Legislature(2015 - 2016)CAPITOL 106
10/26/2015 08:00 AM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Overview: Alaska Oil and Gas Conservation Commission | |
| 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
October 26, 2015
8:00 a.m.
MEMBERS PRESENT
Representative Benjamin Nageak, Co-Chair
Representative David Talerico, Co-Chair
Representative Bob Herron
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
MEMBERS ABSENT
Representative Mike Hawker, Vice Chair
OTHER LEGISLATORS PRESENT
Senator Mia Costello
Representative Sam Kito, III
COMMITTEE CALENDAR
OVERVIEW: ALASKA OIL AND GAS CONSERVATION COMMISSION
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DAN SEAMOUNT, Commissioner
Alaska Oil and Gas Conservation Commission (AOGCC)
Department of Administration (DOA)
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of the rulings of the
Alaska Oil and Gas Conservation Commission.
CATHY FOERSTER, Commissioner/Chair
Alaska Oil and Gas Conservation Commission (AOGCC)
Department of Administration
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of the rulings of the
Alaska Oil and Gas Conservation Commission.
ACTION NARRATIVE
8:00:17 AM
CO-CHAIR BENJAMIN NAGEAK called the House Resources Standing
Committee meeting to order at 8:00 a.m. Representatives Seaton,
Josephson, Tarr, Herron, Johnson, Olson, Talerico and Nageak
were present at the call to order. Senator Costello and
Representative Kito were also in attendance.
^OVERVIEW: Alaska Oil and Gas Conservation Commission
OVERVIEW: Alaska Oil and Gas Conservation Commission
CO-CHAIR NAGEAK announced that the only order of business would
be an overview from the Alaska Oil and Gas Commission (AOGCC) as
on October 15, 2015 it ruled for an increase in allowable gas
offtake from Prudhoe Bay and Pt. Thompson. He described it as a
major milestone required for the advancement of the Alaska LNG
(AKLNG) project.
8:01:46 AM
DAN SEAMOUNT, Commissioner, Alaska Oil and Gas Conservation
Commission (AOGCC), Department of Administration (DOA),
identified himself as the geologist commissioner and noted that
the geology of the area has been studied since the 1950s and is
well known. He said in 2000 there were discussions of building
the pipeline and producing in 2014, which caused him concern as
the timing would have been wrong in that almost a million
barrels [of oil] a day were being produced. He explained that
"if you start blowing down the gas" the use of the gas recycling
for Enhanced Oil Recovery (EOR) would not be as efficient as it
is currently. He remarked that it is good [the project] has
been delayed until 2025, as [AOGCC] engineering and geology
determined that by 2025 production of the gas can begin.
8:04:43 AM
CATHY FOERSTER, Commissioner/Chair, Alaska Oil and Gas
Conservation Commission (AOGCC), Department of Administration,
said she would explain the recent rulings by the Alaska Oil and
Gas Conservation Commission (AOGCC) on gas offtake allowables
from Prudhoe Bay and Pt. Thompson in anticipation of major gas
sales from the North Slope in 2025, the rationale behind those
rulings, and what the rulings mean going forward. She pointed
to slide 1, within her power point presentation, and noted that
Prudhoe Bay had an offtake allowable before this hearing of 2.7
BCF/day, "but not really." During the [AOGCC] hearing the
offtake allowable was changed to 3.6 BCF/day in anticipation of
an offtake in 2025. She pointed out that there was no offtake
allowable at Pt. Thompson, and no pool rules - generally an
offtake of gas from an oil or condensate field would happen in a
pool rule. Currently, she said, pool rules are in place for Pt.
Thompson with an offtake allowable of 1.1 BCF/day. The bottom
line, she explained, is that the combination of those two is
sufficient offtake to meet the needs of the currently proposed
project. Ms. Foerster turned to slide 2, and said the AOGCC's
responsibilities include: regulating oil, gas, and geothermal
exploration development and production throughout the State of
Alaska; overseeing all drilling, well work, well production
operations, and reservoir management on all state lands and all
state waters. She related that its primary responsibilities are
to protect human safety, protect fresh ground waters, prevent
waste, encourage greater ultimate recovery, and protect
correlative rights. She highlighted that the categories of
preventing waste and encouraging greater ultimate recovery come
into play when deciding on a gas offtake allowable from an oil
field. She referred to slide 3, and noted that all of the known
gas on the North Slope is in Prudhoe Bay and Pt. Thompson,
"there is a lot of it," and it has been called stranded because
there was no way to get it to market. In that the AOGCC is
charged with encouraging greater ultimate hydrocarbon recovery,
its job is to help see that the gas does get to market. She
remarked that the sum of the two numbers depicted on the slide
is the sum of the two numbers the operators quoted in the
hearing.
8:08:03 AM
MS. FOERSTER pointed to slide 4, and highlighted that another
responsibility is to prevent waste. She explained that when gas
is taken from an oil field or condensate field, before the oil
and condensate have been produced, some of the oil will be lost.
She described the issue as an important concern for the AOGCC in
Prudhoe Bay where there are 2.5 billion barrels of oil left to
be produced, which is "huge." She pointed out that 2.5 billion
barrels is approximately the same amount as the Kuparuk River
field (second largest field in North America) has produced since
it came online 34 years ago. She then noted there is a large
amount of condensate at Pt. Thompson that would almost equal the
oil produced from the Swanson River field in the over 50 years
it has been in production and described that the losses would be
enormous if Alaska had a gas pipeline too soon. She pointed out
the conundrum AOGCC faces in that it has the task of encouraging
the gas to be produced while also protecting those liquids from
being wasted. She reiterated that allowing that gas to be sold
too soon would result in waste of a large amount of the liquid,
but not allowing the operators and the state to take advantage
of what might be the only window of opportunity to sell the gas
would also be wasteful in that it wouldn't encourage the greater
ultimate resource recovery of the gas. With regard to slides 5-
6, she said the AOGCC has been studying the effects of gas sales
on the loss of liquids versus the ultimate recovery of the gas
since before 2005. She said the AOGCC is convinced, with the
assistance of world-class consultants and hard work, the
technical validity of the BP and Exxon reservoir models for
Prudhoe Bay and Pt. Thompson are above reproach. She opined
that the AOGCC has taken the prudent course of participating
with BP and ExxonMobil Corporation in studies to assist in
determining how best to optimize both liquid and gas recovery.
She offered that over the years she has said that for Prudhoe
Bay, later is better, less is better, accelerating oil
production beforehand is better, and developing it and
implementing strategies to mitigate oil losses is better. As
for Pt. Thompson, she further offered that the monkey is on
ExxonMobil Corporation's back to demonstrate to the AOGCC that
blowing down gas is the only feasible way to achieve production
from Pt. Thompson as opposed to cycling to get the condensates
out first. On August 27, during a public hearing, the Prudhoe
Bay owners presented testimony to support major gas sales from
Prudhoe Bay beginning 2025, and on September 1, the Pt. Thompson
owners did the same for that field, she conveyed. The records
were left open until mid-September so the operators could
address unanswered questions, and on October 15, the AOGCC
issued orders allowing an increase at Prudhoe Bay and offtake at
Pt. Thompson, she advised.
8:12:45 AM
MS. FOERSTER pointed to slide 7 depicting a summary of the
rulings, and said that AOGCC increased the offtake allowable at
Prudhoe Bay to 3.6 BCF/day annual average which allows, for
example, if there is a day when Pt. Thompson is unable to
deliver, Prudhoe Bay can go up to whatever is needed as long as
the annual average is 3.6 BCF/day. She remarked that five years
before production will start from the gas sales, BP must provide
to the AOGCC a report of the projects they've done and results
they've achieved in oil recovery acceleration projects. She
reiterated that getting as much oil out of the ground before the
gas sales start ensures that less is left and at risk of being
lost. She said that CO2 may not be an oil enhancing product in
the reservoirs so before it is allowed to start, the AOGCC
requires a study of all the different sources that they might
inject into, and where would be a good source for increasing
greater ultimate recovery in the oil reservoirs. She noted that
the AOGCC was asked to consider CO2 disposal authorization, but
that it is outside the AOGCC's jurisdiction, and is within the
jurisdiction of the EPA. She reiterated that for Pt. Thompson a
1.1 BCF/day offtake allowable on an annual average was granted;
and prior to major gas sales, after five years of cycling in the
pilot, and at least one year before the startup of major gas
sales, ExxonMobil Corporation must give the AOGCC a rundown of
what the cycling project has done and demonstrate that full
scale cycling is not feasible. Because, she remarked, if it is,
the AOGCC may want to grant a higher offtake allowable to
Prudhoe Bay and say no to Pt. Thompson so that Pt. Thompson can
recover those liquids. Currently, the offtake allowables for
Prudhoe Bay and Pt. Thompson do not have a sunset clause but,
she pointed out, the AOGCC always has the ability to determine
and make changes. She described these actions as a promise to
the legislature that the AOGCC endeavors to prevent waste and
encourage greater ultimate recovery.
8:17:09 AM
REPRESENTATIVE JOSEPHSON asked why ConocoPhillips Alaska, did
not make a formal request for offtake, as with the other
companies.
MS. FOERSTER replied that she did not know, and opined they may
have had disagreements but she was unsure.
8:17:53 AM
REPRESENTATIVE TARR referred to the Pt. Thompson ruling
regarding the requirement that they must demonstrate that
cycling isn't feasible, and noted it "seems sort of high risk
for them" due to the type of investment that would have to be
made over the next ten years as this project moves forward. She
surmised that if they can't demonstrate that [cycling isn't
feasible] that the AOGCC would probably increase the offtake so
there would still be participation in AKLNG. In addition to
that they would have to do more in oil recovery with the
condensate, she questioned.
MS. FOERSTER answered that the AOGCC is not asking [Pt. Thomson]
to spend any additional money other than what they are already
spending. She explained that [Pt. Thomson] has a cycling pilot
planned for next year through to major gas sales start up. She
further explained that after five years of continuous cycling,
the AOGCC requires a review of what that project has done,
lessons learned about the performance of the reservoir, and any
other insights into the feasibility of performing full scale
cycling. She explained that with cycling, gas is produced and a
lot of condensate comes out with it, and the gas is then re-
injected in order for the reservoir pressure to stay high. She
offered that if the reservoir pressure continually drops, the
condensate entrained in that gas drop out into the reservoir
rather than the surface, and when the condensate drops out into
the reservoir it is there forever. She noted that before major
gas sales starts, they will be cycling - producing the gas,
striping off the liquids, re-injecting the gas, to maintain
reservoir pressure. Although, she acknowledged, a little drop
out of condensates will occur because the pressure will be
dropped to get "a little bit of gas out," so it doesn't become
the huge overriding dominant reservoir mechanism. Currently,
she noted, ExxonMobil Corporation offered that the costs to do
the condensate recovery and the reservoir characteristics of the
reservoir combined make it an infeasible project, and they will
demonstrate to the AOGCC that their assumptions are correct with
the small pilot.
8:21:43 AM
REPRESENTATIVE JOHNSON asked whether the assumption is that Pt.
Thomson is an oil field due to the condensates or whether there
are there actual reserves.
MS. FOERSTER replied that the definition of an oil well in the
State of Alaska is tied to the gas to oil ratio in production.
She explained that if the gas to oil ratio is less than 100,000
standard cubic feet per barrel, it's an oil well. The Pt.
Thomson wells have about 20,000 ... for every 20,000 cubic feet
of gas a barrel of oil will be produced with it, or 20 mcf per
barrel. She advised that is what makes Pt. Thompson an oil
field by the state's statutory definition of an oil well.
8:22:49 AM
REPRESENTATIVE JOHNSON surmised there is not conventional oil.
MS. FOERSTER responded there is a viscous oil layer at the
bottom of the reservoir previously determined to be between 150-
300 feet thick with a lot more oil there, and ExxonMobil
Corporation advised it was not feasible. Since that time, more
wells were drilled and the belief is that the oil rim is less
than one-third first estimated, approximately 40 feet thick.
She noted the likelihood [is zero] that an expensive well would
be drilled, put on production, and within days or weeks the
thick viscous oil would no longer be producing, but rather
producing the gas above and the water below it. Now that more
is known about the oil rim, she noted, the AOGCC is more
confident that, with the current technology, no one would drill
an oil well in this field.
8:25:16 AM
REPRESENTATIVE JOHNSON questioned whether it is a gas field or a
condensate field.
MS. FOERSTER replied that it is a condensate field, and the best
way to achieve greater ultimate recovery from the field will be
allowing the gas to be produced.
8:25:46 AM
REPRESENTATIVE JOSEPHSON asked about the term "re-injection" and
how it compares to "fracturing," in that Ms. Foerster had
discussed protecting fresh ground water. He opined there has
been no demonstrated problem with fracturing or fracking, but
rather with the associated activities, and quiered whether there
is any threat to the villages' water supply or other water
sources.
MS. FOERSTER informed the committee that 25 percent of Alaska's
wells are hydraulically fractured, and that the AOGCC updated
its hydraulic fracturing rules a few years ago. She pointed out
there has not been an incidence of ground water damage from
hydraulic fracturing in the State of Alaska. Some people in the
states expressed concern about fracturing, and she noted that
the regulators in Pennsylvania and Upstate New York were not
prepared for hydraulic fracturing and; therefore, did not have
good regulations in place to ensure mechanical integrity in
wells to protect ground waters at the time, but the regulations
have since been fixed. She pointed out that there were issues
not related to hydraulic fracturing, as shown within 1970s
guides explaining what to do when a water well encounters
methane - "we weren't fracking shale in Minnesota in the 70s."
She said the AOGCC would not allow fracturing to occur in the
State of Alaska if it posed any threat to human safety or ground
water. She referred to re-injecting gas and said it has the
same mechanical integrity assurances as hydraulic fracturing.
REPRESENTATIVE JOSEPHSON commented that there is no fresh water
under Prudhoe Bay.
MS. FOERSTER responded that there could be loss of integrity and
have gas come to surface, but the AOGCC does not allow wells
that do not have good mechanical integrity to operate or be
injected into.
8:30:42 AM
REPRESENTATIVE SEATON asked for clarity on the 22 trillion cubic
feet at Prudhoe Bay and 6 trillion cubic feet at Pt. Thomson,
with the offtakes, and questioned whether at some point in time
as those are being used up ... are the 22 trillion feet
recoverable so that just the offtake rate can be used to
determine the years of supply, other than any yet to be
discovered gas.
MS. FOERSTER answered yes, that is recoverable and is not the
gas in place - that is what BP and ExxonMobil Corporation say,
with what they know right now is recoverable, and the [years]
can be calculated. She agreed that it does not take into
account any yet to be discovered gas and the USGS's estimate of
gas potential on the North Slope is in the 150 Tcf. It is the
AOGCC's hope that "if we build it, they will come," and the
pipeline will have value similar to the Trans-Alaska Pipeline
System, she offered.
8:32:07 AM
REPRESENTATIVE HERRON referred to Ms. Foerster's comments
regarding studies and asked whether they are available for
anyone interested.
MS. FOERSTER answered that that the studies are confidential and
she and Commissioner Dan Seamount have not seen the studies,
although their staff signed confidentiality agreements allowing
them access. She offered that anything ExxonMobil Corporation
and BP want to share they will, and she urged the committee to
ask them.
8:32:44 AM
REPRESENTATIVE JOSEPHSON noted that her discussion has been
around 28-30 Tcf, and yesterday consultants from the House
Finance Committee offered a theoretical 20-year life of the gas
line, and that the state could possibly make hundreds of
millions of dollars more per year if it bought out TransCanada.
He asked whether she has an expectation there is gas beyond a
20-year supply.
MS. FOERSTER said that all of the known gas on the North Slope
is in the two fields and it adds up to 28 trillion cubic feet of
gas. She then described the oil and gas industry as an industry
for gamblers.
8:33:57 AM
MR. SEAMOUNT pointed out that, as a geologist, he has worked up
and down the Laramide Basin, which travels down to the Gulf of
Mexico with a lot of oil and gas produced. He remarked that in
all of his experience he has never seen so much oil and gas as
on the North Slope in that the source rocks are much richer than
in the Rocky Mountains. He expressed he is confident more oil
and gas will be discovered on the North Slope in the future.
MS. FOERSTER interjected that as an engineer who works in an
industry full of geologists, there has to balance between the
optimists and pessimists to come out with a realist.
MR. SEAMOUNT described himself as a realist.
8:35:08 AM
REPRESENTATIVE JOHNSON asked whether this is a puzzle piece into
a balancing agreement knowing what is there and what isn't. He
further asked whether that is part of what the producers need to
move forward with an offtake agreement, or gas balancing
agreement.
MS. FOERSTER offered that Representative Johnson should ask BP,
ExxonMobil Corporation, ConocoPhillips Alaska, and Chevron what
they need and what they are thinking.
8:35:52 AM
REPRESENTATIVE SEATON referred to the 1.1 BCF/day for Pt.
Thomson, and 3.6 [BCF/day] starting in 2025 for Prudhoe Bay, and
asked whether it is also for 2025 with the 1.1 [BCF/day] for Pt.
Thomson adjustable after coming back with the recycling numbers.
MS. FOERSTER answered yes, both of those allowables ... although
they are in the rules today they are with an expectation that
startup is in 2025 and [if issues arise] the AOGCC could take
them back.
8:36:41 AM
REPRESENTATIVE TARR pointed to slide 7, "in 5 years BP must
provide report of oil recovery acceleration activities and
results," and offered a scenario of the report coming back with
unsatisfactory results as the efforts were not in line with the
AOGCC mission of enhanced recovery, and she asked how the issue
would be addressed.
MS. FOERSTER said without knowing the numbers it is hard to say
exactly what the AOGCC would do. She added that the AOGCC would
be looking for BP to continue, as it has for many years, looking
for opportunities to accelerate oil, such as horizontal
drilling, and (indisc.) drilling. She said, should it slow down
the AOGCC would need to know why, and look again at the balance,
how much oil is left in the ground, how much is at risk of being
lost, and how much gas is at risk of being stranded if the AOGCC
says no and the pipeline doesn't happen. She described the
question as a multi-variable.
8:38:15 AM
REPRESENTATIVE SEATON referred to waste and balancing, "there
were different amounts of oil that was looking at in Prudhoe Bay
and Pt. Thomson ... different kinds of oils but ... and they are
in different fields." He asked when considering the Prudhoe Bay
and Pt. Tomson offtake combinations, which would leave the least
waste for both fields. For example, he offered, if it was
necessary to increase the offtake at Prudhoe Bay so there was no
condensate left in Pt. Thomson and leave a greater number of
barrels of waste in Prudhoe Bay, asked whether that would then
be recovered in Pt. Thomson. He asked whether those are the
calculations [the AOGCC] makes, or whether it is only on an
individual field basis.
MS. FOERSTER replied that lawyers would get involved and argue
whether the AOGCC had jurisdiction to lump the fields and
consider the combination of waste versus looking at the fields
separately. She advised the AOGCC would push for the composite
- taking the position that its job is to obtain greater ultimate
recovery from fields within the State of Alaska. She remarked
that if it was necessary to sacrifice a bit at Prudhoe Bay to
get a lot at Pt. Thomson or vice versa, the AOGCC would assert
that and it would be up to the lawyers to argue authority.
8:39:57 AM
REPRESENTATIVE TARR asked whether Ms. Foerster had considered
pooling the units to balance in that manner, and asked whether
she was saying that she did not consider that at all and decided
to view them separately.
MS. FOERSTER explained that when an operator requests permission
to do something the AOGCC either says yes or no, and does not
suggest an alternative. She said the AOGCC staff has
participated in years of studies with ExxonMobil Corporation and
BP, and the AOGCC felt confident those numbers had been tweaked
to get where they were good numbers. In the event things
change, the operators will come back to the AOGCC and advise, or
through the studies it will become obvious, and the AOGCC can
and will make tweaks if necessary, she offered.
8:42:00 AM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 8:42.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AOGCC Presentation to HRES-10-26-2015.pdf |
HRES 10/26/2015 8:00:00 AM |