Legislature(2023 - 2024)SENATE FINANCE 532
01/17/2024 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Production Forecast - Department of Natural Resources | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
January 17, 2024
9:02 a.m.
9:02:02 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Click Bishop
Senator Jesse Kiehl
Senator Kelly Merrick
Senator David Wilson
MEMBERS ABSENT
None
ALSO PRESENT
John Boyle, Commissioner, Department of Natural Resources;
Travis Peltier, Petroleum Reservoir Engineer, Division of
Oil and Gas Alaska Department of Natural Resources, In
room; Derek Nottingham, Director, Division of Oil and Gas,
In Department of Natural Resources
SUMMARY
^PRODUCTION FORECAST - DEPARTMENT OF NATURAL RESOURCES
9:12:32 AM
JOHN BOYLE, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES,
introduced himself. He remarked that the forecast was done
annually to help inform the people of Alaska, and to inform
the decisions of the legislature. He felt that Alaska was
on an exciting trajectory with more development, activity,
and production on the North Slope. He noted the significant
investment in the North Slope, and remarked on the type of
operators in the North Slope. He stressed that there were
multiple projects and commitments that had been years in
the making. He pointed out that the projects were organized
and initiated over the course of years and decades. He felt
that the policies set out by the legislature created a
stable and predictable economic climate for the producers.
9:16:01 AM
Commissioner Boyle stressed that the legacy fields were
considered the solid foundation for oil development, and
ensure the reduction in the production decline. He noted
that the presentation would point to some new projects and
developments. He remarked that there was enthusiasm about
the new entrants on the North Slope. He noted the projects
under development on state land, which would enhance the
state's economic standing. He remarked that there was
effort toward developing alternative energy resources, but
there was still reliability on petroleum resources.
9:22:08 AM
TRAVIS PELTIER, PETROLEUM RESERVOIR ENGINEER, DIVISION OF
OIL AND GAS ALASKA DEPARTMENT OF NATURAL RESOURCES, IN
ROOM, (DNR) Alaska Department of Natural Resources
discussed the presentation, "Fall 2023 Oil Production
Forecast, Senate Finance Committee" (copy on file). He
spoke slide 2, "Agenda":
• Introduction and Forecast Preview
• FY 2023 in Review
• DNR Fall 2023 Production Forecasting Approach
Fall 2023 Forecast Results and Summary
• Appendix
9:25:01 AM
Co-Chair Stedman urged that the presentation should be
directed at people who might be learning about production
forecasts for the first time.
Mr. Peltier looked at slide 3, "Fall 2023: North Slope
Annualized Forecast." He stated that the axis would be
consistent with the remaining slides in the presentation.
He remarked that the years listed were considered "fiscal
years." He noted the number of line charts, official
forecast, the high forecast, and the low forecast. He
remarked that the forecast was intended to be bracketed to
give an accurate expectation. He stated that there was also
an aggregate summary based on North Slope worker personal
evaluation. He stressed that the forecast was only for
existing fields.
Co-Chair Stedman requested a delineation of barrels that
would be impacted by the evaluation. He noted that "all oil
is not equal." He asked that there be a consideration of
royalty differences, because of the significant impact to
the state treasury.
Mr. Peltier agreed to provide that information.
9:29:06 AM
Mr. Peltier addressed slide 5, "FY 2023 As Forecasted by
DNR in Fall 2022: How Did We Do?"
• Actual FY 2023 production was within DNR's
forecasted range
• DNR's mean forecast was 3 percent higher than actual
FY2023 production
• Factors currently shaping the forecast horizon:
• Industry interest is expanding in Brookian age
plays (i.e., Nanushuk) across the North Slope
• Evolving ESG influences continue to challenge
capital allocation decisions in Alaska, but
companies and investors are also adapting
• Federal regulatory changes and leasing
restrictions present challenges
Mr. Peltier recalled the reasons for the shortfalls. He
pointed out that some fields had some production challenges
due to the reduced efforts of the drills in the fields.
Mr. Peltier pointed to slide 6, "FY 2023 Summary: North
Slope":
Highlights (FY2023 vs FY2022)
• All fields are generally expected to see a year-on-
year decline
• Compared to FY2022, in FY2023 North Slope production
increased by 1 percent (2,890 bopd)
• Decreases
• Badami: Best producing well offline for much of
FY2023, back online in May 2023
• Colville River and Kuparuk River: Natural
decline offset with development drilling
• Endicott and Northstar: Natural reservoir
decline
• Point Thomson: Single production well suffering
technical challenges which continue into FY2024
• Increases
• Greater Mooses Tooth: GMT2 pad continued
development drilling
• Milne Point, Nikaitchuq and Oooguruk:
Production growth due to infill drilling and rig
workover efforts
• Prudhoe Bay: Growth from improved facility
reliability and increased gas throughput in the
winter
9:38:19 AM
Senator Bishop requested more information about bullet
three, specifically about the technicalities related to the
point.
Mr. Peltier believed that the gas throughput had to do with
the compressors. He stressed that the more the operator
could do with the gas, the higher the oil production.
Co-Chair Stedman queried the number related to FY 24.
Mr. Peltier stated that it would be addressed in the
presentation.
Co-Chair Stedman requested the capacities and restraints of
the processing facilities, and queried the reason for
differentiating between federal and state lands.
Mr. Peltier deferred to Mr. Nottingham.
9:41:54 AM
DEREK NOTTINGHAM, DIRECTOR, DIVISION OF OIL AND GAS, IN
DEPARTMENT OF NATURAL RESOURCES, replied that the revenue
on state lands saw royalties of approximately 12.5 percent.
He stated there may not be direct royalties from federal
lands.
9:43:43 AM
Mr. Peltier displayed slide 7, "Status Update of Key Future
Projects: North Slope":
Pikka
Project Final Investment Decision (FID) approved
in August 2022 for Pikka Phase 1. Project first
oil anticipated in 2026.
Project construction and drilling activities
ongoing, and project first oil anticipated in Q2
of 2026.
Peak design capacity rate, Phase 1: 80,000 bopd
Willow
Awaiting BLM Record of Decision (ROD) on SEIS.
FID cannot be made before the ROD is made. First
oil expected 6 years after FID, if approved.
BLM ROD on SEIS issued in 2023 and Conoco started
construction activities in April 2023. FID
announced December 2023. First oil expected in
2029.
Peak rate: 180,000 bopd
CRU Narwhal CD8
Sustained production from CD8 could commence as
early as 2028, pending stakeholder alignment,
permitting, internal studies and alignment. This
conceptual first oil date remains consistent with
the 23rd POD submitted in 2021.
The conceptual first oil date changed to 2030 in
the 25thCRU POD submitted in 2023, pending
stakeholder alignment, permitting, and internal
studies and alignment.
Peak DNR estimates >32,000 bopd
MPU Raven Pad
November 2022 Hilcorp applied for approval to
construct a new drilling and production pad (R
Pad) within the Milne Point Unit.
DNR approval granted for R Pad construction in
February 2023 within the Milne Point Unit.
Construction activities ongoing.
Peak DNR estimates 10,000 bopd. Analogous to the
2018 M Pad development at MPU.
KRU Nuna-Torok
2022 KRU POD states rotary drilling is planned in
Q3 of 2022 with an additional injector/producer
pair for additional Torok reservoir appraisal to
inform future developments.
Conoco project funding approved in 2023, and
subsequently DNR approved drill site 3T expansion
activities. Construction activities are ongoing,
and first oil is anticipated in 2025.
Peak rate up to 20,000 bopd
9:48:09 AM
Mr. Peltier spoke to slide 8, "FY 2023 Summary: Cook
Inlet":
Highlights (FY 2023 vs FY 2022)
• All fields are generally expected to see a year-on-
year decline
• Compared to FY2022, in FY2023 Cook Inlet production
decreased by 4 percent (370 bopd)
• Oil from the Cook Inlet basin critical to the supply
of in-state refineries
• Decreases
• Beaver Creek, Granite Point, Hansen, McArthur
River and Swanson River experiencing natural
decline
• Redoubt Shoal natural decline and well
attrition partially offset by rate-adding well
work
• Increases
• Trading Bay and West McArthur River offsetting
natural decline with rate-adding well work
Mr. Peltier stated that they had recently changed their
forecasting methodology in 2022, and had used the same
methodology for the current forecast.
9:50:58 AM
Mr. Peltier. pointed to slide 10, "DNR Forecast Process:
Projects/Pools Included in Forecast":
DOG performed bottoms-up decline curve forecasts for
all producing pools
Forecast of current production uses AOGCC
publicly available data
39 pools (ANS and CI), producing as of
6/30/2023
DOG engaged with operators through DOR-arranged in-
person and in-writing interviews
15 projects under development/under evaluation were
researched/reviewed
Forecasts for these projects use confidential
information from operators
Future production from these projects was
adjusted and risked for scope of contribution,
chance of occurrence and start date
Mr. Peltier looked at slide 11, "Categories of Production:
Ongoing/Current vs. Future Production":
Current Production (CP):
• Ongoing production from existing fields
• Features and considerations:
• Well and facility uptime
Operator spending to maintain base production
• Reservoir management
Projects Under Development (UD) and Under Evaluation
(UE):
• Future production requiring new investments
• Rate contribution:
• Uncertainty in future well performance
• Uncertainty in project scope
• Project occurrence and timing:
• Uncertainty in timing (including outright
project cancellation/deferral)
• Commerciality risk (economic, regulatory, etc.)
9:55:14 AM
Mr. Peltier looked at slide 12, "Major Projects Under
Evaluation (UE) Considered in Fall 2023 Forecast":
General Characteristics:
? Projects that were not online by end of FY2023
(data cut-off date of 6/2023)
? Higher risk factors than currently producing
fields
? Known discoveries with identifiable operators
? Require major investments
North Slope Major Projects:
? Willow
? CRU Narwhal CD8
? Horseshoe Stirrup
? Pikka Unit Dev.
? Pikka Phase 2
? Quokka/Mitquq
? Mustang
? Nuna-Torok
? MPU Raven Pad
? Theta West
? Talitha
? Alkaid
? Liberty Unit
? PTU Expansion
? Sourdough Project
9:59:29 AM
Mr. Peltier discussed slide 14, "Fall 2023: North Slope
Annualized Forecast":
? Short Term:
? DNR forecasts FY2024 annualized average daily
statewide production at 478 MBOPD, and North
Slope production at 470 MBOPD, with a range of
422 MBOPD and 519 MBOPD
? Long term:
? Long-term forecast reliability is gauged by
general comparison between DNR and operators'
aggregate forecasts. Operators' long-term outlook
falls within DNR's long term forecast range
? Specific differences are expected and do
highlight DNR's ground-up uncertainty analysis on
all included projects
? Outlook on production assumes that operators'
plans, and other project drivers remain unchanged
Mr. Peltier observed that the graph showed close alignment
between the operator forecast and DRN's official forecast
in 2024. He explained that the department expected some
differences over time, as new production from major
projects came online. He explained that the DNR forecast
relied on the assumptions of operator behavior.
Co-Chair Stedman asked if production was up or down for FY
24.
Mr. Peltier relayed that the forecast was down.
Co-Chair Stedman queried the exact amount that it was down.
Mr. Peltier needed more information about the two
comparisons. He stated that the forecast values used actual
data through November. He stressed that December values
were not available until the following January. He agreed
to provide further information.
10:04:28 AM
Mr. Peltier displayed slide 15, "Fall 2023: AK Statewide
Annualized Forecast (Expected Case with Production
Categories)":
? Current Production (CP) remains the backbone of
state production in near and medium term
? Under Development (UD) segment represents production
expected from wells drilled in FY2023
? Near term (i.e. 3 to 4 years out), the new forecast
is lower than the Spring 2023 Forecast due to greater
than expected decline rates in key fields and less
than expected production results from recent
development projects
? Under Evaluation (UE) begins to play a more
significant role in production in the next 5 to10
years as Pikka, Willow, and other major projects
materialize
10:08:43 AM
Co-Chair Stedman referenced published data from DNR about
the price and volume per day. He thought the reduction
seemed to be fairly linear. He asked Mr. Peltier to break
the data down into separate fields. He mentioned
sensitivity models from the Legislative Finance Department
(LFD), which were helpful in considering revenue.
Commissioner Boyle agreed to work with the committee to
provide the data and the format.
Co-Chair Stedman remarked that there would be a condensed
examination of the upcoming three years to ensure that the
state does not run out of money.
Co-Chair Hoffman requested the leases that exist for gas on
the North Slope and any gas development. He queried any
changes in the approaches to bring gas to tidewaters.
Mr. Peltier addressed slide 16, "Fall 2023: Production
Forecast Summary":
? DNR forecast continues to use the best information
available to DNR/DOR to generate production outlooks
for oil fields within the state, with a focus on
generating accurate near-term and realistic long-term
forecasts
? Fall 2023 forecast is a static view on production;
DNR's outlook is updated annually (Fall and Spring) to
incorporate latest operator plans and the State's
official updated price outlook at the time of the
forecast
? DNR's Fall 2023 outlook shows mean annual production
of approximately 480 - 500 MBOPD in the first few
years of the outlook period, while increasing towards
the middle and end towards 630 MBOPD based on the
current snapshot of operators' plans
? Production estimates from projects under evaluation
account for several considerations such as technical
factors, commercial factors, and project execution
risks
Co-Chair Stedman requested final comments.
10:14:37 AM
Commissioner Boyle appreciated the counsel on the narrower
timeframe to assist in the budget modeling. He felt there
was reason for optimism, because of the new operators on
the North Slope. He felt that competition should enhance
production and revenue. He pointed out that there was an
evaluation of risk from federal policy positions.
Co-Chair Hoffman requested the Hillcorp ten-year
production. He queried the potential calculation if the
field had not been sold by BP to Hillcorp.
Commissioner Boyle agreed to provide that information.
Co-Chair Stedman felt that the dominant subject would be
related to Prudhoe Bay, and their presentation.
Co-Chair Stedman discussed the following day's agenda.
ADJOURNMENT
10:20:41 AM
The meeting was adjourned at 10:20 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 011724 SFIN DNR Fall 2023 Production Forecast Presentation.pdf |
SFIN 1/17/2024 9:00:00 AM |
|
| 011724 Cook Inlet Oil and Gas Activity Map.pdf |
SFIN 1/17/2024 9:00:00 AM |
|
| 011724 North Slope Oil and Gas Activity Map.pdf |
SFIN 1/17/2024 9:00:00 AM |
|
| 011724 North Slope Working Interest Ownership Map.pdf |
SFIN 1/17/2024 9:00:00 AM |
|
| 011724 Cook Inlet Working Interest Ownership Map.pdf |
SFIN 1/17/2024 9:00:00 AM |