02/23/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB42 | |
| Presentation: Focus on New Oil and Gas Development Opportunities | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| = | SB 42 | ||
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 23, 2011
3:33 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Bert Stedman
Senator Lesil McGuire
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Cathy Giessel
COMMITTEE CALENDAR
SENATE BILL NO. 42
"An Act relating to the procurement of supplies, services,
professional services, and construction for the Alaska Energy
Authority; establishing the Alaska Railbelt energy fund and
relating to the fund; relating to and repealing the Railbelt
energy fund; relating to the quorum of the board of the Alaska
Energy Authority; relating to the powers of the Alaska Energy
Authority regarding employees and the transfer of certain
employees of the Alaska Industrial Development Export Authority
to the Alaska Energy Authority; relating to acquiring or
constructing certain projects by the Alaska Energy Authority;
relating to the definition of 'feasibility study' in the Alaska
Energy Authority Act; and providing for an effective date."
- HEARD AND HELD
PRESENTATION: Focus On New Oil and Gas Development Opportunities
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 42
SHORT TITLE: POWER PROJECT; ALASKA ENERGY AUTHORITY
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/19/11 (S) READ THE FIRST TIME - REFERRALS
01/19/11 (S) RES, FIN
02/09/11 (S) RES AT 3:30 PM BUTROVICH 205
02/09/11 (S) Heard & Held
02/09/11 (S) MINUTE(RES)
02/11/11 (S) RES AT 3:30 PM BUTROVICH 205
02/11/11 (S) Heard & Held
02/11/11 (S) MINUTE(RES)
02/16/11 (S) RES AT 3:30 PM BUTROVICH 205
02/16/11 (S) Heard & Held
02/16/11 (S) MINUTE(RES)
02/21/11 (S) RES AT 3:30 PM BUTROVICH 205
02/21/11 (S) Heard & Held
02/21/11 (S) MINUTE(RES)
02/23/11 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
JEFF STEPP
Staff to Senator Paskvan
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Reviewed CSSB 42(RES), version D.
DAN SULLIVAN, Commissioner
Department of Natural Resources (DNR)
Juneau, AK
POSITION STATEMENT: Commented on the state's oil and gas
development activities.
KEVIN BANKS, Director
Division of Oil and Gas
Department of Natural Resources (DNR)
Juneau, AK
POSITION STATEMENT: Commented on the status of the state's
current oil reserves.
BOB SWENSON, State Geologist and Director
Division Geologic and Geophysical Surveys
Department of Natural Resources (DNR)
Juneau, AK
POSITION STATEMENT: Explained USGS surveys and other data
gathering techniques used to assess the state's oil and gas
resources.
PAUL DECKER, Petroleum Geologist and Manager
Resource Evaluation Section
Division of Oil and Gas
Department of Natural Resources (DNR)
Juneau, AK
POSITION STATEMENT: Commented on the state's unconventional oil
resources.
ACTION NARRATIVE
3:33:43 PM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 3:33 p.m. Present at the call to
order were Senators Stedman, Wielechowski, French, Stevens,
Wagoner, and Paskvan.
3:34:57 PM
SB 42-POWER PROJECT; ALASKA ENERGY AUTHORITY
CO-CHAIR PASKVAN announced SB 42 to be up for consideration.
CO-CHAIR WAGONER moved to adopt CSSB 42(RES), 27-GS1822\D.
CO-CHAIR PASKVAN objected for discussion purposes. He asked his
staff to explain the proposed committee substitute (CS).
JEFF STEPP, staff to Senator Paskvan, said the Department of Law
suggestions from the February 21 meeting were forwarded to the
drafter who prepared a CS deleting the procurement code
language.
3:37:44 PM
At ease from 3:37 to 3:44 - technical difficulties.
SENATOR MCGUIRE joined the committee.
3:44:50 PM
MR. STEPP said the CS makes changes relating to the Alaska
Railbelt Energy Fund essentially preserving the legislature's
authority to appropriate. Fourth, and most significantly, the CS
makes changes relating to the creation of subsidiaries and adds
a section entitled "Approval of Subsidiaries" so that they are
specific to the Watana Hydroelectric Power Project on the
Susitna River. Finally, he said, the fiscal notes for SB 42 are
not impacted by any of these changes and will remain the same
for version D. He explained that the original language in SB 42
allows AEA to have employees and that remains unchanged in the
CS, and that is the source of the fiscal notes.
CO-CHAIR PASKVAN, finding no further questions, removed his
objection and CSSB 42(RES), version D, was before the committee.
He announced that he would hold it for another meeting.
3:48:11 PM
^Presentation: Focus on New Oil and Gas Development
Opportunities
PRESENTATION: Focus On New Oil And Gas Development
Opportunities:
CHAIR PASKVAN announced the presentation on Alaska's oil and gas
development activities. He welcomed Commissioner Dan Sullivan to
the committee.
DAN SULLIVAN, Commissioner, Department of Natural Resources
(DNR), said he would provide a brief overview of the
department's view on North Slope hydrocarbons. Kevin Banks,
Director of the Division of Oil and Gas, would focus on what
they know about the amounts of discovered resources near
existing infrastructure. Next, Bob Swenson, Director of the
Division of Geological and Geophysical Survey, would focus on
undiscovered and probable resources and how those estimates are
made. Paul Decker, a star petroleum geologist, would then
provide details on their assessment of one of the promising
unconventional categories, the shale oil potential on the North
Slope.
COMMISSIONER SULLIVAN said an important threshold question when
looking at resource development policy is what is left in
Alaska, and by any measure Alaska still has a world class
hydrocarbon basin on the North Slope. The department believes it
is in the state's and the country's best interest to more fully
develop them.
The biggest challenge is the throughput decline he said. His
graph showed 1 million barrels a day in 2003 that was down to
about 640,000 barrels a day last year. Another major challenge,
Commissioner Sullivan said, is a federal government that has
moved from a focus on environmental protection to a posture of
pro-actively shutting down resource development in Alaska. The
high costs of doing work in the state, a tough environment to
explore and develop in and infrastructure issues are other
challenges.
He said to address these challenges it's important to look at
all the policy tools available, some of which the state controls
and others which the federal government control. Encouraging all
players of all sizes is important to finding additional oil as
well as commercializing North Slope gas, and from the
department's perspective there is no silver bullet.
3:53:27 PM
KEVIN BANKS, Director, Division of Oil and Gas, Department of
Natural Resources (DNR), said he would speak about the reserve
estimates in the existing and nearby oil fields that have been
penetrated by exploration wells at one time or another, and
about which they have a degree of certainty about oil and gas
amounts.
He indicated that all pieces need to be in place to make a
development project successful. At one level data is
intrinsically important for the geologist to understand the
resource potential. Once some definition is created around that,
either through exploration and other activities - but even just
access to information that has been collected over the years or
a company might need access to land to assemble a position that
sufficiently surrounds the resource that they hope to develop -
capital is needed from both within a company and from outside
capital markets. A favorable regulatory scheme and favorable
permitting is also needed so a project can have a predictable
set of outcomes. Work plans need to be developed that are
sufficiently robust to be approved so the project can move
forward.
He said exploration is the physical data gathering effort that
most companies have to go through in this process. You can't
start popping wells in after reviewing just the data.
Finally, production is required, and here he was talking about
the whole suite of development requirements: the infrastructure,
the transportation links, and the access to markets to make sure
whatever is developed is going to succeed. Mr. Banks said he
indicated these as a chain because any element, if it's weak,
could defeat a project.
3:57:34 PM
MR. BANKS said he would be speaking about the reserves and the
discovered resources around the North Slope units. Basically,
they have a fairly good understanding of the remaining oil and
gas that can be produced in existing units. About 5.1 billion
barrels of oil and about 35 tcf of gas are in these units. His
slide also indicated some resources specifically in northeast
NPRA. Liberty was also on that slide, because it is about to go
into production as soon BP is ready.
Going to a less certain number of resources not necessarily in
production, Mr. Banks said, are estimates of ranges that come
from shared non-confidential information about discovered
resources without much delineation or development. It included
estimates of FEX NPRA discoveries in the central NPRA over the
last few years and Kuvlum in the Beaufort Sea near the Sivulliq
project, Shell's target for Beaufort Sea drilling that they had
to postpone this year. Gubik is Anadarko's gas field and will
depend on how they will someday pursue development there.
Finally, a more uncertain number, but related to oil that has
been penetrated by wells, the Ugnu heavy oil reservoir just
below the perma-frost holds up to 20 billion barrels of oil. BP
has indicated it may potentially be able to recover only about
10 percent or 2 billion barrels of oil. Ugnu is challenged
technically because of the nature of the reservoir and so the
issue will be solving those problems as well as bringing the
costs down for developing in general.
Burger in the Chukchi Sea was drilled by Shell in the early 90s
and they are interested in pursuing it if they are ever given
permission to do so. There is a range of 31 million to 1.7
billion barrels of condensate in place. More delineation is
required there as it is for the estimated 8-27 tcf of natural
gas.
SENATOR WIELECHOWSKI asked if the Beaufort projects are on state
land.
MR. BANKS answered no; they are all on Outer Continental Shelf
(OCS) federal lands.
SENATOR WIELECHOWSKI asked which ones are on state lands.
MR. BANKS replied Umiat, Gubik, North Tarn, and the FEX. He
added that the state gets a share of royalties that come from
the NPRA.
SENATOR WIELECHOWSKI asked why Umiat is not being developed and
who has the lease.
MR. BANKS replied that most of those leases are on federal land,
but some are on state land on this side of the river. Umiat is
not being developed largely because of the whole suite of issues
he has talked about: the lack of infrastructure and remoteness;
it's an oil play that needs a road and a pipeline, which could
be expensive.
SENATOR WIELECHOWSKI asked what information he has about why
they are not being developed. Do we need to build a road there
or is it the financials that don't work? What information did he
have?
MR. BANKS said he didn't have economic information on Umiat.
They would have to ask the developer, Renaissance. Gubik is
remote as well.
SENATOR WIELECHOWSKI said he wanted to know what lever needed to
be pulled for the projects on state land to go forward. If $20
million for a road is needed, they needed to talk about that or
royalty relief. Did he know what is needed to get these areas
developed?
MR. BANKS replied that several things need to happen. Umiat, to
the extent it's on federal land, may not have an option for
royalty relief, for example. It's also a shallow reservoir and
accessing it from the Umiat staging area could be complicated.
4:05:47 PM
BOB SWENSON, State Geologist and Director, Division Geologic and
Geophysical Surveys, Department of Natural Resources (DNR), said
he came from the Montana region and has been in Alaska since
1991. He graduated from the University of Wyoming. He joined
Arco Alaska in 1991 and worked there through 2002 as exploration
lead in the Cook Inlet and non-producing basins around the
state. For the last five years he has been working with the
state first as a research director and now as the state
geologist.
MR. SWENSON said his pictures tell a lot of stories. The first
picture was an oblique view of the North Slope with the Chukchi
and Beaufort shelves, the main point being about the exploration
history and maturity of the North Slope. A number of wells have
been drilled on the North Slope but in comparing it to other
areas the distance between Burger and Prudhoe Bay is the same as
the lateral distance across the state of Wyoming. So, they are
talking about a very large area. For perspective, within the
150,000 square miles on the North Slope fewer than 500
exploration wells have been drilled. The entire state of Wyoming
is about 100,000 square miles - about 75,000 square miles
related to petroleum - and over 19,000 exploration wells have
been drilled there. The next slide showed that Alaska has
greater than 20 billion barrels of oil, information from 2000-
2006 U.S. GEOLOGICAL SURVEY (USGS) studies on global
conventional oil reserves, making it a world class basin.
SENATOR STEVENS said he saw another 20 billion barrels in the
Aleutians. Is that the OCS?
MR. SWENSON answered yes, and that is the assessment done in
2000 of the Bering Sea basins.
SENATOR STEDMAN said he didn't think all those oil basins were
equal in terms of industry's ability to enter or exist and asked
what percent of those oil basins are actually tied up by
sovereigns that don't allow free flow of capitalism. And of the
ones that do, what percentage of what's left is from the Alberta
oil sands? He thought they would find that it's only 10 percent.
MR. SWENSON said that was an excellent point and elaborated that
this assessment was specifically on the technically recoverable
resource estimates and does not include the unconventionals such
as shale oil or heavy oil in Canada. A number of different
factors across the globe will curtail whether or not a company
has the ability to enter and try to access those resources. The
USGS will be coming out with a new global assessment, but he
didn't know if they would use an "economic and/or political
filter" on the access issue.
Slide 3 was a map of the North Pole. He explained that the USGS
had recently done a technically recoverable resource assessment
of the whole Arctic region. The important point of the map is
that the only area they actually think is greater than the 10
billion barrel hurdle is the Arctic Alaska (AA) that has an
estimated 30 billion barrels.
4:11:56 PM
Slide 4 looks directly down on the North Pole for undiscovered
natural gas. Arctic Alaska is in the greater than 100 tcf of gas
resource assessment.
MR. SWENSON said it's important to know what goes into these
assessments and understanding the geology is a major portion of
their validity. So, he wanted to try to convince the committee
of the knowledge that went into this work. The first slide shows
the North Slope regional geology at the surface. It shows the
tremendous amount of understanding they have from a regional
sense. But the regional look is not what goes into the direct
assessment of these resources.
The next slide was a generalized cross section from the Beaufort
Sea in the north to the Beaufort Sea to the south in the Brooks
Range. It shows what is in the subsurface at depth. It also
shows the location of the Prudhoe Bay oil complex, an important
part of their understanding of the petroleum systems within this
basin. He explained if the same cross section was done in the
North Sea, a very hydrocarbon prolific basin in England and
Norway, it would show a very similar geologic setting - a rifted
margin. To the south of Prudhoe Bay is very similar in geologic
style to the Foreland Basin of Alberta. He said both USGS and
the Division of Oil and Gas have been doing "surfacial mapping"
at a one-inch to a mile scale.
SENATOR STEDMAN said the state spends a lot of money on good
subsurface mapping and asked him to explain how they interpret
that without sending guys out to do seismic.
MR. SWENSON explained that geologic mapping is a process using
all the tools available to them - seismic or airborne
geophysical data, and most importantly, surface outcrops. They
will study a specific outcrop and put that in the context of all
the other outcrops in an area. Measurements of porosity and
permeability, of the depositional environment, and a number of
different types of analyses on the surface expression are made.
4:17:58 PM
The rocks that are exposed at the surface in the Brooks Range to
the south are in the subsurface to the north, because of the
thrust belt (mountain building) that happened in the Brooks
Range. So, studying them in the Brooks Range gives them an
understanding of what is in the subsurface to the north where
they expect to see accumulations of hydrocarbons. This point was
elaborated in the next three slides (8-10).
Slide 8: Some of the additional studies that are undertaken
during the geologic mapping effort are porosity and permeability
measurements of different sand bodies as well as the provenance
studies (the type of reservoir rock they would expect to see in
a given age rock). Electrical measurements of the rock outcrop
themselves have been taken so they can be compared to well logs
that were drilled in the subsurface to the north.
MR. SWENSON said one of the more important aspects of this
entire effort is their understanding of the entire stratographic
package - the entire package of rocks that are drilled and
explored for in the exploration efforts. The work that has been
done along the Brooks Range has dramatically changed their
understanding of the stratographic column.
CO-CHAIR PASKVAN asked him to elaborate on the significant
change. What was the basic premise and what is the current
premise?
MR. SWENSON answered that the initial premise is understanding
where a reservoir is located within a given package of rocks and
how they were deposited. Understanding where the sand bodies are
located within any given package of rocks and how they are
distributed from a paleo-environment from where they were
deposited is incredibly important in how they understand what
type of plays might be available as well as where those plays
might be, he said. So, the more detail on the distributions of
those reservoir faces of where the sand stone bodies are helps
them understand what type of prospect might be in the subsurface
for an undiscovered resource assessment.
4:21:21 PM
The next slide, a cross section done by Paul Decker from the
Umiat area up to Prudhoe Bay using well logs from wells along
that route, illustrated those questions. It also shows how they
apply the detailed knowledge that has been gained from all the
geologic mapping to the subsurface models. Once all these data
sets are put together and finalized, then they go into the
available subsurface and the seismic data and apply all this
knowledge and model an interpretation of the seismic data so
they can look at the distribution of sand bodies, where the
reservoirs might be, the quality of those reservoirs, what the
porosity and permeability might be, as well as the hydrocarbons
that would have been generated and migrated into potential
traps.
CO-CHAIR PASKVAN said Mr. Banks in his testimony used terms like
the North Tarn, and Mr. Swenson's slide had a Tarn Bermuda
Interval and an Ugnu Sands and an Ugnu deposit. Are those
intended to correlate to the finds and names that were earlier
identified?
MR. SWENSON answered yes; the different formations described in
different areas of the North Slope have hydrocarbons present
within them. The Ugnu Sands, for example, are a specific oil
reservoir within the Ugnu formation. They study the Ugnu
formation and everywhere it's exposed on the North Slope so they
can have a better understanding of what the recoverable factor
of oil or gas might be out of that formation. They use other
analogues to do that as well.
CO-CHAIR PASKVAN pointed out that the Ugnu Sands are closer to
the ocean and the Tarn is maybe halfway between.
MR. SWENSON said that was correct and that the section he is
talking about focuses on the south of the Brooks Range where one
can see faulting and repeated stacks of formations along the
ANWR border; it doesn't make it all the way to the Prudhoe Bay
area. He said all of this information that he just described is
used in the models. The USGS then takes that information and
puts it into an industry standard probabilistic model for
determining resource size.
He described this statistical method as a flow diagram with
different geologic parameters that are necessary for an
accumulation to occur in one corner including: closure area,
closure of the trap size, the reservoir thickness, porosity,
water saturation, et cetera. Each one has been taken into a
"probabilistic Monte Carlo analysis" and a series of probably
occurrences in graphs are generated from each one of those
different parameters. This analysis, then, is generated into an
accumulation size. Then each one of those plays are "risked for
their occurrence" and results in what they use as "technically
recoverable resource assessments."
The next slide showed the distribution of field sizes - how
large the fields are expected to be in a given play type on
state lands, NPRA and ANWR from the results of one of the Monte
Carlo runs. This distribution can be compared to other mature
basins that the department has a huge analogue data base on to
make sure the analysis is on the "right page."
MR. SWENSON said a series of resource assessments is generated
from all of this effort and slide 15 shows the USGS assessments
for technically recoverable reserves for the areas of Chukchi-
south, NPRA, Central North Slope, Beaufort Shelf and ANWR.
He said three numbers are particularly important and explained
that for any given area there will be a single number - 8.2 in
the Beaufort Shelf, for example - and then (.4 up to 23.2), the
range of potential sizes of the resource in this area. The 8.2
is the mean of the statistical distribution. The issue is to
understand how much they know about a given area; that
determines the size of that range of numbers. So, in the
Beaufort area where they have relatively little information, the
range is very large. But in the Central North Slope the mean is
4 billion barrels and the range is 2.6 up to 5.9, relatively
narrow because of the amount of information they have. It's
important to look at that range for any resource assessment, he
emphasized, for accuracy.
4:27:42 PM
MR. SWENSON said all of these assessments he has been talking
about are conventional resource plays in the Arctic Alaska and
do not include the unconventionals they have been hearing so
much about in the Lower 48. Those include gas hydrates
(occurring only in Alaska in the USA) and over-pressured gas or
basin shut in gas (shale gas) which they are in the process of
assessing. Those numbers will be very large, though. Coal bed
gas is another resource that is really large, but that also has
not been assessed.
SENATOR STEDMAN asked if his slides show there are 4 billion
barrels of oil remaining on Central North Slope.
MR. SWENSON replied using 2.6 to 5.9 as the range of potential
estimates (P95 and P5 numbers), that means there is a 95 percent
chance that there is more than 2.6 billion barrels of oil and a
5 percent chance that there is more than 5.9 billion barrels of
oil in this area - with a mean of that distribution of 4 billion
barrels.
SENATOR STEDMAN asked if the mean in the ANWR area is 10.4
billion barrels.
MR. SWENSON replied yes; the mean is 10.4 billion barrels with a
range of 5.7 to 16.
SENATOR STEDMAN asked him to explain a red line.
MR. SWENSON explained USGS did a recent assessment of NPRA and
reduced the mean from 10 billion barrels down to 680 million
barrels.
SENATOR STEDMAN asked for some background. Did they adjust the
numbers up a few years ago because of the exuberance over
Alpine?
MR. SWENSON replied that resource assessments get fine-tuned
with additional information. The USGS did a reassessment of the
NPRA work following some of the exploration work that was done
there. Their original number - 6.7 to 15 with a mean of 10.7 -
was based on their model at the current time associated with
just post-Alpine. They felt there were most likely additional
accumulations off to the west similar to Alpine, which would be
in the Jurassic section. The results of the post-Alpine drilling
caused them to reduce the model down significantly. The state's
position on that move is that USGS is being much too pessimistic
based on drilling from FEX and other data they share.
4:32:57 PM
SENATOR WIELECHOWSKI asked if this information is public. Are
they getting it from lease holders? Are they doing their own
seismic tests?
MR. SWENSON answered this is all public information.
4:33:36 PM
PAUL DECKER, Petroleum Geologist and Manager, Resource
Evaluation Section, Division of Oil and Gas, Department of
Natural Resources (DNR), said he moved to Alaska in 1988 and
took a position in Arco Alaska in development and exploration on
the North Slope. He worked there for about 16 years before
coming to work for the Alaska DNR in 2004. Today he said he
wanted to share fewer numbers but more concepts about what they
hope will be an emerging play concept, a type of unconventional
oil resource that they refer to as "source reservoir oil
resource."
He explained that unconventional resources can be distinguished
from conventional resources simply by the fact that conventional
resources are found in discrete accumulations. They are driven
by buoyancy like a bubble up through the water-saturated rock;
hydrocarbons accumulate at the high point on the structure to
form a discrete bubble. Unconventional resources on the other
hand have much lower geologic risk - that is, the risk of
actually failing to find them is much lower. That is because
they are most certainly present throughout the play fairway
where they occur. The reason for that is that they are still
stuck in the source rocks where the hydrocarbons were actually
created. The engineering risk is higher because they are not
sure the resource is going to be recoverable from those rocks
because they have low permeability that resists fluid flow. So,
massive engineering stimulations are required of virtually any
kind of unconventional resource. Shale oil is no exception.
Many terms are in the news, but they all refer to
"unconventionals" but some are more specific. Source rock is the
reservoir rock and it is also the trap simply because of the low
permeability, so the oil or gas is still down three where it was
formed.
4:36:24 PM
The next map was an overview of the North Slope region that
showed three area-wide sales offered every year by the Division
of Oil and Gas. The main green blobs in the middle of the map
showed the large oil fields of Prudhoe Bay, Kuparuk, West Sak
and the Ugnu Sands. A yellow box indicated where Great Bear
Petroleum precipitated all the interest in shale resource plays
on the North Slope by leasing 500,000 acres. That is really why
they are here discussing this today.
SENATOR STEDMAN asked if the newer leases have performance terms
attached or are they open ended like the original leases.
MR. BANKS answered these leases are offered with similar terms
to what has been offered for several years - the lowest royalty
he can offer at 12.5 percent. Most of them lie within an area
where the lease terms are 7-10 years. At this particular lease
sale the minimum bid was $10/acre. They paid a bit more for that
but not a lot more.
SENATOR STEDMAN stated that they have 7-10 years to prove up and
move forward.
MR. DECKER responded yes. The only other thing he wanted to
point out was the seismic transect or the slice through the
earth concept that Mr. Swenson showed, the blue line going east
to west across the Central North Slope state lands. He said this
was a diagram of the stratographic column for the North Slope
borrowed from the USGS. Under the "age" column were a variety of
geologic names which refer to periods of geologic time, the
oldest and deepest at the bottom of the graph and the youngest
and shallowest at the top.
He called their attention to the three prolific source rock
intervals on the North Slope starting with the Shublik at the
bottom, Kingak Shale above that and then shallower and separated
by geologic time is the GRZ and Hue shale system. He said he
will talk about all of them as they are all oil and gas prone
sources that are of interest to this discussion. A couple
thousand feet down the seismic line is where they would have to
be concerned about the base of permafrost and having drinkable
quality water. The source rocks here are at a depth of 8,000 to
13,000 feet.
4:40:47 PM
MR. DECKER explained that a number of key geologic factors
control the potential productivity of the shale resource plays:
· the total organic carbon content that is a measure of the
richness of the source
· the hydrogen index, which is a measure of the hydrogen
content, which relates directly to whether that source rock
is going to create oil or gas or no hydrocarbon at all
· the oil properties like viscosity and API gravity or the
runniness of the oil, very important when talking about low
permeability rocks.
MR. DECKER explained that thermal and tectonic history is an
absolutely key concept to shale resources. Source rocks that
have not been buried deep enough are still "immature," meaning
they have not yet generated oil or gas from their hydrogen and
carbon precursors. So, one wants to get into a deep enough part
of the basin called the "oil window." Deeper will get one into
the "gas window" or beyond. Also, natural fracturing occurs in
thermal and tectonic history and that can be really important in
terms of recovering oil or gas from these very permeable rocks.
It is also important when planning frac jobs to understand the
stress orientations and magnitudes.
Petrophysics refers to how the fluids interact with the rocks.
So, porosity is simply the void space where the oil or gas
resides in that rock. Permeability refers to how connected those
pore spaces are, a key ingredient. Finally, he explained that
geomechanics has to do with how "fracable" or brittle a rock is
and how it will sustain fractures either naturally or
artificially.
The next slides were from western North Dakota in the Williston
Basin where the Bakken source rock is being developed. It showed
a stretch of road with gravel pads on either side, each about
five acres in size. A well from each pad goes down about 8,000
to 9,000 ft. and then turns horizontal and goes laterally for up
to two miles. The slide also indicated a schematic of the
"fracture wings" that are being created by artificially fracing
isolated sections of the wellbore. The rows of wells set up a
very efficient drainage pattern. The concept is close well
spacing and a very pattern-driven approach.
4:44:40 PM
He stated that well spacing varies from shale play to shale
play. In the Bakken Formation about one well is put in per every
640 acres. In the Eagle Ford Shale in Texas and perhaps on the
North Slope they would expect to look at much tighter spacing.
CHAIR PASKVAN asked what the 120-060 acres/well meant on the
North Slope.
MR. DECKER explained that was a mistake that was corrected to
read 120-160 acres/well. He continued that the idea of a frac
well is to inject fluid into an isolated section of the wellbore
under increasing pressure until it reaches sufficient fluid
pressure to actually exceed the strength of the rock. The sand
is "parked" in those fractures that are a few millimeters to a
couple of centimeters in width and extend out hundreds of feet
on either side of the wellbore. The sand "props" the fractures
open and allows a permeable conduit for the hydrocarbons to flow
into the wellbore.
Fracing uses a LOT of water, he said. Jobs in the Lower 48
commonly use 1 million to 5.5 million gallons of water per well
depending on how large they want to make the frac wings and how
many stages of fracturing they want to do in the wellbore.
MR. DECKER said everyone has heard of environmental risks - that
it's possible that shallow aquifers will be contaminated if
great care isn't taken to ensure that those fractures don't
extend up into the fresh water aquifer. But this is something
that is clearly avoidable with good engineering and geologic
practice and responsible operators, particularly on the North
Slope where the aquifer is about a mile above their fracing
zones of interest. Slide 11 showed 34 frac trucks on location
that could drain about 400 ft. on either side of the well.
The next graph showed a single well's flow rate over time for
Whiting Petroleum in the Bakken Formation. Their wells are now
coming on stream initially at about 1,000 barrels/day or better.
Then within about five years they drop off sharply to about one-
tenth of the initial rate. Then the decline is shallow for
another 10 years or so, he explained.
SENATOR STEDMAN asked for help with the tables.
MR. DECKER said those were rate of return (IRR) figures from
Whiting's annual report and simply shows that at different oil
prices the return on investment can be handsome.
SENATOR STEDMAN commented that he hoped the State of Alaska
would negotiate better deals than this.
MR. BANKS commented that exploration drilling in Alaska is three
to eight times as expensive as a $5 million shale well in the
Bakken Formation.
SENATOR STEDMAN said he knows the Bakken tax structure is quite
different than Alaska's tax structure and ownership.
MR. DECKER said the intention of this slide is strictly
technical and to show how the flow rate declines quickly at
first but then levels out for some time.
CO-CHAIR PASKVAN asked if he intended to compare the North Slope
shale oil play to the Eagle Ford and Bakken plays.
MR. DECKER answered yes. He said the Eagle Ford Shale is brittle
and this makes it a pretty good analogue for one of Alaska's
source rocks, the Shublik. That's because it contains a lot of
calcite, the mineral that makes up limestone. Some of the other
numbers indicate that it's thick and organically rich, it's
widespread and therefore it's a very attractive place to try and
produce oil.
Turning to the potential analogue in North Dakota, he showed
that the Williston Basin in the west that contains the Bakken
Formation that is "thermally mature" meaning it has already
generated oil or gas. The various circles indicated the initial
2-3 month oil production rates. Over 150 rigs were active last
month in this basin alone, so it's really a "boom time" there.
SENATOR STEDMAN asked how immature and mature come about and how
they are identified.
MR. DECKER replied that immature rocks are those rocks that
haven't been buried deep enough to be warm enough (temperature
increases with depth) to generate oil or gas. The western part
of North Dakota where Bakken is located is the deeper part of
the Williston Basin.
4:54:20 PM
SENATOR STEDMAN asked if he could identify this clearly and how
many more years it would take for a rock formation to go from
immature to mature.
MR. DECKER answered an immature area won't become mature during
our lifetime or our children's lifetimes; geologic time is
required.
CO-CHAIR PASKVAN suggested that they could go back a couple of
slides and evaluate what one might expect from that well in the
next 10-20 years.
4:55:42 PM
MR. DECKER said that the good geologic characteristics of Alaska
source rock that make it a good play for shale resources is that
it's brittle and therefore fracable, and that's because of
silica and pyrite cements and some dolomites in the middle part
of it. The thickness is good, the richness is good, the kerogen-
type (hydrocarbon precursors) are all there to make this a good
oil and gas source rock very much like the Eagle Ford in some
respects.
Their counterparts in the North Dakota Industrial Commission,
Department of Mineral Resources, have indicated that the average
two-mile lateral horizontal producing well in the Williston
Basin now costs about $6 million and creates about 47 jobs. He
didn't know the precise amounts the first few wells would cost
to develop in our North Alaska shale plays, but it would be the
same type of well. He ventured an estimate of two to four times
that. The operating cost is low in North Dakota, less than
$7,000/month/well with about one full-time employee. The royalty
rate there is about the same as the Alaska's highest rates. Some
of Great Bear's leases will be paying this much and others would
be paying 12.50 percent. Initial average production rates for
the Bakken wells are just under 1,000 barrels of oil per day
(BOPD). Out of about 750 wells that have been drilled in the
last few years [in Alaska], all the wells on the left side of
the bar would be better than average and the ones they are most
interested in are the ones that produce even better than that -
3,000-5,000 BOPD - all of which are being drilled by just three
companies.
SENATOR STEVENS asked if Alaska's shale oil potential is about
the same as North Dakota's or is it greater.
MR. DECKER said the USGS is conducting a shale resource
assessment of Arctic Alaska which should be available within the
next year, but he didn't feel enough was known right now to say.
4:59:40 PM
MR. DECKER said the Bakken has been very successful. About 83
percent of the wells fall in the better-than-break-even
category. That is because of the rates they can achieve early on
in the lifespan of the well and the total production over the
life of the well.
He showed them examples of the characteristics of the North
Slope source rocks starting with the oldest, Shublik. It
presented a lot of layering variability. The next slide was a
cross section showing the same zones being highly traceable
across many miles of the North Slope. This was good because it
allows them to predict what zones will be fracable once they get
the data.
The Lower Kingak Formation is immediately above the Shublik and
has a lot of the same thermal characteristics. The Hue Shale/GRZ
is several layers that coalesce to the east in the cross
section. His calculations show that it compares favorably with
any of the shale plays anywhere in the world. Finally, the
Shublik and Kingak are together so they have the same thermal
maturity zone, a wide swath across the North Slope indicating
that Great Bear is well positioned.
CO-CHAIR PASKVAN asked if the location of the TAPS is
significant to those sites.
MR. DECKER answered yes and that is another good reason for
Great Bear picking up the acreage that they did. The most
commercial development early on will occur in close proximity to
the TAPS and the Dalton Highway.
5:03:36 PM
A comparison chart of source rock characteristics showed the
Shublik and the Eagle Ford being about as closely matched as
they can get. The department expects to look at Eagle Ford to
answer questions they don't yet know from direct evidence about
the Shublik source rock.
5:04:07 PM
To summarize, he reinforced the point that there are many
different geologic and engineering variables that impact the
productivity of source rock reservoired oil and gas geologic and
technology practice. A successful development of the North
Slope's shale oil is likely going to depend on a series of
events kind of like the resource chain the Mr. Banks alluded to
earlier. It will start with a successful pilot exploration
drilling project. Then a way to lower the cost of drilling the
wells will have to be found partly through learning and partly
by just getting the equipment up there. All-season roads will
likely be needed for year-round surface access to get this done
in a reasonable amount of time. More equipment and crews will be
needed as well as establishing the presence of sufficient water
for the fracs. People will also need to have this frac-based
dialogue on practices to replace some of the emotion around
those issues.
SENATOR STEVENS asked who he expected would be exploring and
developing the shale oil plays. Will it be the big three or the
smaller companies like Great Bear?
MR. DECKER answered that Great Bear is a newly formed company
with key technical people who have long experience in Alaska.
They have seen how prolific these shale plays have been and
formed a company specifically devoted to this venture. "They are
the first on this wagon here," and he thought other companies of
different sizes should follow.
SENATOR WIELECHOWSKI commented that five years ago people hadn't
heard of shale gas in the Lower 48. Would this potentially
happen on the North Slope with shale oil?
MR. DECKER replied that is potentially in our future if
companies have sufficient access to capital. Great Bear has very
aggressive plans.
CO-CHAIR PASKVAN thanked the committee for going past 5:00, the
Commissioner and the three members on the panel, and adjourned
the meeting at 5:08 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SRES_DOG Presentation 2-23-11.pdf |
SRES 2/23/2011 3:30:00 PM |
|
| SRES_NAK Shale Resource Plays_2011-02-22.pdf |
SRES 2/23/2011 3:30:00 PM |
|
| SRES_North Slope Conventional Expl_Swenson.pdf |
SRES 2/23/2011 3:30:00 PM |
|
| SB 42_Response to Committee Questions and Concerns.pdf |
SRES 2/23/2011 3:30:00 PM |
SB 42 |
| CS for SB 42 Version D_2-22-11.pdf |
SRES 2/23/2011 3:30:00 PM |
SB 42 |
| SB 42_Explanation of Changes_2-23-11.pdf |
SRES 2/23/2011 3:30:00 PM |
SB 42 |