Legislature(2013 - 2014)BUTROVICH 205
04/09/2014 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Spring Revenue Sources Book | |
| Presentation: Updates from the Field | |
| 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
April 9, 2014
3:33 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice Chair
Senator Peter Micciche
Senator Lesil McGuire
Senator Anna Fairclough
Senator Hollis French
MEMBERS ABSENT
Senator Click Bishop
COMMITTEE CALENDAR
PRESENTATION: SPRING REVENUE SOURCES BOOK
- HEARD
PRESENTATION: UPDATES FROM THE FIELD
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
BRUCE TANGEMAN, Deputy Commissioner
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Presented Spring Revenue Sources Book
update.
BILL HARDHAM
Alaska Project Manager
Repsol E&P USA
Anchorage, Alaska
POSITION STATEMENT: Related Repsol's developments on the North
Slope.
SCOTT JEPSEN, Vice President
External Affairs
ConocoPhillips Alaska
POSITION STATEMENT: Talked about ConocoPhillips's activities on
the North Slope fields they operate.
SOPHIA WONG, Manager
Infrastructure and Pipeline Project
Pt. Thomson Project
ExxonMobil Development Company
POSITION STATEMENT: Related ExxonMobil's developments at Pt.
Thomson and the North Slope.
FRANK PASKVAN
Alaska Technology Manager
BP Exploration Alaska Inc.
Fairbanks, Alaska
POSITION STATEMENT: Related BP's recent North Slope
developments.
ACTION NARRATIVE
3:33:58 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:33 p.m. Present at the call to
order were Senators French, Dyson, Micciche, and Chair Giessel.
3:34:49 PM
CHAIR GIESSEL said she received a letter from Senator French in
which he made an interesting request, that they put people
speaking to them today under oath. But this is unprecedented and
inappropriate. Springing an under-oath requirement on invited
citizens at the last minute is not only unfair, but
unprofessional. She consulted other Senators on the committee
and none supported the criminal justice approach to this
meeting. The people speaking to them today were asked to share
trend lines that they see based on the economic climate and the
work that is being done on the North Slope during this just-now
concluding winter work season.
SENATOR FRENCH raised a point of personal privilege.
CHAIR GIESSEL said he was out of order.
At ease from 3:34 to 3:36 p.m.
^Presentation: Spring Revenue Sources Book
Presentation: Spring Revenue Sources Book
3:36:42 PM
CHAIR GIESSEL said today's agenda included hearing from the
Department of Revenue (DOR) and some of the companies producing
up on the North Slope. She welcomed Deputy Commissioner, Bruce
Tangeman. She asked committee members to hold their questions
until the end.
BRUCE TANGEMAN, Deputy Commissioner, Department of Revenue
(DOR), Anchorage, Alaska, said their spring forecast update
concentrates on the production side of the forecast. He would
start with some of the changes they made to it. They saw looking
back over the last 20 years that the previous methodology was
overly optimistic. So, they decided to put a more conservative
forecast out for the understanding and the benefit of the
decision makers, because this is used for budgeting and to give
a sense of revenue streams. His personal goal was to put a
prediction out there and beat it, for a change.
3:38:47 PM
Historical forecast: Back when oil first started flowing there
were only two pockets, Prudhoe Bay and Kuparuk, and they were
fairly easy to forecast off of. But then in the late 1990s more
production came on, mostly in smaller quantities, and that made
making forecasting more difficult.
3:39:48 PM
MR. TANGEMAN said slide 4 speaks to why a change in the
methodology in production forecasting was required. He remember
in 2011 coming out of House Finance and then director of the
Division of Oil and Gas Bill Barron telling him there was a
better way to do it. That is what started the process of putting
a more accurate forecast together.
He explained that in 2005 and 2007 (when it missed by 150,000
barrels) the department used to project 10 years out; in 2009
they missed by 95,000 barrels. So, fall of 2011 was the last
year the old methodology was used. They realized that while some
things do come on at the projected level, some things don't, and
not everything happens as predicted. And the state was relying
on information which led to inaccurate forecasts to be used as a
budgeting tool.
3:42:10 PM
So, fall of 2012 was the first year of using the new
methodology. Mr. Tangeman explained that wells that are
currently producing are much more predictable. Those under
development and under evaluation are what is possible. Under
development is a little more solid; it usually has some funding
attached to it and a lot more analysis, but still might get
kicked out. For example, Liberty was once under development; a
budget was attached to it and everything was always two years
out, but it never came to fruition.
3:43:24 PM
SENATOR MCGUIRE joined the committee.
MR. TANGEMAN explained that under evaluation is a little more
skeptical. It's known, but not necessarily on the budgeted list
quite yet. Under the old methodology those would be added to the
production forecast. The state would always take what was hoped
for, and assumed the upper end.
3:44:54 PM
So, for the fall 2012 forecast, with the help of Bill Barron,
they put in a risk factor for new oil. Currently producing was
not risked, because the wells had been operating and were fairly
predictable going forward. Under evaluation was risked not quite
as aggressively as under development, but the bottom line was
they were putting in place a production forecast that was not as
rosy as in the past. It was not responsible to put out the most
optimistic forecast and know they were not going to hit it,
because those figures will affect future budget decisions.
3:46:32 PM
The Revenue Sources Book now has a high-case/a forecast case/and
a low case scenarios. In the past, the high case was the old
methodology. The forecast line is now similar to the high case,
because most of that is the currently producing oil. The risk
really starts with production that is seen as possible but not
to bank on for budgetary purposes; the low case is just the
currently producing oil if no new oil came on line.
He pointed out that in December they were forecasting about a
4.1 percent decline in production for FY14, and after eight
months of "actuals," they are now looking at a 1.8 percent
decline, so this was his first chance to say they beat the
forecast. Basically, he summarized that his job is to put a
conservative number out there, and it's industry's job to beat
it.
3:49:03 PM
MR. TANGEMAN said in order for a project to make it into the
forecast there has to be well data confirming a reservoir, a
company has to be actively pursuing development, and a budget
should be in place. Basically, he needs to have comfort that
they are far enough down the road that they can start counting
barrels in anticipation of production.
Projects are considered under development if a company has
partner alignment and/or senior management approval and the
project has been allocated funds in the company budget. Under
evaluation is more that the resource is known and being pursued,
but financial hurdles have not been met. So, many of the recent
announcements by BP and ConocoPhillips are included in this, but
production estimates starting in FY17/18 (some of the lead times
required) are still being risked.
3:51:17 PM
MR. TANGEMAN explained what is not included in the forecast are
undiscovered resources (the potential on the North Slope is
tremendous), technologically challenged oil, heavy viscous shale
(three times the size of the Bakken but with development
challenges), and regulatory burdened or otherwise difficult
(federal issues with OCS and ANWR) resources.
3:53:10 PM
A five year look at the December forecast and the Spring updated
forecast indicates that in FY14 the barrels were up to 13,600.
Based on company information, the summer field maintenance is
expected to be deeper than originally anticipated, but a lot of
that is in preparation for the capital investments they have
announced. So, while it's more or less even for this coming
fiscal year (FY15), those capital investments do show up in the
Fall forecast.
3:54:22 PM
MR. TANGEMAN said that future production varies greatly based on
projects currently under development or evaluation. Today they
recognized it but they don't bank on it. The potential for
significant production increases exist, but forecasting it will
occur is not prudent. Likelihood of development increases with
better economic conditions (price, costs, and taxes). And many
things can cause a project to be delayed or abandoned.
3:56:14 PM
MR. TANGEMAN reviewed his slides 14-16 that illustrated the
current tax system in place and the capex forecast for the next
10 years. He explained that capex is risked just like production
in the out years.
He noted that the change between the two tax systems took about
20 percent capital credit off the table, and questions were
raised about whether expenditures would be accelerated to take
advantage of that. But the forecast for Spring FY14 was a little
less. Between Spring FY14 and Spring FY15 they forecasted $800
million of additional investment and $1.3 billion. He pointed
out that even though the 20 percent credit was taken off the
table, but there is still an increase in capital investment.
3:59:27 PM
SENATOR FRENCH objected to the chair's use of the word
"unprofessional" to describe his letter. He then focused on
slide 11 that indicated 536,000 barrels will be produced in FY14
and said that Mr. Tangeman is claiming that is an increase. But
for him to believe it really is an increase means he has to
ignore the other two most recent forecasts for FY14; one said
we'd make the same about (536,000 barrels) and the other says
we'd make 540,000 barrels. And that gets them back to the
forecast from a year ago, Spring 2013.
MR. TANGEMAN responded by going back to slide 8 and saying that
everyone had been using 6 percent as a decline rate for the past
several years, but it was really was 7.2, 6.6, 3.4, and 8.2
percent; the decline was accelerating a lot quicker than
anticipated. So, to get back to those original numbers in the
previous forecast was a much bigger uphill climb for them, which
really makes getting to 1.8 percent that much more incredible.
SENATOR FRENCH asked if he was aware that one year ago
ConocoPhillips' vice president told a gathering of investment
analysts the company was planning on a 2-3 percent decline rate
from its North Slope operations in the next few fiscal years.
MR. TANGEMAN replied that he had heard that.
SENATOR FRENCH remarked that so, they are seeing what they
predicted: a lower decline rate.
MR. TANGEMAN replied that other companies are involved on the
North Slope, but the bottom line is that no matter who you talk
to in this building, more production was the goal. So, he was
enthused by the 1.8 percent.
4:02:10 PM
SENATOR MICCICHE said he used to run a little city and recited
this parable: city managers historically give low revenue
predictions and are conservative in budgeting. Then when it
comes at the end of the year, everyone is really happy with the
higher revenues. For years, the state didn't operate that way,
and everyone wasn't excited at the results. Now they have more
accurate revenue predictions, which he always supported. But
spending should be matched accordingly. Now, people use those
accurate numbers against legislators as if it were a bad thing.
He asked if he saw other areas for improvement.
MR. TANGEMAN responded that the department relies on what
industry tells them for their capex predictions. The reason it
is risked is because the state is under a net tax system. So,
the dollars they anticipate spending do affect the revenue
stream to the state.
SENATOR MICCICHE said they want to do the best they can to
understand future expenditures.
MR. TANGEMAN said that the Spring forecast does show an increase
in about $374 million for FY14, and that is good news.
CHAIR GIESSEL found no further questions and thanked Mr.
Tangeman for his presentation.
4:05:49 PM
^Presentation: Updates from the Field
Presentation: Updates from the Field
4:06:02 PM
CHAIR GIESSEL invited Mr. Hardham to present Repsol's update.
BILL HARDHAM, Alaska Project Manager, Repsol E&P USA, Anchorage,
Alaska, said they are a relatively new player on the North
Slope. They are currently engaged in the exploration and
appraisal phase. Repsol E&P USA is the US upstream operating
subsidiary of Repsol SA, an integrated international oil and gas
company headquartered in Madrid, Spain, with 25,000 employees
worldwide, and exploration and production activities in 31
countries. Repsol is ranked the 112th on the 2013 Fortune 500
List. It has a history with high political risk countries, and
has suffered several examples of contracts being changed,
expropriation of assets, and civil unrest leading to lost
business opportunities and erosion of value. As a result,
several years ago, Repsol decided to rebalance its portfolio in
favor of lower risk opportunities such as those found in OECD-
type of countries.
Repsol has been looking at the Alaska North Slope for some time
and took leases in the federal waters of the Beaufort and
Chuckchi Seas, but due to the uncompetitive fiscal terms for the
Alaska North Slope, the economics were not attractive and they
did not enter.
In 2011, when oil tax reform was introduced, it became apparent
that Alaska was serious about making the North Slope more
competitive and that is when Armstrong Oil and Gas presented an
opportunity for Repsol to establish a material North Slope
position. There were risks associated with coming in at this
time before the certainty of oil tax reform, but it was a good
opportunity that was a good fit for Repsol strategy.
Additionally, if Repsol would have waited for more certainty in
regards to oil taxes, the opportunity would likely have been
lost or the price of entrance would have gone up. So, at that
time, Repsol took a bit of a calculated risk in counting on oil
tax reform and came to Alaska in March 2011 acquiring 70 percent
interest in approximately 500,000 acres on the North Slope.
So, Repsol immediately set out to aggressively explore and
appraise the acreage, all the while keeping an eye on oil tax
reform. They are now completing their third winter season of
activity and as the map shows, they have drilled nine wells on
the North Slope and have acquired a significant amount of 3D
seismic data and increased their acreage position to
approximately 750,000 gross acres. They have invested more than
$500 million in their Alaska project and have announced three
discoveries from last year's campaign.
4:10:49 PM
MR. HARDHAM said the passage of the new tax law last year gave
Repsol the confidence to move forward with an aggressive
campaign this winter, including three wells drilled with three
drilling rigs and two large 3D seismic acquisition projects.
They put a significant number of people to work and have more
than 600 positions and $250 million in investment on the North
Slope associated with this program.
He noted that the DOR forecast doesn't include Repsol's
production. This is because the appraisal of last year's
discoveries needs to be completed before making a development
decision. If they appraise well, and if the tax law stands, he
was optimistic that a project will get approved internally.
Hopefully, this will be the first of several North Slope
development projects for them. He emphasized that the state oil
tax structure is vitally important to Repsol's continued
activity on the North Slope, and that under SB 21, the current
tax structure is competitive. That increases the chances that
moderately-sized opportunities and marginal fields, ones that
weren't commercial under ACES, have a much better chance of
being developed under the new tax law.
4:13:47 PM
SENATOR FRENCH said that Mr. Hardham had made statements about
how Repsol was encouraged by the tax reduction and that it gave
them the confidence to go forward. He wanted to know what their
internal rate of return is on their investments, their hurdle
rate, and how the tax structure, which they have been told is
taking in more now (than under ACES), plays into their
decisions.
4:14:18 PM
MR. HARDHAM answered that Repsol doesn't operate under a minimum
rate of return per se; it's more about an evaluation of the
investment opportunities they have in front of them, and it
would have to be positive. They have a limited budget for
investments around the world, so any North Slope projects are
going to have to compete against the opportunities that Repsol
has in the rest of the United States and the 30 or so other
countries around the world that they are in.
SENATOR FRENCH asked what projects they are considering pursing
now that are economic under SB 21 that were not economic under
ACES and then asked him to explain the economic rationale
between the two.
MR. HARDHAM explained that it's still early in the evaluation
process to make those decisions. Their opportunities are not
fully characterized from a geoscience or engineering perspective
right now to where they are ready to make those decisions.
However, that being said, the first opportunity they are pursing
is one in the Coleville River Delta where they announced the
discoveries; he called it a collective opportunity for
development. The two wells there will be finished this winter
and it will take a number of months to analyze the results. At
that time, they hope to have enough information to make a
decision.
SENATOR FRENCH asked if the current high tax rate is hurting
Repsol's ability to invest in Alaska.
MR. HARDHAM answered that looking at a full cycle of economics,
SB 21 is more favorable.
4:18:02 PM
SENATOR MICCICHE thanked him for being here and remarked that
Repsol - and smaller companies - were sort of a targeted fan of
ACES, and asked what changed their minds specifically with the
current tax regime that made them come up here, and what kind of
success will keep them around and draw more investors of their
market cap size.
MR. HARDHAM explained that when Repsol looked at opportunities
in Alaska under that tax structure, it was not advantageous. One
of the benefits of that tax structure was getting tax credits to
offset initial investments, but that, while important to some
companies that might have constraints on acquiring financing,
wasn't the case with Repsol. It had more to do with the basics
of full-cycle economics, which just didn't compete. SB 21 is
much more competitive in their view.
SENATOR MICCICHE asked what sustainable economics would draw
other smaller companies - no matter what the size, as long as
they can operate in a safe manner - to Alaska.
MR. HARDHAM answered that the current tax structure is
competitive and should attract other investments to the North
Slope. Stability is also important.
SENATOR MICCICHE asked if they are seeing good things in test
wells.
4:21:48 PM
MR. HARDHAM replied that they are very encouraged with what they
have seen so far and that they had discovered good quality oil.
CHAIR GIESSEL observed that Repsol would qualify under
exploration and possible development for the gross value
reduction credit.
4:22:34 PM
SENATOR MCGUIRE said she wanted to see increased production in
Alaska and asked if the repeal of SB 21 would alter their
investment decisions in Alaska.
MR. HARDHAM answered that a repeal of SB 21 would negatively
affect Repsol's investment decisions going forward. SB 21 makes
Alaska more competitive and a moderately-sized opportunity on
the North Slope more competitive, as well.
SENATOR MCGUIRE asked how paying higher taxes on production
affects future development plans.
4:25:37 PM
MR. HARDHAM answered Repsol doesn't compartmentalize exploration
and development in looking at investments; it looks at the whole
picture. The current tax structure is just much more
competitive.
4:26:20 PM
SENATOR FAIRCLOUGH joined the committee.
CHAIR GIESSEL thanked Mr. Hardham for his presentation and
invited Mr. Jepsen to give his presentation.
4:26:58 PM
SCOTT JEPSEN, Vice President, External Affairs, ConocoPhillips
Alaska, said he would talk today about ConocoPhillips's
activities on the North Slope fields they operate. He cautioned
that their future performance could differ materially from the
expectations outlined today, and the risk and uncertainties that
affect their performance were outlined in "legalese" that he had
provided them.
4:27:52 PM
MR. JEPSEN said that first he would talk about what is happening
in 2014; second, he would give them an exploration update on
what happened last winter with their exploration drilling, and
lastly, he would touch upon the plans to spend $2 billion in new
investments that ConocoPhillips had announced since SB 21 was
passed.
He said ConocoPhillips's 2014 budget is $1.7 billion, about $600
million more than it was in 2013 and about double what it was in
2012. In 2014, their net capital budget covered all activities
for Kuparuk, Alpine, Prudhoe Bay, Pt. Thomson, Alaska Gas
Project, and Cook Inlet. All the rest of the numbers he would
talk about are gross numbers.
MR. JEPSEN said that CD5 is a big part of the budget. They spent
about six years trying to get it permitted and once they did,
they spent a lot of time and effort going through the process,
and decided to go ahead and proceed regardless of the tax
framework. It is a $1-billion gross project. About $400 million
will be spent this year; they are now in the process of building
the bridges and laying down the gravel. About 600 people are
employed on the project. First production will be seen in 2015
at a peak rate of about 16,000 barrels/day, if all goes as
planned.
4:29:24 PM
He said the other big chunk they are spending in 2014, about
$400 million, is on renewal projects; probably one of the
biggest one is replacing 14 miles of 30-inch pipeline that
brings water from their seawater plant back into the middle of
the field for pressure maintenance in the Kuparuk field. They
also are installing additional pigging facilities, which will
allow them to maintain their pipelines.
With the exception of CD5, these projects are representative of
the type of projects ConocoPhillips has done over the last six
or seven years when ACES was in place. Now, since SB 21 was
passed, they are starting to see the tip of the iceberg of newer
projects that are going before the board for approval. One of
those is Drill Site 2S in Kuparuk where they are spending about
$70 million this year to put gravel down for a new drill site.
They have also brought in two additional rigs; one is doing
mostly workovers that has added about 2,000 to 3,000 barrels/day
of production in 2013. The other rig started up in January and
will be doing new drilling.
4:31:02 PM
MR. JEPSEN said in terms of jobs, this means bringing in 1,750
new people to the North Slope; about 1,100 are working on CD5
and the seawater pipeline and about 275 are working on the
projects they have announced since SB 21 was passed. About 480
are coming from the union halls in Fairbanks and there are about
900 non-union jobs. Another 350 engineering and fabrication jobs
are going on in both Anchorage and Fairbanks. He provided a list
of about 40 of the bigger companies they are doing business with
saying that their work has a big impact on the whole Alaska
business community.
4:32:29 PM
Slide 6 mapped ConocoPhillips's exploration wells. Mr. Jepsen
said this last year they drilled two wells: Flat Top and
Rendezvous 3. They are planning a new drill site in NPRA called
Greater Moose's Tooth 1 (GMT 1), which he would talk about
later. The Flat Top well is an accumulation different than the
GMT 1 accumulation, but it could potentially be developed from
the GMT 1 pad.
The Rendezvous 3 well is the third in a series, the first two
having been drilled in 2000 and 2001. This is the follow-up well
to get more data, and if that looks good, it could lead to
another drill site to the southwest. If GMT 2 is successful, it
would be sequential after GMT 1. The idea is to level-load their
resources, because stacking them all on top of each other would
put a big strain on manpower, equipment, and engineering
resources in the state. Hopefully, using this business model,
they can do more in the long term in Alaska than if everything
was stacked together.
4:34:51 PM
Since SB 21 passed, he said that ConocoPhillips had brought two
rigs into the Kuparuk field. The workover rig is doing about 25-
30 workovers a year and the drilling rig is drilling 10 per-year
grass roots wells, a lot slower process.
Drill site 2S, the Shark Tooth well, is the result of
exploration work ConocoPhillips did in 2012. If they are
successful in getting funding, that would be a $600 million
project employing 240 people during construction, and with about
8,000 barrels/day peak production in 2016. He said these
projects will be taken to the board and executive management
late in 2014 for approval.
The next one, GMT 1, is an interesting prospect. It's going to
be fairly substantial in terms of volume, potentially as much as
30,000 barrels/day when it comes on line in 2018. It is similar
in scope to CD5, except the bridges don't have to be built. It
will cost about $900 million, and 500-600 people will work on it
during construction.
Lastly, they have recently announced additional investment in
the viscous oil field in the Kuparuk River Unit called the West
Sak and they are drilling some additional wells off of an
existing 1 H drill site in Kuparuk where additional gravel will
be put down and then they will move out of the core area of West
Sak into an area called the Northeast West Sak. They expect
about 9,000 barrels/day from that investment in 2018; about 150
people will construct it for about $450 million.
MR. JEPSEN explained that these developments represent the tip
of the iceberg: ConocoPhillips is to a point where they are
ready to submit permits and start talking actively with their
partners about funding and putting the process in place to take
them to executive management for funding later this year. They
are working on more projects, but those have not been matured to
the point where they can be talked about publicly.
4:37:16 PM
The production profiles for the three projects are more than
40,000 barrels/day of new production in 2018; if CD5 is added,
that is another 10,000 barrels/day. So, the investment is
significant in terms of billions of dollars and more employment.
In retrospect, some good things have been announced since SB 21
passed and he thanked them for passing it. However, if the
referendum passes, they will have to go back and take a much
harder look at all of these projects. It would have a very
negative impact.
4:40:08 PM
SENATOR FRENCH reminisced about CPF 1 at Kuparuk (slide 4) where
he had worked for eight years, and said that he viewed the $400
million worth of renewal projects Mr. Jepsen talked about
spending in 2014 to replace the seawater line, the pigging, and
other renewal projects as maintenance projects, which he
supported. He was glad they could talk about them in the open
this year, because last year maintenance was a horrible thing to
be spending money on. Now, it's okay, because SB 21 passed. He
asked Mr. Jepsen to comment on future maintenance-style projects
ConocoPhillips will be doing, not only at Kuparuk, but at other
investments.
MR. JEPSEN responded that ConocoPhillips has always talked about
how much money they spend on renewal or maintenance projects, so
he disagreed that they were coming out of the closet, but he
just didn't know what was coming down the road. To some extent
it depends upon what kind of issues are uncovered, as they saw
some corrosion in this line and it became time to replace it.
This is a replacement of a big piece of pipeline, not just a
repair.
He added that these oil fields are beyond what their expected
lives were. They have been here about 40 years and hopefully,
they will be here another 30-40 years, and he thought over time
bigger equipment will be replaced on the North Slope, because
they have outlived their useful life. He thought they would
continue to see a fair amount of investment on maintenance
projects on the North Slope, as well as more employment.
SENATOR FRENCH clarified that he wasn't aiming his maintenance
remark at Mr. Jepsen or anyone in the industry, but it was aimed
mainly the debate heard in the building last year about passing
the bill and how somehow maintenance was bad. He apologized if
it came out wrong. He turned to a more substantive point on page
7 where "the rubber meets the road" and asked which of those
projects were not economic under ACES.
MR. JEPSEN responded by asking to go back to their conversation
from last year in which he described how ConocoPhillips makes
investment decisions. They look at a number of economic metrics:
MPV, ROR, and cash flow, and one of the biggest issues under
ACES was that it really captured cash flow. When you get to a
certain point, basically all the upside went to the state. That
put investment in Alaska at a serious disadvantage, because
other places had better investment climates. That's what the
debate over ACES was all about: progressivity really killed the
investment climate in Alaska. There was no price sensitivity; as
the price goes up they didn't make any more money. SB 21 changed
that.
SENATOR MCGUIRE stated her concern wasn't that the industry was
spending money on maintenance, but rather that the state wanted
them to spend more on drilling and production. That was the
point of SB 21 for her; but maintenance is important, too.
4:46:02 PM
SENATOR MICCICHE related how some of his constituents enjoyed
the benefits of SB 21, which was manifested by keeping more
employees working in the winter. He asked if the job numbers on
page 5 and the projects number on page 7 was significantly
higher since passing of the new tax regime, and would they be
adversely affected significantly by going back.
MR. JEPSEN answered that ConocoPhillips will have a substantial
maintenance and renewal program for the foreseeable future. The
thing that's different is CD5 has 600 jobs, and it is a proxy
for all the other projects he talked about. The difference is in
those 600 or so jobs because of the projects that are moving
forward since SB 21 was passed. He thought a decrease in
employment on the North Slope would be seen if SB 21 would be
repealed.
CHAIR GIESSEL thanked him for his comments and invited Ms. Wong
to testify for ExxonMobil.
4:48:44 PM
SOPHIA WONG, Manager, Infrastructure and Pipeline Project, Pt.
Thomson Project, ExxonMobil Development Company, said she had
been working on the project since 2009. They are currently
wrapping up their second winter season of construction and have
completed a number of infrastructure milestones that demonstrate
their ongoing commitment to Alaska's energy future.
She said although Pt. Thomson is an initial production system,
the estimated cost for the infrastructure, for the gas
processing facility and the wells, is expected to be in the
range of $4 billion. To date, ExxonMobil has invested about half
of that, of which about 70 percent has been spent in Alaska.
ExxonMobil is excited about what the project is contributing to
Alaska. First, it is opening new portions of the North Slope,
second they are establishing infrastructure for future
development, and they are investing in Alaska's human resources.
4:51:22 PM
MS. WONG said one of the things that makes Pt. Thomson unique,
even on the North Slope, is its location. It is about 60 miles
to the east of Prudhoe Bay and the TransAlaska Pipeline (TAPS),
and right next to the Arctic National Wildlife Refuge (ANWR). A
challenge they face is producing this large resource space in a
safe and environmentally sound manner. However, they have taken
steps to ensure a minimal environmental footprint with summer
coastal barging, winter ice roads, and comprehensive mitigation
measures to minimize impact on the tundra, wildlife, acquatic
resources, and subsistence activities.
She said that the Pt. Thomson project will provide access to the
Thomson Sand Reservoir, which contains an estimated 8 tcf/gas
and 200 million barrels of condensate, which is premium liquids
like diesel (about 25 percent of the known reserves of gas on
the North Slope). Pt. Thomson builds on the expertise and
success of other North Slope developments, like Prudhoe Bay, and
ExxonMobil's Arctic experience from around the world is helping
to execute the project.
The initial production facility consists of three primary wells:
one producer and two injection wells, which are directionally
drilled from shore to minimize the environmental footprint. The
gas processing facility is going to have the capacity to cycle
200 million cubic feet of gas and produce up to 10,000 million
barrels per day of condensate. They are also building a 12-inch
export pipeline linking Pt. Thomson to the Badami common carrier
pipeline.
MS. WONG stressed that the 10,000 barrels per day is only the
initial amount of condensate. When completed the pipeline has
the capacity to transport 70,000 barrels per day; so ultimately
Pt. Thomson is a double win. It's gas for the LNG project and
increased throughput for the TAPS. Additionally, the Pt. Thomson
project establishes the critical infrastructure for future
expansion that is essential to Alaska natural gas
commercialization.
4:54:00 PM
She showed them a picture of the site back in October 2012 when
the Corps of Engineers issued their main 404 permit; it was just
a photo of a 13-acre "rig matts," a small helipad, and two
orange wellhead covers for the PTU 15 and 16 wells they drilled
in 2010. She showed them another picture taken a few months
later when they were barging in two sealift modules for
permanent fuel storage. One year later another picture showed a
little village there. She pointed out the key components of the
service pier where they offloaded the four diesel storage tanks,
and a permanent operations camp, as well as their
telecommunications tower. To the left were the temporary
construction camps.
A photo taken a couple of weeks ago showed the ice road right-
of-way to the export pipeline and the west gathering line to the
central pad facilities. Another photo was of the central pad and
its continued expansion of additional camps for the pipeline
scope of work, two cold storage tents, and foundations for two
buildings: one a warehouse and the other for ACS maintenance.
MS. WONG said they had laid about 750,000 cubic yards of the
million yards that they are doing the next season, so they are
in good shape. They just started the foundation work for the
warehouse and ACS buildings and the sealift bulkhead.
In the 2015 winter season, she said ExxonMobil will have the
drill rig come back to the central pad recompleting the PTU 15
and PTU 16 wells, as well as drilling the disposal well. Piles
will be installed for all the process modules.
MS. WONG said one of the significant milestones coming up will
be in the summer 2015 when they barge in four large sealift
modules about the size of a football field. Those will be
connected like legos in what is called "plug and play." By 2016,
they plan to produce through the initial production system and
into TAPS. She remarked that the picture makes it look simple,
but it will take strong contractors and a strong team to execute
the project, and including their permanent operations camp at
the end of the project, they will have leveraged the skilled
workforce and available facilities to build over 130 truckable
modules in Alaska.
4:58:41 PM
The Pt. Thomson "contractor tree" indicated that 92 companies
were involved with the project, 73 companies were Alaskan.
4:59:39 PM
MS. WONG highlighted a few of the contractors: Alaska Frontier
Constructors (AFC) built a 48-mile ice road from Endicott to Pt.
Thomson. This ice road was used to transport equipment,
personnel, and materials to the Pt. Thomson site. Fifteen miles
of ice roads were built around the central pad to support
construction. AFC is an Alaskan company that constructed and
maintains ExxonMobil's ice road infrastructure, which is
critical to supporting construction during the winter. It is
also extending the central pad to about 50 acres and expects to
haul an additional 1 million cubic yards of gravel. They are
going to help them finish the sealift bulkhead that will be used
to offload the facility modules in the summer of 2015, as well
as helping install the foundations for the other buildings.
MS. WONG recapped that one of the things AFC recently concluded
was the construction of their west pad and they are now close to
finishing the road to the west pad including the three bridges.
At peak, just a few weeks ago, AFC had 240 people at the central
pad; they are a key player in all fronts of their infrastructure
development.
5:01:33 PM
MS. WONG highlighted a second contractor, Doyon Associated that
is helping ExxonMobil build their pipeline. They are building
upon the work they did in installing approximately 2,300
vertical support members between Badami and Pt. Thomson. Just a
couple of weeks ago at peak, Doyon had about 315 people working
on the pipeline scope. ExxonMobil is anticipating by the end of
this month that the 22-mile 12-inch export pipeline will be
completed; that includes 27 miles of ice pads along the pipeline
route. All the double joining work for this pipeline was
completed in the last few months in Fairbanks by Flow Line,
another Alaskan company.
MS. WONG highlighted a third company, Pacific Rim Logistics
(PRL) that is their main logistics provider at Pt. Thomson; they
manage the flow of people, material, and equipment. PRL has seen
tremendous growth over the last few years and has 120 people at
site and 200 more working for their sub-contractors, of which 95
percent are Alaskan.
She said that last Saturday she attended the open house for
PRL's new facility in Kenai that combined with remarks from the
Ketchikan Visitor's Bureau, showed how their work on the North
Slope is impacting the whole state.
As ExxonMobil completes the infrastructure and the pipeline
work, they will transition to focus on installing the gas
processing facilities. Another Alaskan company, CH2M Hill will
begin to mobilize and install the flow lines from the wellheads
to the facility. They will also do the facility module
installation in 2015 (in previous graphics).
Morris Engineering based in Juneau provided the design and
construction oversight services for all the construction of
their airstrip, Ms. Wong said, and Builders Choice Incorporated
out of the Matanuska Susitna Valley constructed their Pt.
Thomson permanent operations camp, which currently houses 200
people and will be the long term housing for the operations
team. Builders Choice has expanded to over 300 employees with
operations in the Dakotas, as well.
5:04:29 PM
At peak manpower, that happened just a couple of weeks ago at
central pad on the North Slope, they had more than 729
positions; a lot of those positions are rotational. Statewide
they have about 1,200 positions of which 85 percent are
Alaskans; they use 92 companies of which 73 are Alaskan.
In summary, Ms. Wong said, she had showed them the progress made
at Pt. Thomson to complete the infrastructure milestones needed
for first oil into TAPS by early 2016. Through this
infrastructure, they are making investment toward
commercialization of the gas, and through the support and hard
work of all of their contractors it is clear that Pt. Thomson is
an Alaskan project, built by Alaskans, for the benefit of
Alaska.
SENATOR FRENCH commented that his tour of Pt. Thomson was one of
the highlights of 2013. The money that is being spent is
impressive and the attention to safety is as high as he has seen
in his time on the North Slope.
SENATOR MICCICHE asked what the ultimate hopes are for Pt.
Thomson.
MS. WONG answered that because SB 21 passed it provides fiscal
stability the industry needs for future phases at Pt. Thomson
and other Alaskan opportunities. ExxonMobil has done some of the
pre-investment as the pipeline is designed for up to 70,000
barrels per day (BPD), and that is the hope. The prize is to be
able to produce 8 tcf of gas, enough energy to heat all homes in
Alaska for more than 88 years.
SENATOR MICCICHE said he appreciated her testimony.
CHAIR GIESSEL thanked her and then welcomed Frank Paskvan to
comment for BP Alaska.
5:07:39 PM
FRANK PASKVAN, Alaska Technology Manager, BP Exploration Alaska
Inc., Fairbanks, Alaska, related that he had been doing
reservoir engineering and oil field development planning for 29
years. He was born and raised in Fairbanks and went to the
University of Alaska for a petroleum engineering degree and is
on the University Foundation Board of Trustees and the College
of Engineering and Mines Advisory Board. His report was based on
a snapshot of their plans, which are subject to change from time
to time.
BP is actively investing on the North Slope oil fields; they are
acquiring new seismic data in the Northern Prudhoe Bay field and
are adding 2 new rigs which will bring on 200 new jobs and $1
billion over 5 years. They are currently operating seven rigs on
the North Slope and that will bring it up to 9. In addition to
the rigs, BP is investing in new development technology
completions, which will help advance their developments in the
challenging oil fields like the Sag River resource.
MR. PASKVAN said BP had started development drilling in Milne
Point in 2014 and are in the appraise and select phase of
engineering for the West End of Prudhoe Bay with has potential
startup in 2018, a $3 billion investment, with peak production
estimated at 40,000 BPD. In addition to the new facilities, they
are also making major facility investments committed to safe and
sustainable operations. For example, the turnarounds in 2014 are
a substantial piece of work; they are employing 700 people on
the North Slope to deliver that work, which took two years to
plan for. An example of that would be the GC2 module built at
Nana's Big Lake facility (79 jobs at $13.5 million with a
potential of 2,000 BPD).
5:10:50 PM
All in all BP's capital investment increased in 2014 by 25
percent to $1.2 billion. This includes a 40 percent increase in
capital spend for activities that increase oil production,
namely drilling well work and major projects.
Slide 3 showed the Prudhoe Bay and Milne Point Units where most
of his discussions today centered. They are acquiring seismic
data in the Northern Prudhoe Bay offshore area this summer
followed by an onshore program this winter. He said BP operates
over 1,600 wells within the Prudhoe Bay footprint and keeps
seven drilling rigs running there 24/7/365. He said they also
have a drilling rig restarting the development at Milne Point.
5:11:59 PM
MR. PASKVAN explained that seismic data is kind of like an
ultrasound image; it lets them image and remotely assess the
potential oil field drilling locations. It takes a few years to
go from the data acquisition through the processing,
interpretation, and development planning stages before actually
starting the development drilling that follows from that.
The first well based on the 2014/15 data acquisition may be
starting in 2017. The seismic acquisition should involve 150
jobs and around $178 million in spend, and image across four
different production horizons, which have about 55 million
barrels of resource potential.
He explained that the Prudhoe Bay fields are close to the
shoreline; some are onshore and extend into the near shore
region. So, the seismic survey acquisition plan, therefore, is
both an onshore and an offshore program. The offshore part uses
boats for deeper water and an "Arctos vehicle" for the shallower
water. BP will acquire 190 square miles of offshore data this
summer and around 220 square miles during the winter season to
image the area accurately enough to enable precise well planning
and development assessments.
5:13:47 PM
MR. PASKVAN said the drilling and well operations are one of the
most visible and significant areas of investment and that BP
operates a fleet of well-service equipment with which they
perform over 500 rate-improving jobs per year in those 1,600
wells. Two of their seven rigs are workover rigs, which are used
to repair and maintain existing wells, and two coil tubing
drilling wells, an Alaska developed and matured technology that
consists of a continuous coil of steel tubing which can be more
than 15,000 feet long that goes down through the existing
wellbore and drills to a new target that can be up to a half
mile away from the parent wellbore. It's a very efficient way of
accessing targets and improving oil rate from within the legacy
field.
BP has three rotary drilling rigs, which drill new wells from
the surface, or they can drill side tracks similar to the coil
tube drilling process. With this fleet in 2014, BP plans to
drill up to 61 new targets and work over 61 new wells. They have
started up three new rotary rigs since 2011, rigs that were
built specifically to meet the North Slope needs, and they are
planning for another two big rotary wells, which would bring
them up to nine rigs. These new rigs would involve 200 jobs and
$1 billion of investment over five years, and will take their
rig level from the five rigs in 2012 to nine.
MR. PASKVAN said the logistics of this operation are enormous.
One example of this is that the roads have to be specifically
built for the size and weight of the drilling rigs. Substantial
investments are being made in road upgrades this year to more
easily and efficiently move rigs around both summer and winter.
5:15:51 PM
He said BP had started development drilling at Milne Point and
has finished four wells, is going on the fifth, and has two more
planned. They plan similar levels of drilling for the next
several years. He noted that the last new wells were drilled in
2011, so that activity is picking up there.
5:16:40 PM
In the West End of the Prudhoe Bay field BP is working hard on
the select stage phase of the project. This means they are doing
the engineering that is needed to make the best investment
choices that will enable them to manage production for the long
term on the West End. He showed on slide 6 an image of iPad, the
first new pad in Prudhoe Bay in more than a decade. It would add
production to two other existing well pads that were shown in
the upper right hand side of the image. Plus they are optimizing
their facilities by increasing flow line capacity and adding
other surface facility equipment. This would collectively add
over 100 new wells in the West End of Prudhoe Bay and about 200
million more BPO. West End's potential startup in 2018 with $3
billion of investment would bring on an estimated 40,000
BPO/day.
5:17:50 PM
Another very big activity in Prudhoe Bay this year is their
planned facility shut downs (turnarounds), which start in July
and are expected to last between 30 to 50 days depending on the
facility. These are maintenance and system upgrade projects in
three major facilities: the biggest being the Central Gas
Facility, Flow Station 3 and Gathering Center 2.
MR. PASKVAN explained that these operations are well
choreographed and took over two years of planning. They will
have 700 people in the field in and around those facilities; the
operation is managed so to get the work executed in the minimum
amount of time to minimize the production impacts and get it
done safely. The kinds of work they are doing during this
operation are refurbishing aging compressors, making process and
safety improvements, repairing heating exchangers, and replacing
old valves to set these facilities up for long-term, smooth-
running operations.
He explained how laser point cloud is used to generate images
for super accurate measurements. The facility is scanned before
doing any design work to very accurately position all of the
equipment. Before cutting into any pipes or doing any
fabrication or design work, they get that accurate scan and
ensure a perfect fit for the new replacement equipment.
MR. PASKVAN summarized that taken together, BP's capital
investment has increased 25 percent for 2014 to $1.2 billion;
this includes a 40 percent increase in capital for rate-adding
activities.
SENATOR DYSON asked if they are getting into some heavier oil
the farther west they go.
MR. PASKVAN answered yes, and those are being evaluated;
engineering analysis is being done for the heavy oil. In
particular, they learned the heavy oil Chops Pilot at Milne
Point S Pad is definitely ongoing to have technical and
commercial challenges, mostly because of the artificial lift.
This is when a rotating rod runs from a surface drive through
the well. However, that abrasive movement with metal on metal
rapidly wore holes in the side of the tubing, which was very
expensive to replace. So studies are being done to improve the
run life.
SENATOR DYSON remarked that he was encouraged.
MR. PASKVAN added, "So are we."
5:21:53 PM
SENATOR FRENCH went to slide 5 and asked which investments would
not be economical to make under ACES.
MR. PASKVAN said that really sits within a different wheelhouse,
but as an observer, he could say they are moving ahead with
those developments now.
5:22:59 PM
SENATOR MICCICHE asked if their increased investment happened
because of SB 21, and will it be somewhat retracted if the
investment climate is less favorable.
MR. PASKVAN responded that the increased investment is real.
They are actively planning on getting ready for this equipment.
But a change in the business climate would cause them and their
co-owners in the ventures to go back and relook at everything
under whatever the changes might be.
SENATOR MICCICHE asked how he would compare this rig count to
the days when Alaska had very healthy exploration.
MR. PASKVAN replied that it's on a par, at least within BP
operated assets, with running 11 rigs in 2006.
5:25:54 PM
CHAIR GIESSEL, finding no further questions, thanked everyone
for their presentations and adjourned the Senate Resources
Committee meeting at 5:25 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Spring 2014 Revenue Forecast.pdf |
SRES 4/9/2014 3:30:00 PM |
|
| SRES Press Release Spring 2014 Forecast 20140407.pdf |
SRES 4/9/2014 3:30:00 PM |
|
| SRES Spring RSB Update DOR 20140409.pdf |
SRES 4/9/2014 3:30:00 PM |
|
| SRES Repsol-Hardham 20140409.pdf |
SRES 4/9/2014 3:30:00 PM |
|
| SRES ConocoPhillips-Jepsen 20140409.pdf |
SRES 4/9/2014 3:30:00 PM |
|
| SRES ExxonMobil-Wang 201400409.pdf |
SRES 4/9/2014 3:30:00 PM |
|
| SRES BP-Paskvan 20140409.pdf |
SRES 4/9/2014 3:30:00 PM |