Legislature(2021 - 2022)SENATE FINANCE 532
01/27/2021 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Committee Organization / Introduction of Members and Staff | |
| Department of Natural Resources - Production Forecast | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE FINANCE COMMITTEE
January 27, 2021
9:02 a.m.
9:02:24 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman
Senator Donny Olson
Senator Natasha von Imhof
Senator Bill Wielechowski
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Representative Dan Ortiz
PRESENT VIA TELECONFERENCE
Corri Feige, Commissioner, Department of Natural Resources
(DNR), Anchorage; Maduabuchi Pascal Umekwe, Commercial
Analyst, Department of Natural Resources, Anchorage.
SUMMARY
^COMMITTEE ORGANIZATION / INTRODUCTION OF MEMBERS AND STAFF
9:03:00 AM
Co-Chair Stedman introduced the committee members, staff,
and protocol of the Senate Finance Committee.
9:06:47 AM
Co-Chair Bishop introduced his staff. He stated that the
Capital Budget will take some time to develop and "unpack."
Senator Olson introduced his staff.
Senator Wielechowski introduced his staff.
Senator Wilson introduced his staff.
Senator Hoffman introduced his staff.
Senator von Imhof introduced her staff.
9:10:17 AM
Co-Chair Stedman remarked on the experience of the members
and staff represented on the committee. He introduced the
support staff for the committee. He highlighted the
protocols and rules of the committee meetings.
9:18:41 AM
Co-Chair Stedman commented that there was an intent to
quickly complete the work on the operating and capital
budgets. He noted that there may be a point to slow down
the process in order to accommodate the pace of the other
body.
^DEPARTMENT OF NATURAL RESOURCES - PRODUCTION FORECAST
9:21:28 AM
CORRI FEIGE, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES
(DNR), ANCHORAGE (via teleconference), introduced herself.
She discussed the presentation, "Fall 2020 Production
Forecast SFIN Committee; Maduabuchi Pascal Umekwe, PhD;
Alaska Department of Natural Resources, Division of Oil and
Gas; January 27, 2021" (copy on file). She remarked that
the last year would show the durability of Alaska's
producers. She noted that there was significant reductions
in personnel.
Commissioner Feige looked at slide 2, "Outline":
?Background
o 2020 Pandemic and North Slope oil production
o FY2020 in review
?2020 Production Forecast
o Result highlights
o FY2021 Outlook
o Ten-year outlook
?Summary
Commissioner Feige highlighted slide 3, "2020 Pandemic-
Related Production Disruptions." She believed that even
with all the pandemic-related issues, North Slope
production remained comparable to prior years.
9:24:07 AM
MADUABUCHI PASCAL UMEKWE, COMMERCIAL ANALYST, DEPARTMENT OF
NATURAL RESOURCES, ANCHORAGE (via teleconference),
continued to discuss slide 3. He looked at the top left
corner, which had the production and the oil prices. He
remarked on the change in oil prices within two weeks. He
highlighted some aspects of the slide:
March: 2020 CAPEX cut announcements by CPAI and Eni
Global (totaling >$2.5B)
April: More 2020 CAPEX cuts (XOM, COP totaling over
5B), NB drilling fleet demobilization (BPXA, DPAI),
Alyeska Pipeline 10 percent to 15 percent proration;
CPAI announces 100kbopd Mr. Steininger production cut
July: HAK becomes GPBU operator; CPAI returns
curtailed production in KRU and CRU.
November: CPAI announced plans for Dec 2020 Mr.
Steininger drilling restart.
9:29:43 AM
Mr. Umekwe looked at slide 4, "Production and the 2020
Pandemic: Medium/Long Term Effects":
o Every year of drilling contributes to long term
rates. Production from new wells helps to mitigate
overall NS production decline. For example, some past
years of drilling contribute on average 3 percent to 8
percent of annual NS production for almost a decade.
o Laydown of drilling rigs in the FY2020/FY2021 is
expected to impact NS production decline in the short
term as well as the long term. FY2020/FY2021 undrilled
wells constitute a set of 'Missing Wells' that would
typically mitigate decline for periods beyond the year
the wells are drilled.
o 'Compensatory' production enhancement activities
could mitigate this 'lost development drilling' impact
in the short term.
9:31:48 AM
Mr. Umekwe addressed slide 5, "Overall Perspective: North
Slope":
? On average, modest decline in production over the
last 5 Fiscal Years:
o FY16 to FY20 on average annual 1 percent
decline in production
Recent Major Changes in Production
o Prudhoe Bay Unit: Change of operatorship;
strong ongoing production optimization efforts
o Kuparuk Unit : Natural decline; pandemic
related production disruption /interrupted rig
activity
o Colville River Unit: Natural decline; pandemic
related production disruption /interrupted rig
activity
o Milne Point: 28 percent growth (FY19 to FY
20)-M, L, I pad drilling.
o PTU: Progressively improved facility
reliability
Future Projects coming in:
o Near future:
Fiord West Development, GMT2, Raven Pad in
Milne Point Unit, CD5 Expansion
o Farther out:
Pikka: FEED 2021
Willow: FEED; FID YE 2021
9:36:19 AM
Co-Chair Stedman looked at slide 5, and the reconciliation
of the barrel production. He felt that it did not coincide
with the Revenue Sources Book.
Mr. Umekwe replied that looking at the Revenue Sources
Book, there was a footnote that spoke to specific
differentiations between the two departments. He remarked
that DNR focused on the volumes as reported by the Alaska
Oil and Gas Conservation Commission (AOGCC). He noted that
some assets were used in the North Slope and the Trans-
Alaska Pipeline System (TAPS).
Co-Chair Stedman requested a memo in writing highlighting
that concern.
Co-Chair Bishop wondered whether the 10,000 bpd was for the
enhanced oil recovery.
Mr. Umekwe replied in the affirmative.
9:39:06 AM
Mr. Umekwe highlighted slide 6, "Status Update of Key
Future Projects: North Slope":
Moose Pad Development
Production is online. Production rate 5000 BOPD
Production is online. Production rate 9700+ BOPD
Peak rate: 22,000 barrels of oil per day
CD5 2ndExpansion
Ongoing drilling
Ongoing drilling by YE 2020 after Covid-related
interruption
Reaching over 10,000 barrels of oil per day
GMT2
GMT2 Sanctioned in Oct 2018
GMT2 First oil YE 2021
Peak rate: 35,000 to 40,000 barrels of oil per
day
Pikka
-Now planned for 2-phases; start of production
(Phase 1: 2022; Phase 2: 2024);
-To move to FEED after 15 percent divestment of
interests
-Now planned for 2-phases; start of production
(Phase 1: 2025);
-To move to FEED 2021; FID & 15 percent AK
divestment YE2021 through 2022
Peak design capacity rate, phase 1: 80,000
barrels of oil per day
Willow
Plan to submit Supplemental EIS.
Record of decision expected Q4 2020
Announced first oil: 2025-2026
Plan to submit Supplemental EIS.
Record of decision achieved, FEED.
FID expected YE 2021.
Announced first oil: 2025-2026
Peak rate: 130,000 barrels of oil per day
Liberty
Final EIS (August 2018). Record of Decision (Oct
2018)
Start up in 2022, pending litigation on Fed
decision.
The 9thCircuit court decision placed project on
hold pending operator appeal to the Supreme
Court.
Peak rate: 60,000 to 70,000 barrels of oil per
day
Senator Wilson asked about more information in the Liberty
lawsuit with Hillcorp, and whether there was anything that
the state could do to help encourage a more favorable
outcome.
Mr. Umekwe deferred to Commissioner Feige.
Commissioner Feige replied that approximately two weeks
prior, the 9th Circuit determined that the process
undertaken by the federal government with the biological
opinions did not fully address the impact of greenhouse
gasses globally. She remarked that it was a question put
forward in past litigation, and
Senator von Imhof wondered how DNR might optimize the flow
of oil through TAPS.
9:44:49 AM
Mr. Umekwe replied that DNR was putting forth significant
effort in increasing TAPS supply. He remarked that the
commissioner may have a presentation related to the
subject. He explained that there was support on the
permitting front. He remarked that production optimization
currently fell to the operators. He stated that, currently,
the operators had made assurances that the well stock was
healthy and ensuring continued production.
Senator Wielechowski wondered about a settlement as related
to Point Thompson. He assumed that everyone was
incompliance with the expectation around production.
Mr. Umekwe noted that Point Thompson was a very unique
reservoir. He stressed that there was recent significant
investment to handle that level of pressure. He stated that
ExxonMobil had brought on high level technology to develop
the assets. He stressed that the growth in production was
related to unlocking the technical challenges.
Co-Chair Stedman felt that the issue of Point Thompson
could be examined at a later date.
9:49:45 AM
Mr. Umekwe discussed slide 8, "Fall 2020 Production
Forecast: FY 2021 Outlook":
For the first 5 months of FY2021 (July 2020 to Nov
2020), on average, daily production has come in within
the range forecasted by the DNR.
Difference between average daily production and mean
forecasted statewide production is 40,000 bbl; related
to operational and production ramp-up timing decisions
Co-Chair Stedman requested a replication of the slide for
FY 22. He also requested the forecast dispersion range for
FY 22.
Mr. Umekwe addressed slide 9, "FY 2021 Production Variance
July-Nov 2020":
Deferred/forestalled summer turnaround maintenance
(TAR) benefits summer oil and NGL production.
Ongoing production optimization efforts improve
facility efficiency, as well as facility and well
uptimes.
Co-Chair Stedman requested that the slide be outlined in a
more orderly matter.
Senator von Imhof stated that the font on the y-axis was
very small.
Mr. Umekwe highlighted slide 10, "Comparing Long-Term
Projections":
DNR forecasts FY2021 average annual production at
470MBOPD and a range of 413MBOPD and 526 MBOPD
DNR's forecast is a snapshot in time, reflecting
current information on all projects considered, as
well as operators' current plans.
Operators' long-term outlook falls within DNR's long
term forecast range.
DNR's mean case falls below sum of the aggregate
of operators' submitted case forecasts, for most
of outlook period, reflecting differences in long
term development case assumptions between DNR and
operators.
10:01:30 AM
Senator Wilson noticed that the operators in production's
numbers in the out years were higher than the previous
year's forecast, and asked for the reason for the
difference.
Mr. Umekwe replied that the previous year was FY 20, and
the operator's numbers for FY 20 were not on the specific
chart. The out years showed a difference, because there was
a specific analysis run utilized some risk, therefore there
would be a difference in what the operator would show.
Mr. Umekwe discussed slide 11, "Long Term Production
Outlook: Production Categories":
Currently producing (CP) fields remain backbone of
state oil production in near and medium term. Near-
term projects under development (UD), often within
existing fields, impact 12-month outlook.
Future fields (UE), which are currently being
evaluated by operators, begin to play a more
significant role in farther out in outlook period.
All new production/projects add to a declining base
production
10:06:11 AM
Senator von Imhof looked at slides 10 and 11, which showed
the low, medium, and high outlooks. The slides also showed
the legacy fields and how the new fields were adding to the
declining base production. She stressed that the goal was
to support the oil industry. She remarked that carbon
energy remained the dominant energy source globally. She
stated the new presidential administration wanted to make
steps toward new alternative energy, and stressed that the
effort would take time. She remarked that, in the meantime,
carbon energy must remain viable. She felt that there
needed to be facilitation in producing the new wells. She
queried DNR's efforts to reach the high production. She
noted that the companies needed to feel secure in the tax
regime and regulations to sustain the industry in the
foreseeable future.
Commissioner Feige replied that Senator von Imhof had
highlighted the outline from the Biden administration. She
stated that there were efforts toward focusing on the state
lands. She stated that DNR was positioned to continue to
offer state lands for lease. She remarked that there was a
continued optimization of the permitting processes to
ensure that applications would be received from explorers
and developers. She stated that DNR was intervening when
necessary, to work federal lands in the state. She stressed
that DNR had an "extremely forward-leaning posture."
10:11:21 AM
Senator Hoffman felt that the current slide was depressing.
He remarked that the underdevelopment line was almost
invisible. He remarked that promises and efforts had been
made by the legislature to attempt to increase TAPS supply.
He noted that those efforts were falling short. He recalled
discussions around whether to go into harvest mode or
adjust the tax structure. He felt that the slide showed
that the state was in harvest mode, even though the new tax
structure was meant to encourage new development. He asked
for some explanation around his perception of the slide.
Commissioner Feige acknowledged that the slide's
undeveloped category only represented the anticipated wells
to be drilled between the period of July 2020 and June
2021, so it was a very small window of time. She remarked
that the slide showed an artificial bias. She pointed out
that at the time of the passage of former legislation, SB
21, none of the new discoveries had been publicized.
10:15:58 AM
Co-Chair Stedman recalled that some of the projects that
claimed to be forthcoming were already in process. He asked
for help with the new federal administration and the DNR
view of the impacts on Alaska's production.
Senator Wilson remarked that there should be an examination
of the federal lands, and the impact of future development.
Co-Chair Stedman queried the tools that the federal
government used to stop and block the development.
Co-Chair Bishop remarked that Hillcorp was a new developer,
and wondered whether they had any permits for infield
drilling to increase production.
10:20:27 AM
Commissioner Feige replied that Hillcorp stepped into the
operation of the Prudhoe Bay unit in June 2020. She stated
that Hillcorp had optimization and cost cutting for
production, and were in the process of developing their new
infield drilling plans. She noted that the next plan of
development would show their plan for infield drilling.
Mr. Umekwe continued to comment on slide 11.
Mr. Umekwe addressed slide 12, "Increasing Uncertainty as
New Fields/Projects Come Online":
Graph above shows seasonal variation in monthly
production as well as widening uncertainty for the
outlook period through 2030.
New fields, currently in appraisal and under
evaluation, are major drivers for medium/long term
uncertainty in overall outlook.
10:26:00 AM
Mr. Umekwe discussed slide 13, "Projects Under Evaluation;
Medium to Long Term."
Ms. Feige interjected that the map on slide 13 contained
the liberty project, which was located on Federal land.
Co-Chair Stedman responded that the committee would discuss
different royalty structures.
Mr. Umekwe displayed slide 14, "New Projects Under
Development/Evaluation: Adding to a Declining Base
Production":
New projects add to a declining base production. In
the absence of new projects, decline of existing
fields expected to exceed the 4 percent to 5 percent
historical decline of the North Slope.
In scope and estimated ultimate volumes, new projects
compare closely with historical PBU/KRU satellites, as
well as some standalone developments such as CRU-
Alpine.
Inclusion of further risks and timing of new projects
is reflected in rates lower than operator-announced
estimates.
Actual outcome and timing of these projects remain
critical in maintaining North Slope historical 4
percent to 5 percent historical decline or the
possibility of flattening or growth in production.
10:31:42 AM
Co-Chair Stedman recalled that there was possibly a two to
three percent decline per year historically. He felt that
the oil basin fit that static common outcome. He wondered
how technology and increases in efficiencies were
considered in the forecast.
Mr. Umekwe replied that the four to five percent was a
historical average decline rate, so it was not a
projection.
10:34:06 AM
Co-Chair Stedman stressed that the same comments were made
ten years prior, and distinctly remember the two to three
percent mark.
Mr. Umekwe discussed slide 15, "Summary":
DNR forecast continues to use the best information
available to DNR/DOR, to generate independent
production outlook for oil fields within the state,
with a focus on generating accurate near-term and
realistic long-term forecasts for planning purposes.
Production from projects under evaluation within the
10-year outlook period reflects uncertainty in
operator plans towards return to drilling activity,
specific project uncertainties, depressed oil prices
and commercial risks, as well as project scope and
timing risks.
DNR forecasts assume steady-state development on
currently producing fields, similar to past history
for all the fields.
While considering a wide range of drivers for
different fields and potential projects, and excluding
specific exogenous production shocks such as
production curtailments, prorations, or the full range
of options available to operators in daily operations,
the DNR forecast has so far provided a reliable range
to guide fiscal planning for the State.
10:39:58 AM
Senator Hoffman commented that Alaska had withdrawn from
the Energy Council, and it seemed that there should be a
reconsideration in the state's participation of the Energy
Council.
Co-Chair Stedman stated that some members had rejoined the
Energy Council.
Co-Chair Stedman discussed the following day's agenda.
ADJOURNMENT
10:44:46 AM
The meeting was adjourned at 10:44 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012721 DNR Fall 2020 Forecast SFIN Presentation.pdf |
SFIN 1/27/2021 9:00:00 AM |
DNR Fall 2020 Forecast |
| DNR SFIN Questions and responses_02052021.pdf |
SFIN 1/27/2021 9:00:00 AM |
DNR Fall Forecast |
| 012721 DNR's Compiled Response to 1-27-21 SFC Mtg.pdf |
SFIN 1/27/2021 9:00:00 AM |
DNR Fall 2020 Forecast |