Legislature(2019 - 2020)BARNES 124
05/01/2019 01:00 PM House RESOURCES
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| Start | |
| Presentation(s): Oil and Gas Industry Update | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
May 1, 2019
1:22 p.m.
MEMBERS PRESENT
Representative John Lincoln, Co-Chair
Representative Geran Tarr, Co-Chair
Representative Grier Hopkins, Vice Chair
Representative Sara Hannan
Representative Ivy Spohnholz
Representative Dave Talerico
Representative George Rauscher
Representative Sara Rasmussen
MEMBERS ABSENT
Representative Chris Tuck
COMMITTEE CALENDAR
PRESENTATION(S): OIL AND GAS INDUSTRY UPDATE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
KARA MORIARTY, President & CEO
Alaska Oil and Gas Association (AOGA)
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation titled
"AOGA," dated 5/1/19.
SCOTT JEPSEN, Vice President
External Affairs and Transportation
ConocoPhillips Alaska, Inc.
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation titled
"North Slope Outlook," dated 5/1/19.
DAMIAN BILBAO, Vice President
Commercial Ventures
BP Alaska
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation
titled "House Resources," dated May 2019.
SCOTT DIGERT, Resource Development Area Manager
Greater Prudhoe Bay
BP Alaska
Anchorage, Alaska
POSITION STATEMENT: Co-provided a PowerPoint presentation
titled "House Resources," dated May 2019.
J. BENJAMIN JOHNSON, President/CEO/Director
BlueCrest Energy Inc.
Fort Worth, Texas
POSITION STATEMENT: Provided a PowerPoint presentation titled
"BlueCrest Cosmopolitan Overview," dated 5/1/19.
ACTION NARRATIVE
1:22:22 PM
CO-CHAIR GERAN TARR called the House Resources Standing
Committee meeting to order at 1:22 p.m. Representatives
Talerico, Rauscher, Rasmussen, Hannan, Hopkins, Lincoln,
Spohnholz, and Tarr were present at the call to order.
^PRESENTATION(S): OIL and GAS INDUSTRY UPDATE
PRESENTATION(S): OIL and GAS INDUSTRY UPDATE
1:23:03 PM
CO-CHAIR TARR announced that the only order of business would be
presentations by representatives of the oil and gas industry in
Alaska.
1:24:01 PM
KARA MORIARTY, President & CEO, Alaska Oil and Gas Association
(AOGA), turned to slide 1 of her PowerPoint presentation, titled
"AOGA," dated 5/1/19, and noted AOGA is the professional trade
organization for the state's oil and gas industry. She moved to
slide 2 and said [BlueCrest Energy, Furie, Glacier Oil & Gas,
Hilcorp, and Marathon] are the companies currently operating in
Alaska's historical oil basin of Cook Inlet. She directed
attention to maps in the committee packet regarding Cook Inlet
and North Slope oil and gas activity and noted the Department of
Natural Resources (DNR) develops the maps about twice a year,
these October 2018 maps being the most recent. She said the map
on slide 3 of Cook Inlet oil and gas activity gives a good
synopsis of what can be expected to happen. Displaying slide 4,
she pointed out that Hilcorp plans a very aggressive schedule of
drilling and workovers in a variety of locations throughout Cook
Inlet and Glacier Oil and Gas is scheduled to begin drilling
operations at the Osprey Platform in June. About 16 offshore
rigs are currently in Cook Inlet, along with operations and
production onshore, she added.
MS. MORIARTY displayed slides 5-6 and said AOGA also represents
Interior companies [Petro Star Inc. and Alyeska Pipeline Service
Company]. She noted that Arctic Slope Regional Corporation is
the sole owner of Petro Star, which runs a refinery in Valdez
and a refinery in North Pole. She related that Petro Star has a
total of 335 employees, with over 150 in the combined Fairbanks
and North Pole area, and that the refinery's primary products
are jet fuels, special products for the military, home heating
fuel, and low-sulfur diesel. She pointed out that a refinery
has been operating in Nikiski for almost 50 years, which has had
a variety of owners and is currently owned and operated by
Marathon. She said Marathon has nearly 300 employees statewide,
and 99 percent are Alaska residents, and the refinery produces
quality fuel products used by Alaskans every day, such as
gasoline, jet fuel, diesel fuel, propane, and asphalt. These
three refineries, she emphasized, are shining examples of
Alaskas in-state manufacturing sector.
MS. MORIARTY moved to slides 7-9 and highlighted North Slope
activity. She stated that on 4/6/19 Hilcorp started production
on Moose Pad in Milne Point, with 3,000 barrels per day
currently being produced, an expected total recovery of 62
million barrels, and a total pad construction and drilling cost
of $450 million. She reported that Hilcorp is also leading the
way by working with the University of Alaska Fairbanks and the
National Energy Technology Laboratory in funding the first ever
pilot project to try to validate the use of polymer floors for
heavy oil enhanced recovery. This project, she continued, could
unlock for economic recovery the billions and billions of
barrels of heavy oil that are thought to be on the North Slope.
She related that Glacier plans a rig workover at Badami [in
summer 2019] and Eni continues to plan additional exploration
work at Harrison Bay and other field development at its current
Spy Island operation. She said Repsol is partnering with Oil
Search to get the Pikka Unit sanctioned for development.
1:30:00 PM
CO-CHAIR TARR requested further information about Glacier Oil &
Gas Corporation and noted the company has not yet been before
the committee.
MS. MORIARTY replied that Glacier has been an AOGA member for a
couple of years, so it is not AOGA's newest member. She said
Glacier acquired some of the Buccaneer properties in Cook Inlet
several years ago and then acquired the Badami Field on the
North Slope, so Glacier is unique like Hilcorp in that the
company has assets in Cook Inlet and on the North Slope. She
noted Glacier is based in Anchorage, has a small team, and has
acquired other assets that have been in Alaska for some time.
CO-CHAIR TARR inquired who the newest member of AOGA is.
MS. MORIARTY responded that Repsol is newest in that it recently
rejoined AOGA a couple weeks ago, as did ConocoPhillips.
1:30:31 PM
MS. MORIARTY resumed her presentation. Turning to slide 10, she
stated it would make sense to assume that record high oil prices
would result in increased oil production. However, she said,
that was not the case from 2008-2013 when oil prices skyrocketed
and yet Alaska lost about 185,000 barrels per day. The good
news, she continued, is that policies were changed, and the
production decline stemmed and leveled off, as depicted in green
on the graph, which is important for state revenue and jobs.
She pointed out that declining production causes operational
challenges for the Trans Alaska Pipeline System (TAPS) and the
Cook Inlet pipelines, plus it costs more per barrel when there
are less barrels to share the costs. So, she added, this new
trend line is encouraging for a host of reasons.
1:32:42 PM
REPRESENTATIVE RAUSCHER asked whether another tax policy change
would be able to affect the decline.
MS. MORIARTY answered it would depend on how the policy is
changed because the industry responds to policy. Investment in
capital dollars is very competitive, she advised, so to remain
competitive, competitive policies need to be maintained.
REPRESENTATIVE RAUSCHER inquired whether there is any way Ms.
Moriarty could see an adjustment helping.
MS. MORIARTY replied that having more encouraging policies
would, in theory, increase production and investment, but
without a proposal she can't speak to any specifics.
1:33:49 PM
REPRESENTATIVE RASMUSSEN posed a scenario of removing $1 of the
taxable credit, making the maximum be $6-$7 for credits for
transportation costs for oil companies. She asked what impact
this would have in total for the industry.
MS. MORIARTY surmised Representative Rasmussen is referring to
the per barrel credit that is used as a calculation for the tax
rate. She said any adjustment downward is an automatic tax
increase on the industry, so that is less money the companies
have to invest in Alaska.
REPRESENTATIVE RASMUSSEN inquired as to what a change of $1
would be in total for the industry.
MS. MORIARTY deferred to the Department of Revenue (DOR) for an
answer, but estimated that at current prices and production a
total repeal would be about a $1.2 billion tax increase.
1:35:15 PM
MS. MORIARTY returned to her presentation and stated that Alaska
could be doing a lot better in stemming the decline. She
explained slide 11 depicts the most recent data [August 2018-
January 2019] from the Energy Information Administration for a
six-month average for production from the seven largest
producing states in the U.S. She noted that Alaska is sixth in
production [479,000 barrels a day], but pointed out that when
she started with AOGA 14 years ago Alaska was second.
MS. MORIARTY turned to slide 12 and further pointed out that
Alaska has fallen behind while the U.S. has become the world's
largest producer. She said Alaska has been surpassed by other
states and has become a tiny fraction of the total production
from the U.S. She maintained Alaska doesn't have to stay in
sixth place because it is known that about one-third of all of
the U.S. reserves onshore and offshore are in Alaska. She
recalled that a variety of legislative consultants through the
years have said Alaska's policy should focus on one thing how
to get more oil and more oil production.
1:36:56 PM
REPRESENTATIVE RAUSCHER asked what the reason is for Alaska
falling behind.
MS. MORIARTY responded that companies are working to stem the
decline in Alaska's aging 40-year-old fields, and they are
investing in new fields. In North Dakota and Texas, she said,
technology, price, and innovation have unlocked resources that
were thought would never be economically feasible. Companies
have also become incredibly efficient in driving down the costs
to make those fields profitable and economic, she continued.
Alaska still has a lot of oil, but is a very challenging place
to do business, she said, and later on the committee will be
hearing about some near-term projects that could bump up that
[number of 479,000 barrels a day].
1:38:44 PM
REPRESENTATIVE SPOHNHOLZ remarked that it is not so much that
Alaska has dropped in production as it is that other states have
had dramatic increases in the Permian Basin during the timeframe
depicted on slide 11. She recalled Ms. Moriarty stating that
technology allowed previously uneconomic fields to become
economic now and inquired whether those technology changes are
serving in Alaska.
MS. MORIARTY answered yes; industry has been utilizing hydraulic
fracturing on the North Slope for 50 years and counting. She
said if hydraulic fracturing couldn't be used there wouldn't be
production from most offshore platforms, Oooguruk being an
example. The forthcoming speakers, she related, will be talking
about how they are utilizing advanced technologies in Alaska.
Ten years ago Alaska was at around 700,000 barrels a day, so the
state has the potential for more production than it does today,
she advised, but it is never going to be 4.76 million barrels.
1:39:37 PM
MS. MORIARTY turned to slide 13 and continued her presentation.
She said Congress passed a bill authorizing two lease sales in
the Arctic National Wildlife Refuge (ANWR) and later this year a
final Environmental Impact Statement (EIS) for a lease sale is
expected. The Energy Information Administration has now started
to forecast production from the refuge, she continued, so the
next generation of oil and gas is being talked about, with peak
production likely in about 2040. She pointed out that the black
line on the chart represents the base case reference case, or
the average of what is thought will be produced. She said the
Department of Revenue (DOR) does the same thing when it gives a
production forecast, but DOR might call it something different.
She noted the chart shows that the base case for production
could be over 1 million barrels per day just from the refuge
alone. The point, she added, is that the future is incredibly
promising because it is known the resources are available.
MS. MORIARTY moved to slide 14 and stated that for decades the
oil and gas industry has produced the most revenue for the state
and local governments in Alaska. She said the projected total
of unrestricted and restricted oil revenue to the state for
fiscal year (FY) 2020 is $2.3 billion, and local governments are
projected to receive $440 million. In addition to taxes, she
noted, industry pays fees to a variety of state agencies [for
example, $7.6 million to the Alaska Oil and Gas Conservation
Commission (AOGCC) Regulatory Cost Charge and $7.0 million to
the Spill Response Fund]. She displayed slide 15 and explained
the pie chart represents a summary of total revenue to the
state, local governments, and a variety of agencies from the
oil, mining, and commercial fishing industries. She turned to
slide 16 and noted the chart comes from the 2017 McDowell report
on the seafood industry. The chart, she specified, shows that
oil and gas represents nearly a third of all wage and salary
jobs in Alaska, meaning oil and gas creates more jobs than
seafood, visitor and mining combined.
1:43:57 PM
REPRESENTATIVE HANNAN inquired as to how many of those jobs are
permanent residents of Alaska.
MS. MORIARTY displayed slide 17 and replied that 100,000 jobs
are Alaska residents. She said the McDowell Group study, funded
by AOGA, looked at Alaska-based zip codes to determine jobs and
wages, rather than the Permanent Fund indicator that is used by
the Department of Labor and Workforce Development for resident
hire. She related that in 2016 AOGA members - called the
"primary oil and gas companies" in the study - provided 4,275
Alaska residents with jobs, which is 80 percent of the roughly
5,000 jobs that the primary companies employ in Alaska. She
said that that generated 6,000 resident jobs in the oil and gas
support service industry, which then created another 35,000
indirect and induced jobs, and 58,000 jobs are related to the
oil and gas taxes and royalties that the industry pays. She
specified that 100,000 is the number of Alaska residents whose
employment can be attributed to the oil and gas industry.
1:46:00 PM
REPRESENTATIVE HANNAN brought attention to the chart on slide 16
that compares [the total jobs and income created by] the oil and
gas, seafood, visitor, and mining industries. She surmised the
chart shows not just the 4,275 direct employees of the industry
that are Alaska residents, but also the service sector and
indirect jobs. She asked whether the number of seafood industry
jobs depicted on the chart also reflects the indirect jobs.
MS. MORIARTY offered her understanding that all the industries
[depicted on the chart] in this summary slide include direct and
indirect jobs, that it is a like-like comparison. She said she
could double-check the figures.
CO-CHAIR TARR disagreed. She said she knows that the depicted
number of seafood jobs [36,800] is for direct jobs.
MS. MORIARTY answered that there may be more direct jobs in the
seafood industry, but these [numbers] are Alaska resident jobs.
CO-CHAIR TARR maintained that that number could not, then,
include the other categories because it is too low.
MS. MORIARTY replied that the chart is from the [McDowell]
seafood report and she would go back and look.
REPRESENTATIVE HANNAN asked what the total number of direct jobs
is in oil and gas in Alaska, besides the Alaska resident jobs.
MS. MORIARTY responded that the total number of direct jobs by
the primary companies in 2016 was just over 5,000, so 85 percent
of that 5,000 were Alaska residents.
REPRESENTATIVE RASMUSSEN offered her belief that perhaps the
question Representative Hannan was coming from was the
percentage of overall employees. She said it is interesting to
note that Alaska residents in this industry make up 85 percent
of the primary [companies], while [previously presented] slides
for fisheries stated about 50 percent are Alaskan employees.
1:48:11 PM
CO-CHAIR TARR recalled that 2016 was a higher than average
employment year on the North Slope. She offered her belief that
in 2019 the primary employment is more in the range of 3,500.
MS. MORIARTY answered she would have to double-check. She said
AOGA updates this study every three years, so it is due to be
updated in the next 12 months and she doesn't have that number
off the top of her head.
CO-CHAIR TARR inquired whether AOGA has a study from 2013 that
could be compared to [the 2016 study].
MS. MORIARTY replied yes, AOGA has studies for 2016, 2013, and
2009.
CO-CHAIR TARR requested that Ms. Moriarty share these studies
with the committee. She recalled seeing a slide sometime in the
past that showed a spike [in jobs] that paralleled the spike in
prices, but returned to the historic levels of 3,500-4,000.
MS. MORIARTY agreed to get that answer to the committee. She
said AOGA's primary company resident hire stays in the 80-85
percent range regardless of the number of direct employees on
the North Slope and in Cook Inlet. It is important to note, she
added, that for every $1 earned by AOGA's primary company direct
employees, another $8 in wages is generated throughout the state
of Alaska.
1:50:12 PM
MS. MORIARTY resumed her presentation. She said Alaska needs
all its industries to be successful and her presentation is not
about "us versus them." She stated she was trying to put it in
context based on the reports the committee has seen in the last
few weeks. Clearly, she continued, [oil and gas] stands out, no
other industry comes close to the economic impact that [the oil
and gas industry] has statewide, but the state needs all
industries to be successful.
MS. MORIARTY moved to slide 18 to discuss the future of oil and
gas globally. She noted the source for the charts depicted on
the slide is the "World Energy Outlook 2018," a report published
by the International Energy Agency. She said the three pie
charts on the top left show the growth in global demand by
sector from 2000 to 2017 to 2040 and the four pie charts on the
bottom left show the composition of fuels used to provide
worldwide energy. She explained that the first of the four
charts compares 2017 to three different policy scenarios in 2040
that might be adopted by countries globally. She noted that gas
is shown in purple and oil is shown in red, and pointed out that
[the percentage of] renewables grows in every policy and the
percentage of oil and gas remains at about 53-54 percent of the
energy supply over the next three decades.
REPRESENTATIVE HANNAN inquired about the abbreviations used in
the pie charts.
MS. MORIARTY responded that "mb/d" in the top three pie charts
stands for million barrels per day and that she would get back
to the committee as to what "Mtoe" stands for. [It stands for
millions of tons of oil equivalent.] She added that the report
is about 350 pages and her point in showing these charts is to
demonstrate that the world needs oil and that oil and gas are
still going to be more than 50 percent of the energy mix for the
next several decades.
1:52:59 PM
MS. MORIARTY continued her presentation. She said the graph on
the right of slide 18 demonstrates why investment is needed over
the next 30-40 years. According to the report, she related,
without new investment from 2018 onward, global oil production
could be cut in half, but the demand for oil and gas would still
be there. She stated that the world needs energy and policies
are being adopted to ensure energy efficiency for taking care of
the climate, but the reality is that oil and gas are still going
to supply over 50 percent of the world's energy for at least the
next 30-40 years.
CO-CHAIR TARR observed [from the four pie charts on the bottom
left] that renewable energy is expected to double over that time
period. She offered her understanding that some of AOGA's
member companies are presently involved in renewable energy.
She asked whether AOGA would at some point become comprehensive
in that energy portfolio and expand its mission.
MS. MORIARTY answered that AOGA's mission is for the long-term
viability of the oil and gas industry in Alaska. She said other
organizations are looking at water, wind, and solar, and right
now AOGA has not expanded its mission. As the industry evolves,
she continued, it could be something the board decides to do at
a later date and would depend on how that matters in Alaska.
She added that she doesn't see it any time soon because
renewables are very challenging in Alaska and she has her hands
full right now just advocating for the long-term viability for
oil and gas.
1:56:15 PM
MS. MORIARTY turned to slide 19 and continued her presentation.
She stated that [exploration] for oil and gas doesn't happen
without investment, as demonstrated by the boom in the Lower 48.
She said the oil and gas industry was expected to spend close to
$120 billion in capital and exploration projects, with Alaska
slated to get about 2 percent of that. Drawing attention to the
bar graph, she said expenditures in North America, depicted in
dark red at the bottom of the bars, are expected to grow for the
next several years and could exceed $200 billion in 2025.
MS. MORIARTY addressed the recent news headlines displayed on
the right side of slide 19 and said they show that Alaska needs
to remain competitive. For example, she noted, the Wall Street
Journal article highlights that Chevron is expected to double
production in the Permian Basin of west Texas and eastern New
Mexico. The Permian Basin, she pointed out, is the reason why
New Mexico is currently the third largest producer in the U.S.,
with ExxonMobil possibly having a million barrels a day in that
basin alone by 2024. She said this same article points out how
competitive the industry is in that it reports ExxonMobil can
generate a 10 percent rate of return at $35 oil. Companies will
invest based on a variety of factors, but clearly rate of return
is important, she continued, and that is playing out with the
public bidding war between Chevron and Occidental Petroleum,
along with Berkshire Hathaway, for Anadarko, a company that used
to be in Alaska. The industry is very competitive and highly
fluid, she advised, and Alaska needs to remain competitive to be
considered a player in the global market.
1:58:58 PM
REPRESENTATIVE HOPKINS concurred Alaska must remain competitive.
Bringing attention to slide 14, he agreed it is unequivocally
true for Alaska that oil and gas produces the most revenue. He
observed that the FY 2020 unrestricted oil revenue [to the State
of Alaska] is projected to be $1.754 billion. He asked what the
revenue is to the North Slope producers over this same time
period in order to arrive at the $1.754 billion.
MS. MORIARTY replied that since AOGA is a trade association it
must comply with strict antitrust laws. She said she therefore
doesn't know the answer to that question because the profits and
returns of individual members cannot be talked about.
2:00:30 PM
REPRESENTATIVE RASMUSSEN addressed slide 19 and keeping Alaska
competitive. She surmised that again changing Alaska's oil and
gas tax structure wouldn't keep Alaska competitive, but inquired
whether from AOGAs perspective - maintaining the stability is
sufficient for keeping Alaska competitive. She further inquired
if something else could be done to make Alaska more competitive.
MS. MORIARTY responded that AOGA is not currently advocating for
any changes to the tax structure, investment opportunities, or
policies in Alaska. At the new administration's request, she
continued, AOGA is identifying regulatory changes. She said
AOGA has met with the Department of Revenue (DOR) on improving
the audit process, the Department of Natural Resources (DNR) on
a couple of policies, and the Department of Environmental
Conservation (DEC) on making things more streamlined and
eliminating duplication in regulation and oversight. She stated
this doesn't mean oversight isn't wanted, but that the oversight
is sometimes duplicative and could be more efficient and
modernized to match the industry's changing technologies.
2:02:28 PM
REPRESENTATIVE HANNAN returned to slide 6 regarding refineries.
She asked how much of the product from those three refineries is
consumed in state and offered her presumption it is 100 percent.
MS. MORIARTY answered it is almost 100 percent in that, while
rare, there are situations where it is shipped out of state.
REPRESENTATIVE HANNAN asked what percent of Alaska's consumption
of those products is being refined in state.
MS. MORIARTY replied she doesn't know the percentage by product
and will get back to the committee with an answer. She pointed
out that products used by Southeast Alaska consumers come up
from refineries in Washington state because transportation costs
are cheaper from there versus Valdez or the Kenai Peninsula.
REPRESENTATIVE HANNAN asked if bunker fuel is a refined product.
MS. MORIARTY responded she is unsure.
2:05:05 PM
REPRESENTATIVE RAUSCHER drew attention to slide 12 and offered
his assumption that [industry] is constantly exploring and
finding new ways to produce oil and gas in the U.S. He observed
from the chart that Russian and Saudi Arabia are holding steady
[in their production]. He asked why they are holding steady and
whether it is by design.
MS. MORIARTY answered she cannot speak specifically to other
countries and what their policies are, she can only tell the
committee what the data shows. She stated slide 12 shows the
combined production of gas and oil and the U.S. has increased in
both oil and gas. At one point in time, she noted, the U.S. was
importing gas and creating terminals to bring more gas into the
country, but now those have been turned into export facilities.
2:06:22 PM
MS. MORIARTY moved to slide 20 and concluded her presentation.
She said it is the industry's great people who bring the oil and
gas out of the ground, refine it, and ship it to market. She
drew attention to a profile in the committee packet of Klint
Vanwingerden, an Alyeska Pipeline Service Company employee. She
said he is part of the next generation of energy workers who are
committed to using the most advanced technologies, engineering,
and pipeline management systems. She further noted that Mr.
Vanwingerden is part of the team striving to ensure that TAPS is
viable for the next 40 years.
2:08:19 PM
SCOTT JEPSEN, Vice President, External Affairs and
Transportation, ConocoPhillips Alaska, Inc., provided a
PowerPoint presentation titled "North Slope Outlook," dated
5/1/19, regarding his company's plans on the North Slope. He
displayed slide 2 and noted that because he is making forward-
looking statements, committee members might want to read the
cautionary statement.
MR. JEPSEN explained the map on slide 3 shows the areas on the
North Slope where ConocoPhillips has working interests. He said
ConocoPhillips has about a 36 percent working interest in the
Prudhoe Bay Unit, which is operated by BP; a 95 percent working
interest in the Kuparuk River Unit; and a 100 percent working
interest in the Western North Slope (WNS) [comprised of the
Colville River, Greater Mooses Tooth, and Bear Tooth units]. He
explained that the black and white dashed line is the boundary
of the National Petroleum Reserve-Alaska (NPR-A). He pointed
out that the Alpine Field is located within the Colville River
Unit and noted he uses these two terms interchangeably when
talking about Alpine. Mr. Jepsen stated that over the last year
ConocoPhillips increased its ownership of the Kuparuk River Unit
and the Western North Slope. He said ConocoPhillips bought out
its co-ventures there primarily because the company had a
different vision and desire for pace of development there.
2:10:03 PM
MR. JEPSEN said the graph on slide 4 summarizes ConocoPhillips'
perspective on the North Slope and how it has changed over the
years. The steadily declining grey bars, he said, depict his
company's long-range plans as they were in 2013, at which time
the anticipation was for production to be about 100,000 barrels
a day in 2028. The red bars, he stated, depict ConocoPhillips'
present day anticipation that production will rise to upwards of
300,000 barrels a day in 2028 of net production coming from the
company's North Slope working interests. He noted that if the
company's acquisitions were taken out of this the anticipation
would have been for around 250,000 barrels a day. But by any
measure, he continued, it is a radical change in the company's
perspective. He explained the red bars fade out at the top to
indicate that it isn't a hard number because ConocoPhillips has
a lot of running room in exploration and is unsure where that
production is going to peak.
MR. JEPSEN discussed the drivers of transformation listed on the
right side of slide 4. He said the fiscal framework improved in
2013 when the state moved from [House Bill 2001], Alaska's Clear
and Equitable Share (ACES), to Senate Bill 21, an act that made
Alaska competitive for investments again. Over the last few
years, he continued, ConocoPhillips has focused on its core
fields and in Alpine and Kuparuk the increased drilling was
successful. He said technological advancements have been made
in drilling and in some areas of the North Slope ConocoPhillips
is leading what is going on in the shale developments. He
pointed out that the last downturn was tough on everybody and
ConocoPhillips was in a tough spot when oil prices dropped below
$30 a barrel. However, he said, the industry as a whole, not
just in Alaska, took a lot of cost out of the system; for
example, in some places the breakeven cost fell by $20-$30 a
barrel. ConocoPhillips was able to take a lot of costs out of
its system in Alaska, he related, so Alaska is still competitive
with the company's other investments in places like Texas and
North Dakota. The corporate center allocated dollars for
exploration in Alaska, he added, which has been successful and
is driving the shape of the curve depicted on the graph.
2:12:27 PM
MR. JEPSEN moved to slide 5 and reviewed the significant changes
that drilling has undergone. He recalled that during the early
days in Prudhoe Bay, about 1970, a drill site was approximately
65 acres, spacing between wellheads was about 20 feet, and a
radius of 3-4 square miles could be drilled from a single drill
site. Today, he said, the size of a drill site has shrunk to
about 12 acres, spacing between wellheads is about 20 feet, and
a radius of 55 square miles can be developed, depending on
depth, from a single drill site. He related that Doyon Drilling
is now building the next generation of drilling rig for
ConocoPhillips, called an extended-reach drilling (ERD) rig.
The drill site will still be 12 acres, he explained, but [a
radius of] 154 square miles can be developed from this single
drill site.
MR. JEPSEN stated the story gets even deeper because of the
incredible directional drilling technology being employed right
now. He related that if the ERD rig was in the ConocoPhillips
tower in Anchorage it could drill over to the south side of
Anchorage and put that drill bit inside Cabella's gun safe. He
further related that in 2018 in the Alpine Field, ConocoPhillips
set the record for the longest horizontal well drilled in North
America - 21,000 feet in zone. To do this, he explained, a hole
was cut in the side of the primary wellbore through which the
directional drilling assembly went out and into the producing
sand. Even though faults may have shifted that sand up or down,
he said, the directional drilling assembly could be kept in that
sand because the contractors have tools that can see ahead.
When faults are seen, the drill bits are adjusted through
pressures in the drilling mud to go around the fault and then
back into the sand. Mr. Jepsen said another lateral was drilled
above that, giving another 10,000 feet in zone before running
out of sand, and therefore one wellbore had over 31,000 feet,
about six miles, of [pay, which is defined as a reservoir or a
portion of a reservoir that contains economically producible
hydrocarbons]. He compared this to Prudhoe Bay in the 1970s
when only 280 feet of pay would have been open to the wellbore.
MR. JEPSEN stated this technology makes a huge difference:
smaller drill sites, fewer drill sites, fewer roads, less
gravel, fewer pipelines, and fewer wells. He said this means
that accumulations can now be developed that probably would not
have been economic 20 years ago. A lot of this technology is
technology that is being used in the shales, he continued, but
ConocoPhillips is pushing that horizontal technology further in
Alaska than it has been pushed in the shale places.
2:15:58 PM
REPRESENTATIVE RASMUSSEN asked when the extended-reach drilling
technology is going to be rolled out. She further asked what
the cost savings look like from the efficiencies realized from
this larger underground footprint.
MR. JEPSEN replied that ConocoPhillips anticipates having the
ERD rig up on the North Slope in April 2020 and said the cost
savings are highly dependent upon where the company will be
developing. He noted that today's 55 square miles compared to
[154] square miles means that one-third fewer drill sites will
be needed.
REPRESENTATIVE RASMUSSEN inquired whether it would be reasonable
to say that one-third more production could be done within the
same cost if using the ERD.
MR. JEPSEN responded that it's not that simple because it's
dependent upon the field being developed, the reservoir quality,
and the reservoir thickness. However, he added, it does allow
for the drilling of things that couldn't otherwise be reached
because putting a drill site out there wasn't affordable. Also,
he said, it will allow for thinner sands that couldn't have been
produced with conventional technology.
2:17:12 PM
REPRESENTATIVE HANNAN inquired whether there has been a change
in the rigidity of the drill pipe itself as well as the robotics
going through it.
MR. JEPSEN answered that there are no robotics. He explained
that with these much more advanced systems the driller has a two
dimensional (2-D) picture, but gets a good view in terms of 3-D
of where that drill bit is in the ground, where the wellbore is,
and where all the other wellbores of a site are. Regarding the
pipe's rigidity, he said there is no new technology - the pipe
has a certain amount of degrees of bend per 100 feet and that is
considered when determining where to kick off the wellbore. He
added that there is another type of rig called a coiled tubing
drilling rig, where the tubing is run into the hole and can be
bent almost vertical in a short turn radius of about 100 feet.
He explained it looks like an oversize garden hose on a spool,
with a continuous drilling string of 10,000-12,000 feet of
coiled tubing on a single spool. He said ConocoPhillips has
deployed coiled tubing for going back into existing fields,
primarily for bypassed oil in places like Alpine, Kuparuk, and
Prudhoe Bay. He stated it accounts for a tremendous amount of
his company's production right now; for example, about 30
percent of Kuparuk's current production.
2:19:34 PM
MR. JEPSEN turned to slide 6 and continued his presentation. He
said the map depicts the various projects that ConocoPhillips is
progressing on the Western North Slope. He related that CD5 was
started in 2012, GMT1 is on stream, and that the company is now
moving ahead with GMT2, Fiord West, and Willow. Fiord West, he
noted, is located in the northwest corner of the Alpine Field
and is the reason for building the ERD rig. He elaborated that
ConocoPhillips was unable to figure out a way to economically
develop its leases there given they are on the coastline, a very
sensitive place to permit. He said the ERD rig is going to
allow development of that accumulation from the CD2 drill site.
About 12 acres of gravel have been put down to accommodate the
new wells, he stated, but no pipeline or roads will be needed on
the coast and the difficulty of permitting on coastal wetlands
will be avoided. Basically, he continued, the ERD rig is going
to allow development of an accumulation that couldn't have been
developed otherwise. He said current estimates are for a peak
production of about 20,000 barrels a day from the Fiord West
leases, a substantial addition to the Alpine Unit. He reported
that ConocoPhillips is currently in the process of building GMT2
and first oil is expected in 2021 at probably 35,000 barrels a
day of production. He noted that for projects like GMT1 and
CD5, the peak workforce of about 700 construction jobs is during
the winter. ConocoPhillips sources most of those construction
jobs out of the union halls in Fairbanks, he pointed out, since
hiring as many Alaskans as possible is a focus of the company.
He added it would be about $1 billion in gross to develop GMT2.
2:21:37 PM
MR. JEPSEN related that the Willow Discovery, announced in 2017,
is a substantial discovery at potentially 100,000 barrels a day.
Displaying slide 7, he elaborated on the development plan for
the Willow Discovery. He said BT1, BT2, BT3, BT4, and BT5 in
the Bear Tooth Unit are going to be the drill sites for the
Willow development. He stated the production will be large
enough and far enough away from existing facilities that a new
central processing facility will need to be built at the
location on the map labeled WCF [Willow Central Facility].
Other opportunities, he noted, are Greater Willow 2 (GW2) and
GW1, a discovery made last year that is called West Willow. The
core plan right now, he continued, is to use these sites to
produce at Willow.
MR. JEPSEN specified that between the Willow Discovery and a
couple of others, ConocoPhillips has found an estimated 500
million to 1.1 billion barrels of resource and the goal now is
to translate that into reserves. He pointed out that resource
doesn't mean reserves, it just means something is out there and
now it must be determined if it can be produced economically.
Willow accounts for 400-750 million barrels of the estimate, he
said, and the process now is to narrow that to better understand
what the accumulation looks like. He stated it is going to cost
about $2-$3 billion in investment before getting to the first
drop of oil; this money will be used to build roads, pipelines,
the central production facility, and the initial wells. He
added that another $2-$3 billion would be spent to drill up the
rest of the project. He noted that places like West Texas don't
require $2-$3 billion, generally speaking, to get out there and
drill. However, he continued, in some instances there isn't
infrastructure and pipelines; for example, ConocoPhillips had to
do some of that in its Permian Basin and Eagle Ford Shale
Formation production. He said that for Willow, ConocoPhillips
expects a final environmental impact statement (EIS) from the
Bureau of Land Management (BLM) in the last half of 2019 and a
Record of Decision (ROD) is expected in 2020.
MR. JEPSEN drew attention to other discoveries shown on slide 7.
He said ConocoPhillips discovered Stony Hill and Putu last year,
but that Stony Hill is [not close to] infrastructure and the
best way to develop this discovery is still being determined.
Putu, he continued, is located inside the Colville River Unit
and it is anticipated that another gravel pad will be put down
and the discovery produced back through the Alpine facilities.
He related that ConocoPhillips believes some of the Narwhal
Trend or Nanushuk Trend can be drilled from CD4. He said a test
well was drilled over into the Narwhal this last season and the
hope is to drill another well off CD4 later in 2019 to continue
trying to understand the geology of this particular exploration
play, as well as to potentially inject water to have a long-term
test out of this play. Getting those tests, he explained, helps
to understand the long-term producing potential.
2:25:08 PM
REPRESENTATIVE HANNAN observed on the map on slide 7 a circle
delineated by red dashes and labeled "new gravel mine." She
asked what the other circles with dashed lines indicate.
MR. JEPSEN explained the red circle is the most likely new
gravel source with regard to Willow because the company's
current gravel source is across the Colville River and is a
longer haul to bring gravel over to Willow. The more that haul
can be shortened the less the development costs, he said, and
the hope is to find something even closer. But, he added, there
aren't a lot of good gravel sources going west in the NPR-A. He
said the other circles near GW1 and GW2 identify that there is
some exploration and production.
REPRESENTATIVE HANNAN observed on the map on slide 7 a solid
blue line that turns into a dashed line. She inquired whether
this line indicates a road.
MR. JEPSEN responded that this is an ice road, not a full-time
road. He said it is basically the road system: from CD4 the
road can be taken to CD5 and GMT1, he thinks the road to GMT2 is
in, and then a road will be built to WCF. He specified that a
pipeline is also going to be built to take production from the
Willow Central Facility back over to the Alpine pipeline, which
then runs to the Kuparuk pipeline, which then runs to TAPS.
REPRESENTATIVE HANNAN observed a line on the map on slide 7 that
connects BT4 with BT1 and BT2. She asked what it represents.
MR. JEPSEN answered that it is a spine road and that pipelines
will be [built] there as well.
2:27:25 PM
REPRESENTATIVE RAUSCHER inquired whether ConocoPhillips is going
to be able to keep up with, and build new pads as good as, those
built by Hilcorp at Moose Pad at Milne Point.
MR. JEPSEN replied he is unaware of anything significantly
different [between the pads of the two companies].
2:28:16 PM
MR. JEPSEN displayed slide 8 and resumed his presentation. He
summarized the exploration work done by ConocoPhillips in 2019:
eight wells were drilled; an exploration well was drilled on
Cairn, which was drilled off of gravel at Kuparuk; the Putu well
was drilled off of CD4 into the Narwhal; seven well tests were
done; two reentries were made in Willow and four other new wells
were drilled; two rigs were running; there were about 54 miles
of ice roads for the exploration program and about 147 miles
equivalent for all of the work done by ConocoPhillips in the
NPR-A; and about 400 jobs were associated with the exploration
projects.
MR. JEPSEN said the map on slide 8 depicts the exploration
prospects that ConocoPhillips has yet to drill. He explained
that Willow, West Willow, and the Narwhal Trend are discoveries,
while the dark orange blobs are potential accumulations that
have been identified from seismic. ConocoPhillips has only
tested about 25 percent of its exploration portfolio, he pointed
out. The company plans to start drilling next year in some of
these additional opportunities in the hope of finding more oil,
he said, which is the reason why the red bars were faded out on
the graph he provided at the start of his presentation.
2:29:41 PM
MR. JEPSEN moved to slide 9 and discussed his company's core
field activity. He said ConocoPhillips currently has seven rigs
running two are workover rigs at Kuparuk, one is a coiled
tubing (CT) rig, three are development rigs, and one is an
exploration rig. But, he added, towards the end of 2019 the
number of rigs will be down to three. He said ConocoPhillips
has about a three rig continuous drilling program that will be
in place by the end of 2019. Once the ERD rig is brought out by
the second quarter of 2020, he continued, the number of rigs
will go up to four for the rest of 2020. The focus at Kuparuk,
he explained, is infill drilling to find pockets of oil that
were missed, as well as continued enhanced oil recovery (EOR)
implementation. He related that ConocoPhillips is providing the
infrastructure for other companies that are developing plays,
such as Caelus, ENI, Brooks Range, and Oil Search. He said
these other companies all drive the roads, use camps belonging
to ConocoPhillips, and use the common carriage pipelines for
moving oil to market. The focus at Alpine, he noted, includes
development drilling at CD5 and Fiord West, and development at
Putu, along with continued EOR implementation.
2:31:19 PM
MR. JEPSEN explained that slide 10 is his company's version of a
map by the Department of Natural Resources (DNR) that depicts
all of the opportunities on the North Slope. The core fields,
he pointed out, still take a lot of attention and are still
where a fair amount of his company's money goes. Those core
fields are the heart and lungs of the North Slope, he advised,
and must be kept healthy because they provide the infrastructure
that makes possible the other smaller developments. He posed a
hypothetical scenario in which all the production from new
developments - like Liberty, Pikka, Nuna, and the places he has
talked about - come on stream in one day, and said the
production would be between 350,000 and 400,000 barrels a day.
In actuality they will come on stream at different times, he
continued. Mr. Jepsen related that, assuming everything talked
about here happens and happens in the timeframe talked about by
proponents, new production could be 200,000 barrels a day with
an estimated $13 billion in capital expenditures (capex) over
the next 7-8 years to develop all of this. He pointed out that
the projects being talked about aren't just concepts, they are
either being built, like GMT2, or are in the permitting process.
He urged members to have confidence that results will be seen
from this.
2:32:51 PM
MR. JEPSEN turned to a map of the Lower 48 on slide 11 and said
the good news story on the North Slope isn't without challenges.
One challenge, he noted, is all the opportunities for investment
elsewhere and the "unconventionals" in the Lower 48 are the
center of gravity for investment. He explained that the green
areas on the map denote oil accumulations in the
unconventionals, with the big three being the Eagle Ford, the
Permian, and the Bakken. He said the areas shown in red are the
natural gas plays, with the Marcellus being a huge accumulation
at 400 trillion cubic feet of gas (TCFG). He pointed out that
the numbers for the Lower 48 unconventionals are multiple
Prudhoe Bays; for example, Eagle Ford's 35-60 billion barrels of
oil equivalent (BBOE) is five times Prudhoe Bay's 13-14 BBOE
recoverable. Therefore, he continued, attracting investment to
Alaska is a big challenge because [the Lower 48] has tens of
thousands of drilling opportunities, has a lower cost of supply,
is closer to market, is easier to permit, and by and large has
had stable fiscal policies. He explained that cost of supply is
the metric that most of the industry is using today and it means
breakeven price at 10 percent discount rate. He added that for
producers like ConocoPhillips, it has been helpful that Alaska's
fiscal policy has been pretty stable since the passage of Senate
Bill 21 and the citizens' initiative.
2:34:25 PM
REPRESENTATIVE SPOHNHOLZ recalled that ConocoPhillips had a goal
a few years ago of trying to get production in Alaska to be
profitable at $40 per barrel. She asked where the company is in
that process.
MR. JEPSEN replied that that is still the goal because competing
for capital cannot be done without meeting that hurdle.
REPRESENTATIVE SPOHNHOLZ asked what the timeframe is for meeting
that goal.
MR. JEPSEN responded that ConocoPhillips is doing it.
REPRESENTATIVE SPOHNHOLZ remarked that that is fantastic.
2:34:54 PM
MR. JEPSEN turned to slide 12 and concluded his presentation.
He specified that as a competing business, ConocoPhillips must
always have access to lands with more resource. Regarding the
regulatory side, he said Alaska does pretty well, although it
takes a bit longer than other places to get permits. He stated
that having a stable, competitive fiscal environment has played
a key role in his company's decision to continue investing the
billions of dollars that he has talked about. If there were an
increase in the tax rate, he advised, it could be expected that
ConocoPhillips would act like rational investors by looking at
the economics, and if not competitive then those dollars would
go elsewhere since the company does not lack for opportunities.
2:36:20 PM
DAMIAN BILBAO, Vice President, Commercial Ventures, BP Alaska,
along with Scott Digert, provided a PowerPoint presentation
titled "House Resources," dated May 2019. He displayed slide 2
and said the top left graph depicts global oil demand to the
year 2050. He said today's demand is about 100 billion barrels
a day and BP sees that continuing to increase with a billion
more people expected on the planet through 2050, two billion of
them currently without access to primary energy who are going to
continue to seek that access moving forward. But, he noted, a
diversified [energy] supply is seen coming from renewables and
natural gas, and so as the 2040s and 2050s are approached BP
sees a tip over point" in global oil demand. However, he
continued, an interesting dynamic is seen when looking at oil
supplies, which are depicted on the bottom right graph. He
explained that the left bar on the graph depicts all the barrels
that are in the ground in various regions around the world and
the right bar depicts the sum of all the demand that is
represented on the top left graph. He pointed out that there
are two barrels in the ground around the world for every barrel
that is going to be required over the next several decades,
meaning half of those barrels are going to end up not being
produced while the rest of the barrels compete for investment
and make their way to market. So, he asked, where does that
position Alaska in that conversation?
MR. BILBAO turned to slide 3 to answer this question. He
explained that the graphic shows how all the different barrels
of oil in the ground around the world compete against each other
on a cost supply basis in the year 2025, assuming 10-12 million
more barrels of oil are going to be required. He said looking
from left to right along the x-axis shows there is a long list
of oil sources throughout the Lower 48 and around the world that
are going to be cheaper to produce than Alaska. He noted that
Alaska is in the third quartile of competitiveness relative to
other potential sources. He further noted that Alaska becomes
more or less competitive (moves left or right on the graph,
respectively) for investment depending upon whether [Alaska's
industry] becomes more efficient, uses new technology, or counts
on a change in the fiscal regime. He reminded committee members
that when Senate Bill 21 passed [in 2013], the legislature's
consultants said Alaska would move from the fourth quartile of
competitiveness into the third quartile, which is what this
slide from Wood Mackenzie reflects today.
2:40:00 PM
REPRESENTATIVE HANNAN returned to slide 2 and asked what "CIS"
stands for in the bar labeled technically recoverable resources.
MR. BILBAO replied it is former Soviet countries. Responding
further, he confirmed that Russia is included in that.
2:40:32 PM
MR. BILBAO moved to slide 4 and resumed his presentation. He
said the graphic provides a comparison of six years under
Alaska's Clear and Equitable Share (ACES) and six years under
Senate Bill 21. He pointed out that [during the time under
ACES] the overall production from the North Slope, or production
down TAPS, declined by 185,000 barrels a day, an equivalent to
more than 1.5 times the size of Kuparuk, the second largest
field in North America when it was discovered. After six years
under Senate Bill 21, he continued, there has been a flattening
of production to [a decline] of 18,000 barrels a day. He
explained this is because investment has shifted to Alaska in a
way that wasn't there during ACES and because Senate Bill 21
creates a fundamental policy incentive and requirement for
production. To offset [Alaska's] high 35 percent base rate, he
said, the producer needs to pull the barrels out of the ground
and bring the barrels to market to earn the credits, and so the
policy of Senate Bill 21 is working.
MR. BILBAO turned to slide 5 and discussed what a 1 percent
decline under Senate Bill 21 versus a 6 percent decline under
ACES means for the State of Alaska going forward for 40 years.
He explained the graph takes a common starting point and the top
light blue line is a 1 percent decline and the dark blue line is
a 6 percent decline, and the difference between them is an
additional $50 billion of revenue to the state under a 1 percent
decline. He said policies that incentivize production and
encourage a decline of 1 percent or less are going to result in
greater revenue to the State of Alaska over time. He added that
BP Alaska believes there is at least another 40 years of oil to
produce from the North Slope that can compete in the very
competitive landscape he previously talked about.
2:43:14 PM
REPRESENTATIVE RAUSCHER referenced the ongoing argument over
whether credits should be repealed. He inquired how repeal of
the credits would factor into the way that BP Alaska would look
toward production and exploration.
MR. BILBAO offered his recognition of the difficult challenge
before the legislature. In regard to how repeal of the oil tax
credits would affect BP Alaska's investment decisions, he said
it would effectively raise taxes on the industry by $1.3
billion. Referring to the graph on slide 3, he said a $1.3
billion tax increase on the industry would shift Alaska to the
right in competitiveness and would cause other places around the
world to compete more effectively for investment. For example,
he continued, the many fields in the Lower 48 that are multiples
the size of Prudhoe Bay, that are closer to market, and that are
without Arctic conditions would compete more effectively if
Alaska were to shift to the right.
REPRESENTATIVE RAUSCHER recalled that the previous presentation
had Russia steady and Saudi Arabia very steady. He asked why
these countries are so steady in their production.
MR. BILBAO answered that keeping a field flat is incredibly
challenging, so keeping a Russian or Saudi Arabian field flat
requires a tremendous amount of investment to start with.
Second, he said, a technological shift in U.S. production has
enabled the shale revolution and is increasing the productivity
of each well that is drilled. So, he continued, there is more
production per well and more production in areas where there was
no production before, while at the same time mature production
is being seen in other places around the world. He qualified
that this is his judgment and therefore he would have to go back
and look at the data to verify his answer.
2:46:49 PM
REPRESENTATIVE RASMUSSEN asked what kind of impact it would be
to reduce the tax credits by $1 instead of repealing them.
MR. BILBAO performed a "back of the envelope" calculation. He
calculated that if the total in credits is $1.3 billion when it
is $8 a credit, reducing it $1 is one-eighth and so a reduction
of about 12.5 percent, which would be a tax increase of about
$162 million for each $1 change in the tax credit. He qualified
that this would vary depending on oil price and company, but
that a tax increase of $162 million is the equivalent of
multiple rigs running on the North Slope for a year, so it would
be a material impact on industry's ability to fund activity.
REPRESENTATIVE RASMUSSEN asked how much impact on production
would a tax increase of $150 million cause.
MR. BILBAO answered he cannot state specifically what it would
be for that amount, but he can say that going from a 1 percent
decline to a 6 percent decline would mean about 25,000 fewer
barrels a day going down TAPS each year, which then compounds
itself. He said 25,000 barrels a day less per year is the
equivalent of one or two new oil fields coming online in a year.
2:48:38 PM
SCOTT DIGERT, Resource Development Area Manager, Greater Prudhoe
Bay, BP Alaska, Alaska, displayed slide 6 and said that in 2017
BP Alaska celebrated the 40th anniversary of Prudhoe Bay's
startup, which was significant because the field was designed to
operate for 30 years. Now, 40 years later, he continued, 12.7
billion barrels have been produced, a third more than the
original estimate of 9.6 billion recoverable barrels. Referring
to the PBS40 Prudhoe Bay Seismic Survey, he said "PBS40" was
shortened from "PBS40More" and the aspiration now is how to
sustain Prudhoe Bay for another 40 years and how to provide the
continuing level of investment, technology, innovation, and hard
work that has gotten BP Alaska to where it is today.
MR. DIGERT moved to slide 7 and said the jagged grey dashed line
delineates the Prudhoe Bay Unit boundary. Two surveys have been
done, he noted. The 2015 seismic survey was conducted offshore
with boats and shallow water techniques and the land survey used
a new technique called Independent Source and Sweep (ISS), which
enabled a lot more area to be covered with the same number of
vibrator units running at the same time. The ISS technique
worked so well, he stated, that in 2019 the technology was used
to do the PBS40 survey on the rest of Prudhoe Bay. The 450
square miles completed this winter would previously have taken
two to three seasons to shoot, he explained, but with the new
ISS technology it only took one season and provided a 10-fold
increase in the data density. So, ISS is better and larger at
the same time, he added.
MR. DIGERT reported that BP Alaska is now going back into its
computing system and joining the 2015 and 2019 surveys. He said
that for the first time in Prudhoe Bay's history, the company
has one survey using equivalent technology over the entire
field. This is significant, he elaborated, because it is the
basis used to target new wells and is about refining the
targeting to smaller and smaller targets to find the right
places to drill. He recalled that the initial wells drilled in
Prudhoe encountered a nearly 400-foot oil column so targeting
wasn't difficult another well was just drilled 1,500 feet away
from the last well and oil would be there. Now, he said, it is
down to columns that are 15-20 feet thick and having to go into
very small faulted compartments that may not have already been
swept by oil or water. Right now, he explained, Prudhoe is
mostly filled with gas, has a lot of water, and has a little bit
of oil left, so getting back to these oil pockets that BP Alaska
is drilling for requires better and better resolution and that
is what this survey is meant to do.
2:52:32 PM
MR. DIGERT discussed the schematic on slide 8 depicting how the
survey was executed. He said the survey started on the west
side of the unit and worked across to the east. He brought
attention to the area labeled "Ice Check" and explained that
equipment is moved ahead of the survey units to look at the ice
thickness on lakes and rivers to determine if the ice will
safely hold the 90,000-pound vibrators and if hazards like
snowdrifts and steep banks have been correctly located. In
every unit is a sophisticated GPS system that has all of the
hazards marked automatically so it is known when a unit is
entering a hazard zone or a safe zone, he said. Behind the ice
check equipment, he continued, geophones are put down (green
area labeled "Layout"), to receive the signal from the vibrators
and the information is actually recorded on the geophones in the
blue area labeled "Active." Following that is the red line
labeled "Vibes," which is where the vibrators are actually
operating, he said.
MR. DIGERT elaborated that about a dozen tracked vehicle
vibrators are used, each with a big plate in the middle that
presses down under the snow and acts like a speaker, with a
sweep from 3 hertz to about 105 hertz over 30 seconds, which is
equivalent in a sonic register to the very low base end of a
home stereo. This wave of low base rumble, he explained, is
picked up as it passes down through the ground and every time it
transitions from one kind of rock strata to another it causes a
reflection that is picked up by the geophones. When done enough
times, he said, it results in a very detailed 3-D image of what
is down below. The vibration cannot be heard or felt, even when
standing right next to the vibrator, he added. Each time after
the plate goes down and comes back up, he said, the rig moves
100 feet ahead and does it again. Work is conducted about five
miles ahead of the vibrators and the geophones are picked up
about five miles behind the units, he continued. Once the
geophones are picked up, the information is downloaded, the
process is moved to the next row up ahead, and information is
acquired again. He pointed out that the pink area on the far
left of the schematic is the completed area and the area to the
far right has yet to be swept.
2:55:36 PM
MR. DIGERT displayed slide 9 and noted that the top left picture
is the ice check machine, which is a Tucker Snowcat pulling a
ground-penetrating radar unit. He said the ice thickness
information is recorded, and lake ice needs to be at least 55
inches thick for the vibrator units. The middle picture, he
explained, is of a wireless receiver that records to memory.
This geophone/microphone unit is laid on the snow and includes a
battery, receiver pack, and recording unit, he elaborated.
Twenty days later it is picked up, the information downloaded,
the data cleared, and then it is deployed again. The right
picture, he said, is of a vibrator unit on wheels rather than on
tracks, which saves almost 35,000 pounds of weight.
MR. DIGERT turned to slide 10 and concluded his portion of BP
Alaska's presentation. He summarized by highlighting that the
[2019 PBS40] seismic survey: covered 450 square miles; was
accomplished in one season (three months); was finished on
4/17/19; acquired 561,000 sources; had 78,00 receiver locations;
acquired 7.5 billion traces, a trace being one source to one
microphone; and the units were driven the equivalent of twice
around the world at the same latitude. He said super-computers
located in Houston, Texas, will now process the more than 52
terabytes of information. The information is expected to be up
on BP Alaska's office computers by mid-summer, he continued, and
he expects to start generating targets by the end of the year.
If successful, this will feed the next decade or so of drilling
at Prudhoe Bay, he stated.
REPRESENTATIVE HANNAN asked how long the vibration cycle is once
the plate touches the ground.
MR. DIGERT replied it takes 35 seconds to do one sweep and then
the unit is moved another 120 feet and it is done again.
2:58:54 PM
J. BENJAMIN JOHNSON, President/CEO/Director, BlueCrest Energy
Inc., provided a PowerPoint presentation titled "BlueCrest
Cosmopolitan Overview," dated 5/1/19. He began by pointing out
that the major oil companies have tremendous assets and huge
staffs, while BlueCrest is a tiny company. He said BlueCrest
and other small companies coming to Alaska have brought state-
of-the-art technology. Turning to a map of Cook Inlet Basin on
slide 2, he noted that BlueCrest's Cosmopolitan Field is the
southern-most field in Alaska.
MR. Johnson moved to slide 3 and stated that the Cosmopolitan
Unit is located offshore, has had 11 wells drilled, and a 3-D
seismic survey and analysis have been done. He said BlueCrest
knows that about one-half billion barrels of oil and about one-
quarter of a trillion cubic feet of gas are in the ground there,
but it is unknown how much of that the company will be able to
get out of the ground and when.
CO-CHAIR TARR requested Mr. Johnson to point out the location of
the onshore surface lease.
MR. JOHNSON replied it is about seven miles north of downtown
Anchor Point on the edge of Cook Inlet.
3:00:51 PM
MR. JOHNSON displayed slide 4 and resumed his presentation. He
explained that this oil and gas discovery is located three miles
offshore. However, he continued, BlueCrest did not want to put
in an offshore oil platform to develop the reservoir, so an
extended-reach drilling (ERD) rig is being used to drill the
wells from onshore and there is no chance of an offshore oil
spill with this method. He noted that BlueCrest's ERD rig is
currently the most powerful drilling rig in Alaska, but it will
be surpassed when ConocoPhillips gets its new ERD rig going. He
stated that the Cosmopolitan gas supply is dry, no liquids are
produced with the gas, and the plan is to develop this gas with
a subsea option.
MR. JOHNSON said the picture on slide 5 is of BlueCrest's
onshore facility. He explained the picture looks to the west
[across Cook Inlet] and the subsea reservoirs are delineated on
the picture. He noted slide 6 depicts the onshore facility's
layout and said the facility will handle as much production as
will ever be needed there.
MR. JOHNSON projected slide 7 and stated that to his knowledge
BlueCrest is the first in the world to drill down and then up by
using extended reach drilling, as depicted by the black line on
the schematic which represents a recently drilled well called
the H12. In the H12, he said, BlueCrest drilled over 31,000
feet of total measured depth, a massive project. He moved to
slide 8 and explained the schematic is a 3-D seismic subsurface
rendering of two of the many different sands [in the
Cosmopolitan structure], the top one being a gas sand and the
bottom one an oil sand. He drew attention to the well paths
going into the sands. Moving to slide 9, a schematic of current
Cosmopolitan well paths, he said these "fishbone" wells have yet
to be seen anywhere else in the world the wells are drilled
down and then up and each rib is the equivalent of one well
drilled from the surface onshore
3:03:47 PM
CO-CHAIR TARR inquired whether BlueCrest or someone else
developed this fishbone technology.
MR. JOHNSON responded that BlueCrest developed this technology
itself, using its great technical staff and consultants, many of
whom work with people on the North Slope.
3:04:06 PM
MR. JOHNSON moved to the schematic on slide 10 and continued his
presentation. He stated that BlueCrest has proven it can drill
fishbone wells and is now working on the next generation. He
said BlueCrest is currently permitting its next well, which will
be three fishbone wells out of one main wellbore to the surface.
He pointed out that this reduces the cost of the well and
tremendously speeds up the time to production.
MR. JOHNSON said the production graph on slide 11 shows where
things currently are. He explained that new wells come on but
decline quickly at first and then level out, and more wells are
drilled, and they decline. Right now, he said, BlueCrest is
producing 1,800-2,000 barrels a day of oil and about 7 million
cubic feet a day of gas. He noted that each 1 million cubic
feet a day of gas is equivalent in royalty to the state of about
100 barrels of oil. But, he added, this is just the start.
MR. JOHNSON turned to slide 12 and reported that BlueCrest has
about 20 more wells it can drill and develop [in Cosmopolitan].
The key here is stability, he stressed, BlueCrest chose to come
to Alaska because of the state's extremely positive tax credit
program. The company invested roughly $150-200 million before
getting the first drop of oil, he said, but at that point the
tax credit program suddenly changed. BlueCrest was able to
adapt to that, he continued, but then it didn't receive the
money it was owed for the tax credits, which made another
challenge. BlueCrest is working through that and will get this
development done, he stated. However, he related, BlueCrest is
a little company and must therefore deal with investors every
month when it comes to needing more money for this or that.
These investors invest all over the world, he advised, and it is
absolutely a competition between what he is vouching for in
Alaska and other places around the world. He said he therefore
encourages committee members to please provide a stable
environment, wherever it is. He offered his opinion that right
now it works, and companies are investing in today's
environment. He pointed out that even a little change is a
little leak in the dam and causes investors to worry that the
policy is going to be changed going forward.
3:07:23 PM
REPRESENTATIVE RASMUSSEN offered her appreciation to all the
presenters. She agreed that a change viewed as small by the
state would increase the costs to investors and be viewed as a
substantial change. She offered her hope that the state will be
able to keep continued stability for oil and gas.
MR. JOHNSON responded that changing [the tax regime] in any way
is important because that signals instability and uncertainty
for the future. He again encouraged it be kept constant.
3:08:09 PM
REPRESENTATIVE HANNAN related that members receive a lot of
political pressure, especially in the current situation, to
resolve the state's fiscal dilemma. The two things that get
talked about the most often, she said, are repealing the oil tax
credits and the other is instituting an income tax. She noted
that members hear from industry about the tax credits, but not
about an income tax. She inquired whether Mr. Johnson is in a
position where he could answer with his personal opinion.
MR. JOHNSON replied he cannot answer personally and is not
prepared today to talk about an income tax. However, he added,
an income tax is another tax and an increased cost to industry
as well as to people.
REPRESENTATIVE HANNAN asked whether BlueCrest is a corporation
or a limited liability company (LLC).
MR. JOHNSON responded that BlueCrest is a corporation.
MR. JOHNSON, in response to Co-Chair Tarr, confirmed BlueCrest
is privately held by investors and is not publicly traded.
3:09:20 PM
REPRESENTATIVE TALERICO noted he always checks on the safety
records of the companies in Alaska because it is important to
always send employees home in the same condition that they came
to work in. He expressed his appreciation for the safety
records of the companies in Alaska.
MR. JOHNSON concurred that protecting employees, as well as the
environment, are the most important things and that profits are
secondary. He said this has worked and BlueCrest has a very
good safety record.
3:11:17 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:11 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HRES AOGA Presentation 05.01.19.pdf |
HRES 5/1/2019 1:00:00 PM |
HRES Oil & Gas Presentations |
| AOGA Supporting Document - CookInlet Activity Map - Oct 2018.pdf |
HRES 5/1/2019 1:00:00 PM |
HRES Oil & Gas Presentations |
| AOGA Supporting Document - NSActivity Map - Oct. 2018.pdf |
HRES 5/1/2019 1:00:00 PM |
HRES Oil & Gas Presentations |
| AOGA Supporting Document - Optimizing Pipeline Performance Article.pdf |
HRES 5/1/2019 1:00:00 PM |
HRES Oil & Gas Presentations |
| HRES BP Presentation 05.01.19.pdf |
HRES 5/1/2019 1:00:00 PM |
HRES Oil & Gas Presentations |
| HRES BlueCrest Energy Overview 05.01.19.pdf |
HRES 5/1/2019 1:00:00 PM |
HRES Oil & Gas Presentations |
| HRES ConocoPhillips Presentation 05.01.19.pdf |
HRES 5/1/2019 1:00:00 PM |
HRES Oil & Gas Presentations |