Legislature(2009 - 2010)BUTROVICH 205
02/04/2009 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Anadarko Update | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 4, 2009
3:34 p.m.
MEMBERS PRESENT
Senator Lesil McGuire, Co-Chair
Senator Bill Wielechowski, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Bert Stedman
Senator Gary Stevens
Senator Hollis French
MEMBERS ABSENT
Senator Thomas Wagoner
OTHER LEGISLATORS PRESENT
Senator Joe Thomas
Senator Gene Therriault
COMMITTEE CALENDAR
Anadarko Overview by Mark Hanley
PREVIOUS COMMITTEE ACTION
No previous action to consider
WITNESS REGISTER
MARK HANLEY, Public Affairs Manager
Anadarko Petroleum Alaska
Anchorage, AK
POSITION STATEMENT: Presented update of Anadarko's exploration
program.
ACTION NARRATIVE
3:34:33 PM
CO-CHAIR LESIL MCGUIRE called the Senate Resources Standing
Committee meeting to order at 3:34. Present at the call to order
were Senators Huggins, Stevens, Stedman, Wielechowski.
^Anadarko Update
3:34:56 PM
MARK HANLEY, Public Affairs Manager, Anadarko Petroleum Alaska,
said he would give an update of their exploration program [aided
by a power point presentation].
3:36:22 PM
MR. HANLEY said that Anadarko is a large independent and
operates world-wide. Being an independent means they explore for
and produce oil and gas; they are not a refiner, they don't have
gas stations - typically they don't have the down stream stuff.
They are pretty significant in the US Deep Water Gulf of Mexico,
along with other operations all over the world. In Alaska, they
have 4.9 million gross acres of exploration and 1.7 million net.
The differences are because they have partners in all of their
prospects so they typically don't have 100 percent of the acres.
3:37:40 PM
Anadarko's Foothills exploration program is a gas prone area.
People started looking for oil there before they found Prudhoe
Bay. Most of the time when they drilled wells they found gas and
not oil. Gubik and Wolf Creek, where Anadarko is drilling this
winter, are already discovered gas fields, but Anadarko is
trying to identify how big they are and how easy they will be to
deliver and how much it will cost to get it out. They always
thought it would take three exploration seasons and a lot of
wells to really have a feel for what they have; and they are now
in drill season two. Last season they drilled one and half wells
and they are back this year with two rigs instead of one - if
that is any indication.
3:39:38 PM
Slide 5 showed the Gubik complex. BG Alaska and Petro Canada are
Anadarko's partners there.
SENATOR WIELECHOWSKI asked if Anadarko is drilling on state land
now.
MR. HANLEY answered that Anadarko is drilling one well on Arctic
Slope Regional Corporation (ASRC) land and one on federal
National Petroleum Reserve Alaska (NPRA) land.
SENATOR WIELECHOWSKI asked if ASRC land is subject to all of the
state production royalties and taxes.
MR. HANLEY replied that it is subject to the ACES tax system,
but there is a special setup for taxes on private land. The
royalties belong to ASRC.
SENATOR WIELECHOWSKI asked what the state would get from the
NPRA.
MR. HANLEY replied the state would get all the severance tax
just like it would on state land and half the royalties (50/50
sharing with the federal government).
SENATOR WIELECHOWSKI asked how the state tax rate compared with
the federal tax rate.
MR. HANLEY answered that there is no federal severance tax;
federal land gets only royalties.
SENATOR WIELECHOWSKI asked if the royalty was 12.5 percent on
the federal side.
MR. HANLEY replied that he wasn't sure, but he would find out.
SENATOR WIELECHOWSKI said he was just trying to clarify how much
the state gets on the NPRA.
MR. HANLEY replied the state gets all the severance tax because
that is under the state ACES tax regime; there is no federal
severance tax. But there are federal royalties which the state
gets half of on federal leases.
SENATOR WIELECHOWSKI asked him to explain why the state doesn't
get a production tax on ANWR, but gets one on the NPRA.
MR. HANLEY said he is not the expert and ANWR is not open, but
assuming it was, his understanding is that the state would have
a production tax (ACES) and the state/federal spilt, which for
ANWR is 90/10(although changing it has been suggested).
3:43:47 PM
SENATOR FRENCH joined the committee.
3:44:46 PM
MR. HANLEY recapped that for the first season in the Gubik field
Anadarko set out to do two wells with one rig; the first which
is called the Gubik 3 well is shallower at around 4,000 feet. As
soon as they finished drilling that, they moved the rig over to
the much deeper (10,800 ft.) Chandler 1 prospect and got to
2,000 feet before having to get off the tundra. Knowing that was
a possibility, they insulated the ice pad before putting the rig
on it and actually left the rig out there.
3:47:13 PM
In season two the goal is to finish drilling Chandler 1 and they
are drilling as he speaks, and evaluate that, then move the rig
over to Gubik 4. Both wells need to be evaluated to see how they
flow and to understand how many wells it will take to drain the
field.
3:47:46 PM
SENATOR WIELECHOWSKI asked if they find gas, had they thought
about a gas treatment plant.
MR. HANLEY replied yes; but the Gubik field is fairly dry gas.
Not much treatment is needed to get to pipeline quality.
3:48:42 PM
CHAIR MCGUIRE asked how many people are employed at a treatment
facility.
MR. HANLEY replied that he didn't know. He continued that Gubik
4 is a shallower test well so that might get down this season.
The second rig is now drilling at Wolf Creek 4 in the NPRA,
about 35 air miles north of Umiat. They are hoping it will help
them understand some of the characteristics of the area.
3:50:33 PM
Slide 11 pictured the insulated ice pad on the tundra at
Chandler 1 in the summer of 2008. He explained that their
program for the 1.25 wells was $90 million; half of that was
moving things in and out. It took a lot of time to move the
drill in and leaving it up, while it cost a lot of money, gave
them enough time to drill two wells. They have two challenges:
dealing with tundra closures and operating in the limited winter
season.
3:51:59 PM
SENATOR HUGGINS asked him to describe the process for waivers.
MR. HANLEY replied there is a permit process. The Chandler well
is on ASRC land and has its own permitting process. Anadarko has
to do engineering and follow up studies on the tundra to make
sure there is no damage. He said that insulated ice pads have
been relatively successful in the past.
3:52:57 PM
CHAIR MCGUIRE asked if the insulated pad technology is
proprietary.
MR. HANLEY replied no; it's available to everybody. He knew of a
total of five insulated ice pads on the North Slope.
He said when they are done with Chandler 1, the drill rig will
be moved to Gubik 4 that already has four wells. They are trying
to understand this particular field - how big it is and how well
it will flow and they will have a relatively good idea after
this season.
3:54:42 PM
Wolf Creek 4 in the NPRA was on slide 13; they have the same
partners and are using the second rig there. Because it has a
runway, they were able to fly some of the equipment to Umiat
with a Herc aircraft.
3:55:44 PM
Slide 14 showed a map of their 80-plus miles of ice road and 80-
plus miles of packed snow road. He explained that Anadarko was
able to get site specific clearance for tundra travel because
they installed monitors along the proposed route early in the
season that could monitor temperatures at certain depths and let
them know when a certain temperature was hit. Traveling across
the tundra has many challenges like heavy snow insulating the
tundra so it won't freeze. In that case they have to pack it
down and drive the cold down.
He explained that a lot of their equipment was brought in by
truck across gravel, then to the end of the ice road, then on to
the Rollagons where it had to be moved across multiple rivers
that had to be adequately frozen. Now that everything is staged
out there, they are finishing building the ice road. This will
allow them to truck everything out so they can stay on the
tundra longer. Rollagons go very slow and can handle a lot more
load versus a truck on an ice road, but he said "Days are
critical."
3:59:31 PM
CHAIR MCGUIRE asked how many people are working there now.
MR. HANLEY replied hundreds.
4:00:20 PM
Slide 15 showed the Foothills that, for instance, has less
water; so it has to be hauled further. This is considered summer
field work.
4:01:29 PM
Slide 16 showed the Foothills snow road for the winter 2007/08.
4:01:39 PM
MR. HANLEY said Anadarko needs multiple fields in the Gubik area
to make it work. They know gas is there, but they don't know how
much and how deliverable it will be. It's likely that multiple
fields will have to be tied together to reach the necessary
volumes. He emphasized that the earliest time they could see gas
is 2016 if things work well. Someone talked about a road, and
Mr. Hanley said that could help expedite development and improve
economics in that area. After a couple of years, if they think
they have enough to go forward, a road-type process requires two
years of EIS permitting before construction can even start. So
they have talked about starting the permitting process with the
state now; it would cost approximately $2 million, relatively
little. A road could expedite the development of the gas and
improve the economics if gas were found.
4:04:27 PM
SENATOR WIELECHOWSKI said Enstar wanted gas flowing within five
years and asked if that was possible.
MR. HANLEY replied Anadarko's desire is to get the gas when it's
needed, but it appears there is a little disconnect in
expectations. Anadarko needs 500 mmcf/day for 20 years to make
the economics work. At 250 mmcf/day, the tariff could be $5-$7
and that would kill the project and that is the main reason they
don't want to start with a small amount of gas. If people need
gas sooner, help with the tariff would be important.
4:05:52 PM
SENATOR WIELECHOWSKI asked if he anticipated what the cost to
the consumers in Southcentral would be if a bullet line brought
gas down from Gubik to Anchorage or Fairbanks.
MR. HANLEY answered he is working with Enstar on their numbers,
which is a range of $2-$2.25 at 500 mmcf/day for a 3.8 billion
or 4 billion bcf/day pipeline. His personal thought was $2-$3,
assuming Enstar's cost estimates are correct.
4:07:16 PM
SENATOR WIELECHOWSKI said Enstar thought they could do a total
cost of Henry Hub - including the tariff of $10 or $12. He
asked, "Are you seeing Henry Hub plus your tariff, Henry Hub
minus your tariff or Henry Hub? I mean, do you have an idea?"
MR. HANLEY replied:
I can tell you, at $4[gas price] with a $2 or $3
tariff, we can't make the project go.... It's not so
much what the price is today; it's what the price is
eight years from now till 28 years from now; and
that's something we have to estimate and run our own
economics and, of course, we don't share what we
think.
4:08:30 PM
SENATOR WIELECHOWSKI asked what their estimated reserves are; he
heard 600 bcf/day.
MR. HANLEY answered they haven't disclosed their reserves. The
USGS put 600 bcf on the Gubik field, but Anadarko needs a couple
of tcf.
4:09:27 PM
SENATOR STEDMAN said he was having trouble connecting the dots
between Enstar's and Anadarko's concept of the bullet line and
its relationship with the bigger line. Enstar said 3.5 tcf would
work. Where did they get that number?
MR. HANLEY said he didn't know where Enstar got that number, but
Anadarko's figures show that 500mmcf/day results in 3.6 tcf over
20 years and that could be where it came from. But there are all
kinds of questions; will it be financed over 30 years; do they
have to make commitments over 30 years? The big pipeline doesn't
have 25 years of gas identified at 4 bcf/day. So they are
talking about taking some risk that they are going to find the
gas if they are going to commit it. Once a company like Anadarko
finds 2.8 tcf, they might be willing to make a commitment
without actually having found it yet.
4:11:49 PM
SENATOR STEDMAN asked him to elaborate on the first gas scenario
in 2016. What's the outside number?
MR. HANLEY replied the outside number is they don't find enough
gas to even have a project. After three seasons, if they feel
comfortable they have something out there, and it looks like
there's a pipe going, they might invest $3-$5 billion. A lot of
things could be converging in the third season in 2010 when an
open season is supposed to happen. If the bullet line makes
economic sense, a spur line off the big line is going to be more
economic. Those decisions will be made at the end of two years.
SENATOR STEDMAN said he thought Enstar was trying to get to an
open season next year.
4:15:18 PM
MR. HANLEY repeated that Anadarko will see what they've got in
two years. It could become a policy call if the big line isn't
going yet.
4:18:08 PM
SENATOR STEDMAN asked if Anadarko was financing the Enstar
proposal with its firm transportation commitments and how do
they deal with that knowing they have to also bid in an open
season with Denali or TransCanada. "Do have to wait till that's
done to deal with this little line so you don't go for the
little one and the big fish gets away?"
MR. HANLEY replied Anadarko wouldn't be ready in 2010 for an
open season commitment. But if someone is putting a pipeline in
and showing terms Anadarko's economics can make, they will make
a commitment. If they both happen at the same time, he will look
at the one that makes the most sense economically.
4:20:36 PM
SENATOR STEDMAN said he is having trouble with all the proposals
colliding together. The legislature is being asked to give
concessions and he didn't know what Enstar would request from
the treasury. From his perspective, it's kind of dicey dealing
with a small 24 inch line if it's going to have an open season
in 2010 along with two other open seasons. He didn't want to end
up committing state resources, meaning the treasury, into a pipe
dream when actually what they want is the pipe line. He said
it's challenging for him when he hears these presentations.
Maybe you can elaborate a little bit more on how many
wells you guys need to put down and how much is it
going to cost to put your infield development in -
we've had estimates on the gas treatment plant on the
North Slope and we've had arguments over the credit -
include it, don't include it - you know and all that
other stuff, but I have no idea what kind of
infrastructure you guys are faced with you know to try
to make a judgment - you know is it the pipe dream or
the pipe line.
MR. HANLEY replied that a lot of things are conceptual and in
the next two seasons they are going to try to answer those
questions - like how many wells are they going to have to put
down. The investment is in $3-$5 billion range including a
treatment facility to develop the area. At this point, they are
not asking for state support on anything other than talking to
the state about this preliminary work on a road in case they are
successful.
4:24:02 PM
CHAIR MCGUIRE said the instate lines get favorable tariff
treatment and that might weigh in his decision.
MR. HANLEY said that would help and would definitely weigh in
their decisions. The rate goes through 2023.
4:25:07 PM
SENATOR STEDMAN asked if they would prefer to have a Henry Hub
price structure versus a fixed rate like Cook Inlet has.
MR. HANLEY replied he didn't know what prices they would need
for a big pipeline. Anadarko calculates its figures differently
and has a higher risk profile.
4:28:17 PM
SENATOR FRENCH asked how cash flow on a 500 standard cf/day
pipeline line (bullet line) is calculated. For instance, is each
dollar of tariff worth about $500,000? Because Mr. Hanley is
saying that a dollar or two of profit per mcf is not enough to
make the project economic. "It's easy with oil. You just
multiply the barrels times the price and you know what the gross
is. It's just trickier with gas because you've got to switch
between standard cubic feet that you measure measurement in and
thousand cubic feet that they charge you for at the pump."
MR. HANLEY said he would take his word for it, but Anadarko
doesn't consider anything over the tariff as profit. Generally
speaking, Prudhoe Bay gas will be more economic than Anadarko's
gas because it has already been discovered and it's a large
volume. It has no discovery risk. Anadarko will need to find
more gas and get a better price for it because they still have
to pay for finding it and its development will cost more per
unit as well.
4:31:47 PM
CO-CHAIR MCGUIRE thanked him for his comments and asked him to
continue communicating Anadarko's position with this committee.
4:33:01 PM
SENATOR STEDMAN asked what Anadarko thinks is coming in the
future in terms of a slow down in development and price shocks.
MR. HANLEY said he wished he knew the future. All the companies
are facing changes. Cash flow will be way down this year
although they hedged a lot of their natural gas.
4:34:47 PM
SENATOR STEDMAN asked when Anadarko will announce its capital
spend for the coming two-year cycle.
MR. HANLEY said that is up in the air, but he would get him that
information.
4:35:35 PM
SENATOR HUGGINS said Pioneer owns 30 rigs and only two are now
employed. He also disagreed with Senator Stedman about the
bullet line and he didn't often disagree with him. About one
year ago Enstar came to the legislature and said a bullet line
would cost $3.3 billion and that they didn't need any help from
the state. But last July, he saw a news cast with the government
right in the middle of it; Enstar was sitting on one side and
ANGDA on the other. Suddenly the government is here to help. He
thought the government would help simply because Fairbanks
doesn't have gas. The surety of supply from Cook Inlet is a
question mark. He thought they would do a bullet line under some
circumstances that would work for the people of Alaska. In any
event, he asked, in their present activities, minus permitting,
is there anything the government can do to facilitate their
success.
MR. HANLEY answered the tax treatment is sitting out there as a
question for non-instate gas. There seems to be an expectation
that will be addressed again and that should happen before a
2010 open season. Not addressing it creates a risk factor.
SENATOR HUGGINS agreed that it's time to get on with that
process. He asked what sort of variables are on his economic
improvement list.
4:41:04 PM
MR. HANLEY replied if the tariff could stay at $2.25 that would
help and if they could start with 250 tcf/day for 20 years
instead of 500 that would cut down on the number of wells they
would have to drill to feel comfortable with what they have to
develop it. But it wouldn't move the project back two years.
SENATOR HUGGINS said this committee is anticipating legislation
from the administration on instate gas. He asked if Anadarko or
surrogates of Anadarko were coordinating with the administration
about delivery of instate gas.
4:43:51 PM
MR. HANLEY replied that he had talked to the administration as
recently as today on legislation regarding the statutes on
instate pipelines and had said some clarification would be
helpful.
CHAIR MCGUIRE asked him to explain the difference between a
common carrier and a contract carrier.
MR. HANLEY said he is not an expert, but that typically most oil
pipelines are regulated on a common carrier basis. So if a
company builds a pipeline and fills it with oil and someone else
finds oil and wants to put some of it into the already full
pipeline, it allows the new oil in and everybody gets prorated
10 percent (or whatever percentage of the volume the new oil
takes). A contract carrier contracts for space on a pipeline
through the open season process. So, if a company gets .5
bcf/day on the pipe during the open season, it is committed to
pay that for 20 years whether or not it ships any gas. This is
how the pipeline is financed in the first place. The difference
is if that pipeline gets full, the company doesn't get prorated.
So, from Anadarko's perspective when you go to contract carriers
the expansion language is critical.
4:46:39 PM
CHAIR MCGUIRE asked him to speculate on how much sooner their
project could come to fruition if the road were built.
MR. HANLEY replied it depends on how soon the road got built;
sooner would clearly help a long-term development project. The
assumption is that the pipeline will follow the corridor along
with the road. If the road were built soon enough to do a fair
amount of the development versus trying to do it during the
winter season, which is typical, they could work over 10 or 12
months instead of four. Some of that is figured into the 2016
scenario. It's hard to get better than that - unless the amount
of gas needed is reduced and everything else works well.
SENATOR MCGUIRE asked when the road would be completed in
Anadarko's perfect world and what can the committee do to
facilitate it.
MR. HANLEY replied that the DOT people know the answer to the
road question. The two years required for permitting takes them
out to 2011. He guessed building the road might be a three-year
process; so that would take them out to 2014. If a road is going
in and it looks like Anadarko isn't ready, they might just slow
it down to take advantage of the road. He repeated that this is
part of the problem they have in trying to figure out what a
potential development is; they don't understand exactly what
they have yet and a wide range of things are sitting out there
as options. The permitting process they are starting with the
state is worthwhile because it will save two years if enough gas
is found. The tax issue is important for everybody.
4:50:47 PM
CHAIR MCGUIRE asked him to review what kind of projects Anadarko
has in the rest of the world.
MR. HANLEY responded Anadarko has multiple offshore oil
discoveries in Ghana and two more deep-water discoveries in the
Gulf of Mexico. They currently operate the Independence Hub, a
hub of fields in the Gulf of Mexico that is producing about 1
bcf/day that comes into the US. None of the individual fields on
their own would be economic and it's not just their gas, but
other companies that are coming in. It could be analogous to the
Gubik area. Domestically, they are in the Barnett Shale, they
are doing some drilling in Pennsylvania, and they have a lot of
presence in the shale gas play in the Colorado Rockies.
4:52:34 PM
SENATOR HUGGINS asked him to comment on the value of railroads,
particularly when it comes to pipeline support, going up to the
North Slope. He asked where that would rest on Anadarko's
Richter scale - minus the big pipeline and if there was open
water to the north.
MR. HANLEY answered he hadn't thought about it; but anything
that would help the economics of any of these projects would be
good.
4:53:51 PM
CO-CHAIR MCGUIRE thanked him for his comments and adjourned the
meeting at 4:53 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Anadarko Update - Feb 4, 2009.pdf |
SRES 2/4/2009 3:30:00 PM |