developed. Mr. Barron then emphasized that the
agencies and permits listed on the slide entitled "Oil & Gas
Activity Authorizations" isn't a definitive list, although it's
a daunting list. Permitting has always plagued the industry and
it doesn't seem that has changed, he remarked.
12:25:52 PM
REPRESENTATIVE P. WILSON asked whether any consideration has
been given to re-establishing an ACMP.
MR. BARRON explained that DNR is reviewing what has and has not
worked successfully in the past. What has worked successfully
for large projects has been the Office of Project Management
(OPM), and therefore the department is considering "OPM-lite",
[a scaled back version of] OPM, that would work for smaller
projects/companies. He acknowledged that the aforementioned
could be viewed as a twist on ACMP. He noted that it can be
helpful to utilize the software applications that map the
process, place the information online, hold coordinating
meetings upfront at a 20 percent project review, and have
periodic meetings with stakeholders. Since the loss of ACMP,
there has been a breakdown in communication, which now needs to
be the focus.
12:28:07 PM
REPRESENTATIVE HERRON questioned whether OPM-lite would be
recognized by DNR's federal counterparts.
MR. BARRON answered that although that's unknown at this point,
he believes it's merely a matter of how OPM-lite is structured.
12:28:52 PM
MR. BARRON continued on with the slide entitled "Cost of
Operations: Opportunities for Improvement." He stated that the
cost of operations is one of the big impediments to development.
Anything that can be done to encourage the industry to share
common infrastructure; coordination to address all governmental
levels; consistency in public notice; appeals provisions, and
procedures; and industry cooperation on costs of common needs
will all impact reducing the cost of operation. Long-term
development, whether on the Kenai or the North Slope, will
require operators to produce at lower production rates while
being efficient and effective at those rates to be economic. He
then emphasized the need to explore opportunities for extending
the drilling season. As described, exploration for shale is a
bit different than conventional wells. Although it's doable to
drill one or two conventional wells in a season, as the drilling
season continues to decrease in time and some sites are farther
out, the cost of an ice road comes into play. The cost of an
ice road is roughly $25,000 per mile. He recalled discussing
with Senator Wagoner whether using ice roads on the Kenai
Peninsula for exploration wells would be appropriate. On the
Kenai Peninsula there are issues, such that a strong Chinook
[wind] could materialize and the ice road would be gone, which
would leave a stranded rig or worse. Mr. Barron said there are
many things the department is trying to understand. He then
emphasized the need to work closely with the industry to develop
ways to minimize the impact of development to the environment.
12:32:32 PM
REPRESENTATIVE P. WILSON asked how the cost of a regular road,
which wouldn't have to be replaced each year, compares with the
cost of an ice road on the North Slope.
MR. BARRON opined that it's prudent that the state, the
division, and the department have leaned heavily on ice roads
for exploration purposes. He surmised that Representative P.
Wilson's question should lead to the discussion regarding
whether a roadless development is in the state's best interest
once a discovery is made. Many would say that a roadless
development such as Badami or Alpine, while technically
achievable may not have been in the long-term interest of the
state. Badami has three months of the year to build an ice road
and supply itself and a two to three month season to receive
barges. Therefore, there's a fair amount of time in a year in
which anything that isn't on location would require an expensive
air transport cost. If there had been a road into Badami since
its discovery, all the ice roads that would have been necessary
to take an offshoot into an exploration area would have
significantly reduced the cost of operation and increased the
opportunity for resource development once they were explored,
developed, and delineated; they would have been permanent roads
that would ultimately be removed through the abandonment
process. Those would then branch out and new horizons could be
explored and attacked; again, an ice road for exploration and a
permanent road for development. While it might make folks feel
good that there are roadless developments, ultimately there is a
tremendous expanse of the North Slope that is a large world
class hydrocarbon basin that remains unexplored simply because
of the cost of doing so.
12:35:12 PM
MR. BARRON, in further response to Representative P. Wilson,
explained that [who decides whether these developments should be
roadless or not] is based on who owns the land. He relate his
belief that over time companies have tried to do the right
thing, and some time ago the concept of roadless development was
deemed appropriate for development [on the North Slope] and the
state. At the time, the aforementioned was probably
appropriate. However, for a long-term view of overall
development roadless development may not be appropriate. The
impediment of a roadless development is the lack of
infrastructure in a world class basin. He opined that roadless
development needs to be an option as does roads. He further
opined that roads to resources need to be encouraged as a viable
option and not discouraged.
12:36:46 PM
REPRESENTATIVE FEIGE surmised then that simply by having a road
to an area makes more projects more economic, and thus more
projects will be developed. In the case of oil, more oil on the
North Slope would be available to put in the pipeline.
MR. BARRON concurred.
REPRESENTATIVE FEIGE asked whether there are other areas besides
the North Slope that would immediately benefit from other roads
to resources projects. He recalled that an example of such is
the road to Umiat [Meridian], which the governor has given much
attention.
MR. BARRON offered his belief that the west side of Cook Inlet
would also benefit from having a common road through the area.
He said he didn't believe one would find a Kenai sized gas field
on the west side of the inlet or it would've been found by those
targeting the area. Still, having an existing road and pipeline
with access increases the opportunity for exploration.
REPRESENTATIVE FEIGE surmised, then, that a road through the
west side of the Cook Inlet would make more projects economic,
specifically gas projects. Therefore, the state's supply of gas
would be increased and potentially eliminate the need for a
bullet line through the Anchorage bowl in the near future.
MR. BARRON specified that a line from the North Slope relative
to the operational opportunities of Cook Inlet is a different
discussion, although it wouldn't necessarily be an impediment to
this discussion. The intent is to have available land and
available access to that land in order to perform exploration
work. Markets, he noted, will drive overall development. He
informed the committee that Apache is performing its 3-D seismic
shoot and their exploration efforts would be enhanced if a
natural infrastructure system existed on the east and west side
of Cook Inlet. The east side, not the west side, of Cook Inlet
already has a robust road structure that has resulted in
development along the road and pipeline corridor.
12:40:22 PM
SENATOR WAGONER questioned why permits for wells of the same
geographical area and same geological structure [to the same
applicant] couldn't be batched.
MR. BARRON explained that the permit for each individual well is
different than the permitting and plan of development for a
group of wells. Each well needs to be permitted relative
through AOGCC to ensure the well is designed appropriately for
the area, which provides protection for the ground water and the
resource. He emphasized the need to avoid a cookie cutter,
rubber stamp approach toward well construction. However, he
confirmed that there is a lot that can be done in terms of
batching, such as addressing regional issues relative to
wetlands. The aforementioned is similar to permitting by plan
of development. Therefore, activities are known upfront and
permitting after that occurs by exception rather than by rule.
12:43:22 PM
CO-CHAIR SEATON inquired as to how roads are [built, owned, and
paid for] such that the roads are accessible to more than one
industry player in order to enhance further exploration.
MR. BARRON indicated that to date the discussion has been one
regarding the North Slope model for roads, such that the roads
are industry roads for the purpose of industry. Currently,
there is very little, if any, issue between the two primary
operators regarding the use of those roads. The roads to
resources idea is trying to promote the idea from the Umiat
Meridian discussion. The existing issue is that there are no
roads at this point, but once there are roads the industry would
share those roads.
CO-CHAIR SEATON pointed out that in the past all the same
players have been involved [in the development]. However, now
there would be a number of new players performing exploration
and using roads from developments from which they aren't a part.
Therefore, he opined that the state should review the
aforementioned because it's like the access to facilities to get
oil through and into TAPS with a facilities agreement. He
questioned whether the state has a role in permitting the roads
such that other industrial players would or wouldn't have access
to the roads or is that going to be left to the company/company
group that built the road. Co-Chair Seaton expressed his desire
to proactively address road use before it's brought to the
legislature.
MR. BARRON noted his agreement, and then added that the
commercial arrangements between two private companies relative
to road access are significantly simpler than having the
discussion about process facilities. Currently, shared
facilities, including airplanes, airports, hotel space, camps,
power systems, and roads, already occurs and seems to be working
fairly well. However, he acknowledged that there may be
exasperation over time as there are more new players.
The committee took an at-ease from 12:48 p.m. to 12:53 p.m.
12:54:18 PM
BOB HEINRICK, Vice President of Finance and Administration,
ConocoPhillips, acknowledged that the intent of today's meeting
is to focus on the impediments to filling the pipeline and
achieving the governor's goal of increasing North Slope
production over the next 10 years. He then related
ConocoPhillips' support for the governor's goal and belief that
North Slope production can grow, albeit the primary driver for
increased production will be a change to Alaska's Clear and
Equitable Share (ACES). Mr. Heinrick said that ConocoPhillips'
observations will focus on state issues, not federal issues,
with regard to access and permitting. Alaska is a unique and
environmentally sensitive place and in order to minimize the
impact to the environment ConocoPhillips holds itself to very
high standards in all aspects of its operations, particularly in
areas of safety and the environment. In order to minimize the
impact of development in the Arctic, there are complex
regulations to which the industry must adhere. He acknowledged
that it can be difficult to strike the right balance between
overregulation and appropriate regulation. Mr. Heinrick then
relayed ConocoPhillips' appreciation for the current
administration, particularly the work DNR has done with resource
companies to facilitate permitting of development related
activities while protecting the interest of the state and its
citizens. An example of such is a recent Division of Oil & Gas
issue of 2011 general permits for generally approved activities
in the Kuparuk River Unit in the North Slope borough. This
general permit authorizes routine and common activities
associated with oil and gas development on the North Slope, such
as on pad removal and installation of well lines, bollards,
thermo cyclones, bull rails, and guard rails, all of which are
now included in one annual permitting process. Therefore, it
significantly reduces the amount of effort needed to obtain
authorization for typical day-to-day maintenance and development
activities. Mr. Heinrick also related ConocoPhillips'
appreciation for DNR's recent improvements to the permitting
process due to filing 37 new positions within the Division of
Mining, Land and Water. He related further appreciation for the
efficiency review initiative to inventory, categorize, and
prioritize the current backlog of permits. The aforementioned
will speed up the review and authorization of activities
necessary for resource development. Additionally, there are
plans to expand the use of general permits for routine
activities, such as online permit applications, online data
submittal, linkage of permits to other databases, and other
automation efforts. ConocoPhillips, he relayed, greatly
appreciates this noticeable and ongoing effort to make the
process more efficient.
MR. HEINRICK announced that his testimony would now turn to
access in terms of access to resources. "What is important to
ConocoPhillips is a regular opportunity to acquire perspective
acreage and lease sales," he stated. Since the implementation
of the state's areawide leasing program in June 1998,
ConocoPhillips has been a regular participant in the state's
leasing program. ConocoPhillips believes that the state's
areawide sales provide the state the best opportunity to make
minerals potentially available to the industry for exploration
and potential development. Therefore, ConocoPhillips doesn't
view access to state acreage as an impediment to the governor's
goal. To summarize, Mr. Heinrick related ConocoPhillips support
of the governor's goal for growth on North Slope production and
to boost throughput through TAPS. Furthermore, ConocoPhillips
believes that the state's access to acreage and the permitting
systems aren't the key hurdles in meeting the governor's goal.
As experience has shown ConocoPhillips when it attempted to
obtain a permit to construct a roaded bridge in one of the
Alpine sites, there are issues at the federal level. The most
significant impediment to filling the pipeline is the state's
fiscal structure, he opined. As ConocoPhillips has testified in
the past, it believes that ACES needs to be modified as it's the
most leveraging action the state can take to attract the type of
investment necessary to stem the decline. The passage of HB 110
was a step in the right direction, he remarked. He then
encouraged the Senate to pass the [companion] or similar
legislation. Mr. Heinrick informed the committee that if the
business environment is improved, ConocoPhillips will
participate with its partners to develop more of Alaska's
challenged oil.
12:59:58 PM
REPRESENTATIVE FEIGE requested an update regarding the current
status of CD 5 in terms of the Corps of Engineers.
MR. HEINRICK answered that it feels as if there has been a lot
of progress in the last few months. He further related that
discussions are ongoing for the permit approval and progress is
expected in the near term.
CO-CHAIR SEATON asked whether the bridge at CD 5 was necessary
for access to the area or was the bridge denied because of the
pipeline along the bridge.
MR. HEINRICK offered his understanding that by burying the
pipeline under the river, the ability to visually inspect it or
adequately pig it to keep it clean is lost. There is also a
safety aspect to having roaded access to the pad that wouldn't
exist were the pipeline buried under the river. He reminded the
committee that frequently there are days when planes can't land
in the CD 5 area because of fog and weather, and therefore it's
important to have road access to the facility via the roaded
network in an alpine area that isn't actually connected to the
road system that reaches the rest of the North Slope.
1:02:34 PM
SENATOR GIESSEL inquired as to the cost of a gravel road.
MR. HEINRICK relayed that he would research that issue.
CO-CHAIR SEATON recalled that ConocoPhillips doesn't believe
that restrictions on building roads have been an impediment for
its development, other than the federal denial of the permit to
build a bridge across the Colville River.
MR. HEINRICK noted that for Alpine ConocoPhillips uses ice roads
extensively for connectivity in the winter months for supplies,
rig moves, and etcetera. The aforementioned does add
substantial incremental costs to the operations in terms of
construction and removal of ice roads each year. Permanent
roads are an advantage in those types of developments. He
informed the committee that ConocoPhillips has 15-20 different
agreements in which third parties use those roads for various
reasons. The aforementioned isn't viewed as a significant issue
because ConocoPhillips has been able to work with those third
parties.
1:04:21 PM
CO-CHAIR SEATON asked whether there are any other benefits to
using ice roads. He also asked whether ConocoPhillips would
prefer to have year round roads in those areas and whether there
would be any detrimental impact to year round roads.
MR. HEINRICK opined that the main benefit of ice roads is that
it minimizes the footprint of gravel on the tundra. The
aforementioned was viewed as the appropriate solution at the
time.
CO-CHAIR SEATON, referring to the Alpine site, asked whether it
would've been preferable for ConocoPhillips to build year round
roads and have the demo and mediation costs at the end. He also
asked whether ConocoPhillips applied for gravel to the
development. Co-Chair Seaton clarified that he was trying to
find where the ice road policy was controlling.
MR. HEINRICK said that he didn't know the history of the
[Alpine] field, which was developed in the late 1990s and went
online in 2000. Therefore, he would need to review what
decisions made at that time. Regardless, Mr. Heinrick related
that year round access would be preferable to the ice road
structure so that supplies and crews can continually be brought
to an area.
CO-CHAIR SEATON expressed interest in receiving further
information, and suggested that the committee is considering how
the state can obtain the most economical and best development on
the North Slope to activate the pipeline. Therefore, the
industry would need to relay to the committee any impediments to
development on the North Slope.
1:08:25 PM
MR. HEINRICK, in response to Co-Chair Seaton, informed the
committee that ConocoPhillips doesn't have a water shortage. At
Kuparuk River Unit, there is a salt water treatment facility
that provides much of the water for Kuparuk, Alpine, and some of
the other users in the area.
CO-CHAIR SEATON related his understanding that the facilities at
Prudhoe and Kuparuk are maxed out as far as water since the
fields have matured and more water comes up. He asked if that
is the case.
MR. HEINRICK answered that it depends upon the facilities to
which he doesn't have specific knowledge on the individual
assets. He explained that as fields age they produce more water
and more water is injected to increase reservoir pressure.
Therefore, the volume of fluids handled increases substantially.
There may be some parts of a processing facility that are
underutilized, while other parts such as water handling create a
"bottle neck" to further volume. He related that [the industry]
is continually optimizing those production facilities, in terms
of trying to eliminate the bottlenecks or performing expansions
on limiting factors. The aforementioned is an ongoing process
since the fields were put into production 30 years ago.
1:10:15 PM
REPRESENTATIVE FEIGE asked whether adding new fields would
result in an improved oil:water ratio.
MR. HEINRICK indicated that it's possible, and noted that the
aforementioned is being utilized with Pioneer. Such agreements
are complex because of the issues regarding whether the [new
fields] are providing the type of quality volumes expected and
impacts that may have on the company's production. Therefore, a
company must first protect its unit holders and provide the
appropriate capacity for unit holders. He noted that currently
ConocoPhillips has a model in place for these complex
agreements.
1:12:10 PM
SENATOR TOM WAGONER related his understanding that it's not
totally in ConocoPhillips control what it produces because the
AOGCC requires production to continue in some areas.
MR. HEINRICK said he wasn't familiar with that part of the
regulations, but offered to research it.
1:13:17 PM
CO-CHAIR SEATON noted that members' packets include written
testimony from James Weeks, Managing Member, UltraStar
Exploration, LLC, who discussed lowering the state take by
passing HB 110, a rail extension of the Alaska Railroad to the
North Slope and points east and west, and ice roads and pads.
The members' packets also include comments from the Alaska Oil
and Gas Association, much of which discusses the changing tax
structure.
1:16:15 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 1:16 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Shale Task Force (2).pdf |
HRES 11/1/2011 10:00:00 AM |
|
| IMPEDIMENTS TO FILLING TAPS--10-22-2011.docx |
HRES 11/1/2011 10:00:00 AM |
|
| DOG_ShaleTF_presentation_HRES_11_01_11.pdf |
HRES 11/1/2011 10:00:00 AM |
|
| DOG_ANS_development_presentation_HRES_11_01_11.pdf |
HRES 11/1/2011 10:00:00 AM |
|
| 3 GBP - House Resource Committee - Nov 1 2011 Update.pptx |
HRES 11/1/2011 10:00:00 AM |
|
| AOGA Testimony House Resources Nov. 1st, 2011.pdf |
HRES 11/1/2011 10:00:00 AM |
|
| HRES Heinrich Permitting Testimony Nov 1 2011 - Final.pdf |
HRES 11/1/2011 10:00:00 AM |