Legislature(2023 - 2024)BUTROVICH 205
01/23/2023 03:30 PM Senate RESOURCES
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| Presentation: Alaska North Slope Oil and Gas Resources | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 23, 2023
3:31 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Scott Kawasaki
Senator James Kaufman
Senator Forrest Dunbar
Senator Matt Claman
MEMBERS ABSENT
Senator Click Bishop, Co-Chair
OTHER LEGISLATORS PRESENT
Representative Tom McKay
COMMITTEE CALENDAR
PRESENTATION: ALASKA NORTH SLOPE OIL AND GAS RESOURCES
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOHN BOYLE, Commissioner-Designee
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Introduced the presentation on Alaska North
Slope Oil and Gas Resources and answered questions.
DEREK NOTTINGHAM, Director
Division of Oil and Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Delivered the presentation on Alaska North
Slope Oil and Gas Resources.
JOHN CROWTHER, Deputy Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Responded to questions and provided
information during the presentation on Alaska North Slope Oil
and Gas Resources
ACTION NARRATIVE
3:31:19 PM
CO-CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:31 p.m. Present at the call to
order were Senators Kawasaki, Dunbar, Claman, Kaufman,
Wielechowski, and Co-Chair Giessel.
^PRESENTATION: Alaska NORTH SLOPE OIL AND GAS RESOURCES
PRESENTATION: Alaska NORTH SLOPE OIL AND GAS RESOURCES
3:32:11 PM
CO-CHAIR GIESSEL announced that the committee would hear a
presentation on Alaska North Slope Oil and Gas Resources from
the Department of Natural Resources (DNR). She listed the
presenters and welcomed them to the table.
3:33:15 PM
JOHN BOYLE, Commissioner-Designee, Department of Natural
Resources, Anchorage, Alaska, introduced himself and relayed
that there is reason for optimism about North Slope activities.
The on-scene operators have done a prodigious amount of in-field
work to keep the production levels in the legacy assets at
Prudhoe Bay, the Kuparuk River Oil Field and the Alpine Oil
Field relatively stable. He noted that some of the steep
declines seen in the past have stabilized and production levels
are flat. He noted that for legacy fields that are close to 50
years old this is a significant outcome and indicative of the
investment and work being done to bolster those fields.
COMMISSIONER-DESIGNEE BOYLE noted the increased activity in some
of the newer developments. Late in 2022 Santos made its final
investment decision on Pikka, which is located on state land. It
is expected to come online in 2026 and produce 80,000 barrels
per day. He noted that both Pikka and Willow target the Nanushuk
formation, which is the geologic formation that is sparking a
lot of interest in a number of companies doing exploration on
the North Slope.
COMMISSIONER-DESIGNEE BOYLE noted that the most recent
production forecast shows relatively stable production rates for
the next decade with opportunities toward the end of that window
as some of the new fields come online. On a final note, he
mentioned the interesting opportunity associated with the demand
and need for companies to offset carbon emissions. Several major
oil companies have announced goals to limit their scope 1 and 2
emissions. Carbon capture, utilization, and storage (CCUS) in
underground reservoirs is one method to offset their carbon
emissions. Thus, in addition to looking at the underground
resources, DNR is also looking at the space and ability to store
carbon so that companies that want to come to Alaska and develop
a new hydrocarbon project can do so and still attain a net zero
emissions goal. DNR views this as an exciting opportunity for
the state and looks forward to further discussions.
3:36:50 PM
CO-CHAIR GIESSEL asked if it was possible to use carbon storage
for enhanced oil recovery on the North Slope.
COMMISSIONER-DESIGNEE answered yes there is the possibility of
using carbon dioxide to enhance oil recovery, but he would defer
to the experts in the room to explain how it works.
3:37:38 PM
DEREK NOTTINGHAM, Director, Division of Oil and Gas, Department
of Natural Resources (DNR), Anchorage, Alaska, provided a short
description of his professional background, including 24 years
in the oil and gas industry and advanced degrees in petroleum
engineering and business. He has been in his current position
for about a year.
Following up on Commissioner-Designee Boyle's comments, he
highlighted some of the things that framed activity on the North
Slope. Coming out of Covid-19 in 2022, the topic of energy
security rose in importance. The price of oil spiked to about
$120 per barrel in the summer, interest rates started to climb,
and then the price of oil fell toward the last of the year as
the economy slowed. Environmental, social, and government (ESG)
policies of North Slope companies started to affect activities.
He agreed with the commissioner that carbon capture is one of
the technologies that can help companies continue to develop the
resources on the North Slope while meeting their ESG goals. He
emphasized the exemplary track record for producing oil in an
environmentally friendly and safe way. The rocks are great and
the operators have achieved world class recovery in some of the
fields like Prudhoe Bay, Kuparuk, and Alpine. The expectation is
for that to continue into the future.
3:40:42 PM
MR. NOTTINGHAM began the presentation with a review of the
agenda listed on slide 2.
- Introduction
- Recap of the North Slope Resources and Activity
- Project Update on some of the more familiar projects
- Discussion about projects that are less familiar
- Methane Hydrates Test Project
- Natural Gas Trucking
- Willow and ANWR Updates
- Net Zero Goals and Carbon Capture, Utilization, and
Storage
3:41:33 PM
MR. NOTTINGHAM reviewed the North Slope potential outlined on
slide 3. He stated that the US Geologic Survey (USGS) estimates
show that the Alaska North Slope has more oil than any other
Arctic nation. He highlighted the following point:
- Nearly 19 billion barrels of oil have been produced.
Significant amounts of oil are still coming from the legacy
fields as well as the recent large discoveries like Willow and
Pikka.
- The undiscovered oil resources on the North Slope are
estimated to be more than 48 billion barrels. Combined, this
is a total resource base of close to 70 billion barrels of
oil.
- There is about 50 trillion cubic feet (TCF) of discovered gas
on the North Slope, much of which is in the Prudhoe Bay gas
cap in Point Thomson.
- Outside of those areas, the undiscovered conventional gas is
estimated to be about 194 trillion cubic feet (TCF).
- Unconventional Gas such as methane hydrates and shale gas is
estimated to be about 125 TCF.
MR. NOTTINGHAM stated that the point of slide 3 is to
demonstrate that Alaska's North Slope is a huge resource basin.
He agreed with the commissioner that despite the effects of
Covid-19 and the difficulty in obtaining financing for Arctic
investment, the interest in the North Slope has increased over
the last several years. The incline in interest and activity has
increased steadily over the last seven years. He relayed that
the driver has been the recent finds in Pikka, Willow, and the
Nunushuk and Torok formations. The new data for those areas
suggests enormous potential. He again agreed with the
commissioner that the legacy fields at Prudhoe Bay and Kuparuk
have done well enough to mitigate the declines seen earlier in
this century and particularly over the last five or six years.
3:44:13 PM
MR. NOTTINGHAM pointed to the map on slide 4 that shows the oil
fields on the North Slope from which the 18.7 billion barrels of
oil have been produced. He noted that the units on the slide
show millions of barrels of oil and reflect the cumulative
amounts of oil produced off the North Slope over the last 45
years. He highlighted the following major units:
Prudhoe Bay: Cumulative production is about 13.9 billion barrels
of oil. The field continues to produce over 200,000 barrels of
oil while circulating about 8 billion cubic feet (BCF) of gas
per day. A great deal of investment has gone into maintaining
this operation. About 10 percent of the gas is carbon dioxide
CO2. Responding to Co-Chair Giessel's previous question, he
relayed that there is a significant amount of carbon dioxide
within the Prudhoe Bay gas cap that can and has been used to
enhance low oil recovery.
Kuparuk River Oil Field: Cumulative production is nearly 2.9
billion barrels of oil.
Alpine Field at Colville River: Cumulative production is over
600 million barrels of oil.
Endicott Duck Island: Cumulative production is 526 million
barrels of oil.
Milne Point: Cumulative production is nearly 400 million barrels
of oil.
MR. NOTTINGHAM described the foregoing as world-class oil fields
that are very attractive to petroleum engineers.
3:46:42 PM
CO-CHAIR GIESSEL noted that Representative Tom McKay was in the
audience.
SENATOR KAUFMAN asked how much water and other material is
produced in order to produce one barrel of oil.
MR. NOTTINGHAM explained that to produce the more than 200,000
barrels of oil per day at Prudhoe Bay, it is necessary to move
about 8 BCF of gas and nearly 2 million barrels of oil. To
handle that volume, the facilities are enormous and the energy
use is substantial.
3:47:59 PM
SENATOR DUNBAR asked why the cumulative production at Point
Thomson is comparatively small when it has consumed so much
media attention.
MR. NOTTINGHAM replied that in the mid-2010s there were
significant issues with the compression equipment, but Exxon and
Hilcorp, the former and current operators, have corrected the
issue. Production from the field itself is between 8,000 and
10,000 barrels per day so it is a relatively small producer on
the North Slope.
SENATOR DUNBAR asked if production can be expected to stay the
same or increase in the future.
MR. NOTTINGHAM replied that is the steady state that is expected
going forward. Some projects have been contemplated to increase
volumes, but the latest production forecast does not indicate
that will happen anytime soon. The field is limited by the
amount of gas it can inject and the volume of gas it produces
and injects is basically the yield for the 8,000 to 10,000
barrels per day.
CO-CHAIR GIESSEL recalled the original agreement was for a
predominately gas field with some gas liquids that were to be
produced. She asked if that was accurate.
MR. NOTTINGHAM answered yes; it is considered a retrograde
condensate gas field. He explained that the in situ fluids are
gas and as the gas is produced up the well bores the pressure
drops and the liquids condense and are recovered and go down
TAPS. The remaining gas is reinjected to maintain pressure.
CO-CHAIR GIESSEL asked if the liquids were still being produced.
MR. NOTTINGHAM answered yes.
3:51:28 PM
SENATOR WIELECHOWSKI asked what the terms of the settlement
agreement were for Point Thomson.
MR. NOTTINGHAM recalled that it required the field to have the
capability of producing 10,000 barrels of oil condensate per
day, and perhaps injection of 200 million cubic feet per day. In
the last five years Point Thomson has achieved the 10,000
barrels per day mark for several months, but not on a consistent
basis.
3:52:21 PM
SENATOR WIELECHOWSKI asked if that would be deemed in compliance
with the settlement agreement, and if there had been times when
Point Thomson had been out of compliance.
MR. NOTTINGHAM said he was not aware that it had been deemed out
of compliance.
SENATOR WIELECHOWSKI what the field cost allowances have been at
Point Thomson.
MR. NOTTINGHAM offered to follow up with the information.
3:53:07 PM
CO-CHAIR GIESSEL requested an update on Point Thomson.
SENATOR WIELECHOWSKI requested an update on the road dispute
between ConocoPhillips and Santos.
MR. NOTTINGHAM said he couldn't answer questions on that topic
because he's involved in the ongoing litigation.
JOHN CROWTHER Deputy Commissioner, Department of Natural
Resources, Anchorage, Alaska, explained that DNR made an
administrative decision through the division. That decision was
appealed to the commissioner's office and a decision on that
appeal was issued recently. The parties have taken that final
administrative action to court so the Department of Law (DOL)
would have to comment on the state's position in that
litigation.
3:54:18 PM
SENATOR WIELECHOWSKI asked: 1) whether the litigation has slowed
production or development in the field, and 2) whether the state
plans to intervene in the matter.
MR. CROWTHER said he couldn't comment on the first question due
to the ongoing litigation, but DNR did see the public
announcement that the components of the Pikka project had made a
final investment decision. To the second question, he explained
that ConocoPhillips, the owner/operator of the Kuparuk River
unit, has challenged the state's permit so the state is party to
the litigation. He added that other parties may decide to
intervene pursuant to the judicial process and rules.
3:55:22 PM
SENATOR WIELECHOWSKI asked whether Santos was building its own
oil and gas processing facility at Pikka, or seeking a facility
sharing agreement.
MR. NOTTINGHAM replied that Santos is building its own facility
at Pikka.
SENATOR WIELECHOWSKI requested the status of the facility at the
Willow project.
MR. NOTTINGHAM said ConocoPhillips is the operator of the Willow
project and a subsequent slide may provide that information.
3:56:23 PM
MR. NOTTINGHAM turned to slide 5 that shows the working interest
ownership of the North Slope units. He made the following
points:
- On the west side, ConocoPhillips has a large working interest
with Bear Tooth (Willow project) and Greater Mooses Tooth and
Colville River (Alpine field).
- Also on the west side, the Pikka, Horseshoe, and Quokka units
are recently formed and now owned/operated by Santos.
- The major fields in the middle region have varied working
interests. The majority owner of Kuparuk River is
ConocoPhillips while ExxonMobil and Chevron hold minor
interests. ExxonMobil and ConocoPhillips each own 36 percent of
Prudhoe Bay and Hilcorp, as the operator, owns 26 percent.
Hilcorp owns 100 percent of Milne Point.
- The eastern North Slope operations are dominated by Hilcorp,
whereas ConocoPhillips is the major player on the west side.
- To the south, companies like Great Bear are developing Alkaid
and Talitha, and some nontraditional oil fields are being
developed further south.
3:58:56 PM
SENATOR WIELECHOWSKI if the Prudhoe Bay operating agreement
requires the consensus of all the operators before an investment
decision is made, or if just a majority is required.
MR. NOTTINGHAM replied his understanding is that all operating
owners from the Prudhoe Bay unit must agree.
SENATOR WIELECHOWSKI asked how much has been invested in Prudhoe
Bay in the last three years.
MR. NOTTINGHAM said he didn't have the numbers.
SENATOR WIELECHOWSKI recalled reading, in a 2021 report, that
$86 million was invested at Prudhoe Bay. He asked if that
sounded about right.
MR. NOTTINGHAM said he didn't know.
SENATOR WIELECHOWSKI asked Chair Giessel if the committee could
request the numbers.
CO-CHAIR GIESSEL requested the numbers on behalf of the
committee. She asked whether DNR was the agency that would have
the numbers.
MR. NOTTINGHAM said the Department of Revenue (DOR) may have the
numbers.
CO-CHAIR GIESSEL said she would send the request to DOR.
4:00:18 PM
SENATOR WIELECHOWSKI asked, as the resource owner, whether the
state had expressed concern about amount of investment in
Prudhoe Bay in the last five years.
4:00:35 PM
MR. CROWTHER responded that as the new operator, Hilcorp has put
significant effort and investment into understanding and
optimizing facilities and processing capacities in the field.
This includes things like water treatment, gas processing, and
gas handling to increase the flow cycle rate. That has resulted
in a flat or slight increase from the field. The department's
perspective as the unit owner is that this is a significant
accomplishment for a legacy field. He noted that the operator is
looking at continuing infield drilling and making investments to
maintain flat or potentially slight increases in production in
the Prudhoe Bay and satellite units. He characterized this as a
dynamic and positive trend. He committed to work with DOR to
provide the requested numbers.
4:02:27 PM
SENATOR CLAMAN asked how the revenue the state receives from
Willow and Point Thomson compare to what it receives from
Prudhoe Bay.
MR. NOTTINGHAM said the exact numbers are confidential, but one
could get a sense of the numbers by comparing the production
from Willow and Point Thomson to the production from Prudhoe
Bay.
4:03:55 PM
SENATOR CLAMAN asked how the state's ownership position on
Willow and Point Thomson compared to its ownership position on
the legacy fields.
MR. CROWTHER explained that the royalty percentages on most
state leases on state land, including Point Thomson, vary from
12.5 percent to 16.66 percent. The royalty ownership on Point
Thomson is similar to Prudhoe Bay, but the lease composition may
set slightly different royalty rates for different leases. That
contrasts to Greater Moosses Tooth that is on federal land
within the National Petroleum Reserve Alaska (NPRA). The federal
government is the royalty owner of the field and the oil.
Pursuant to federal law, 50 percent of the revenue from the
field must be distributed to the State of Alaska. Pursuant to
both federal and state law, those funds are allocated to the
North Slope Community Impact Fund. That program is managed to
administer the revenues from the royalties to impacted
communities across the North Slope. He added that production
tax, property tax, and corporate income tax also apply to the
associated economic activities.
CO-CHAIR GIESSEL mentioned the added benefit that Willow will
help reduce the tariff as its oil goes into the Trans Alaska
Pipeline System (TAPS).
MR. CROWTHER agreed that it was a significant benefit. He said
any additional production on the North Slope, especially
something as significant as the Willow field, adds value to
every barrel of oil and thus the state's royalty share for all
produced fields.
SENATOR CLAMAN summarized that the volume of Willow oil in the
pipeline essentially reduces the cost for all the other
operators in the pipeline.
MR. CROWTHER said an oversimplification would be to say there is
a variable cost associated with each barrel plus the significant
fixed cost of running the pipeline that has to be paid
regardless of the quantity that's shipped. So the more barrels
shipped, the lower the cost per barrel. He said that is the
royalty boost the state would receive from royalty oil for state
royalty barrels.
4:07:39 PM
MR. NOTTINGHAM turned to slide 6 to discuss the exploration and
drilling activity on the North Slope that occurred in 2022 and
is planned to occur in 2023. He noted that he was moving from
west to east on the map.
North Slope Energy announced plans to drill two wells in the
NPRA prospect known as West Castle. It will target the Nanushuk
formation. The wells are contemplated for 2023 or 2024.
88 Energy drilled the Merlin-2 exploratory well in 2022. The company
reached the formation and got the needed date but found the rocks
were not sufficiently permeable to generate an economic or commercial
flow. It did not warrant a well test so the well was plugged and
abandoned.
ConocoPhillips plans to drill the Bear 1 well in early 2023 to
target Brookian topsets (the age of the rocks) in the Nanushuk
and Torok formations as well as several other potential
reservoir targets.
Great Bear Pantheon completed the Theta West-1 well in April
2022. The target was the Lower Basin Floor Fan and the Talitha-A
well. The flow test was successful and the interval found light
hydrocarbons in liquid form.
Great Bear Pantheon reentered the Talitha-A well that was
drilled several years ago and was able to get successful flow
rates from the Lower Basin Floor Fan in the slope fan intervals.
The plan now is to drill the Talitha-B exploration well,
targeting the Brookian formation.
GBP also completed the Alkaid 2 well in October 2022. This is a
long, horizontal, hydraulically fractured well and the company
is in the process of performing an extended flow test to
determine the commerciality. It has reported liquid hydrocarbon
flow rates of greater than 500 barrels per day. The company also
plans to drill the Alkaid 3 well, pending the Alkaid 2 test
results.
88 Energy/Accumulate has applied for the Toolik River unit. It
executed a contract to drill the Hickory 1 exploration well in
early 2023. That will penetrate six reservoir targets including
the Brookian section and Kuparuk formation to a depth of 12,500
feet. There are plans to flow test this well.
MR. NOTTINGHAM noted that the department also has formed the
Horseshoe and Quokka units, both of which have commitments for
further exploration.
4:11:48 PM
SENATOR DUNBAR asked how this exploratory drilling compares to
the activity in the last 5-10 years.
MR. NOTTINGHAM said his sense is that there is a little more
activity now, but he'd need to review the data to make sure
that's accurate.
SENATOR DUNBAR asked what timeframe he was using when he says
there's a small uptick in activity.
MR. NOTTINGHAM responded that the timeframe is the last five
years.
4:13:03 PM
CO-CHAIR GIESSEL suggested that it would be helpful for the
committee to see a diagram that shows the different levels of
the various formations he mentioned.
MR. NOTTINGHAM agreed to provide the information.
SENATOR WIELECHOWSKI recalled that about 12 years ago Great Bear
gave presentations that talked about billions of barrels of
recoverable oil on the North Slope. That hasn't happened, but
the company is still drilling so there must be something. He
asked what's happened with Great Bear since it gave those
presentations.
MR. NOTTINGHAM said it's typical for oil companies to reassess
and adjust as it gathers geologic and engineering information
and that's likely what's happened at Great Bear. The company is
making adjustments as it drills and learns the location of the
formations that are likely to produce.
4:15:20 PM
SENATOR KAUFMAN said he was somewhat familiar with the work that
had been done on subsea hydrates but he was less familiar with
sub-permafrost hydrates. He asked if that work was new and
leading edge.
MR. NOTTINGHAM confirmed that it was new and different. He said
he didn't discuss the international hydrates test project that
is ongoing in the western part of Prudhoe Bay because a
subsequent slide will provide more information.
4:17:01 PM
MR. NOTTINGHAM turned to the chart on slide 7 that provides
January 2022 and January 2023 status updates for five future
projects on the North Slope. He described each of the following:
Pikka - The final investment decision was approved August 2022.
Drilling will start summer 2023 and first oil is projected in
2026. Peak design capacity for Phase 1 is estimated to be 80,000
barrels of oil per day (BOPD).
Willow - ConocoPhillips cannot move forward with a final
investment decision (FID) until the Bureau of Land Management
(BLM) issues the Record of Decision (ROD) on the Supplemental
Environmental Impact Statement (SEIS). If the project is
approved, it will be six years before first production. The
estimated peak rate is about 180,000 BOPD.
CRU Narwhal CD8 - This refers to the Colville River unit.
Narwhal is the reservoir and CD8 is the pad. This project has
been tested and produced 1,600 BOPD. The full project will have
20-40 wells and will require a new pad. This will start in 2028.
DNR estimates peak rate of more than 32,000 BOPD.
MPU Raven Pad - This refers to Milne Point unit or R Pad
development. This is similar to Hilcorp's 2018 Loose Pad
development. Hilcorp has applied for approval to construct a new
drilling pad. DNR estimates the peak flow of about 10,000 BOPD
for that project.
KRU Nuna-Torok - This refers to the Kuparuk River unit. Rotary
drilling is planned with an injector/producer pair for the Torok
reservoir, which will inform future developments. The estimated
peak rate is up to 25,000 BOPD.
MR. NOTTINGHAM relayed that the point of slide 7 is that while
there is great interest in Pikka and Willow, these smaller and
less glamorous projects are ongoing and have helped stabilize
the production decline that's been seen over time.
4:21:02 PM
SENATOR DUNBAR asked what percentage the state earns on a barrel
of oil from the legacy fields compared to what it earns on Pikka
and on Willow. He clarified that he was asking about royalty
plus tax plus anything else that might apply.
MR. NOTTINGHAM said the Department of Revenue (DOR) runs those
calculations and would probably be better suited to answer the
question.
COMMISSIONER DESIGNEE BOYLE added that an important difference
between legacy and new production is that the royalty rate on
most legacy fields is about 12.5 percent, whereas the newer
fields such as Pikka that are on state land pay the new 16.66
percent royalty.
4:22:45 PM
SENATOR KAWASAKI referenced Chapter 6 of the most recent Revenue
Sources Book that provides a low case and a high case of oil
production. He noted that [for Pikka] the peak rate for Phase 1
is estimated to be 80,000 BOPD. He asked when DNR estimates that
peak rate if first oil is in 2026.
COMMISSIONER DESIGNEE BOYLE said that the expectation at Pikka
is that production will start at 80,000 BOPD and continue for
several years before declining. Phase 2 forecasts 120,000 BPOD
once the additional drill pads come online. The future
production profile depends heavily on whether the company makes
the investment and the rocks produce as the geologists
anticipate. He added that these fields are considered
conventional, which means they can maintain a consistent level
of production for some time before they begin to decline. This
is different than the shale plays in the Lower 48 that might
spike and significantly decline in a short timeframe.
4:25:24 PM
SENATOR WIELECHOWSKI asked whether all these projects were
included in DNR's baseline forecast.
MR. NOTTINGHAM answered yes.
SENATOR WIELECHOWSKI asked what year Willow is expected to reach
its estimated peak rate of 180,000 BOPD.
MR. CROWTHER answered that these projects are in DNR's
production forecast, but they're smoothed according to their
likelihood over time and their likelihood of coming in on
schedule and at volume. DNR estimates Willow likely will start
production in 2028, 2029, or 2030, but not at 180,000 BOPD. It's
risked and allocated based on expert assessments. That same
methodology is applied to all these projects. A project like
Pikka that has a FID and has made progress in contracting will
show as more of a peak in the forecast, but it is still
smoothed. If initial production activities proceed on time, it
will be less smoothed and thus show up as a more discrete
increase in the forecast. Similarly, if Willow receives a
positive FEIS and ROD and the company makes a final investment
decision, there would be less risk weighting in how it would be
portrayed in the department's forecast.
SENATOR WIELECHOWSKI asked what year the department had modeled
the peak rate of 180,000 barrels for Willow into the forecast.
4:27:44 PM
MR. CROWTHER said a subsequent slide shows the under evaluation
projects and how they contribute in the base case forecast. It
shows over 200,000 barrels of additional production in 2029 and
2030. While that is not exclusive to Willow, in aggregate a
project like Willow is contributing significantly in the out
years. ConocoPhillips' public statements about their timeline
and expectations would be reliable indicator of a reasonable
base case for the timeline and volume.
SENATOR WIELECHOWSKI asked whether the department's methodology
for calculating the production forecast had changed in the last
year or so.
MR. NOTTINGHAM replied there were minor tweaks this year.
SENATOR WIELECHOWSKI asked what the tweaks were.
MR. NOTTINGHAM answered that adjustments were made to start the
production forecasting on the same date and to ensure that the
forecasting for currently producing fields does not include any
development drilling.
SENATOR WIELECHOWSKI how much those changes in methodology
increased or decreased the production forecast in the next five
years.
MR. NOTTINGHAM said he didn't believe it changed it at all.
SENATOR KAWASAKI asked if he was saying that if Pikka produces
80,000 barrels of oil per day starting in 2026, production would
have dropped by 80,000 barrels per day in the other ANS
petroleum production forecasts, so there's basically no change.
MR. NOTTINGHAM said what's happening over time is the existing
production is declining and the development activities in the
near term are replacing the decline. Pikka factors into that.
4:32:32 PM
SENATOR CLAMAN asked what start of production timeline DNR is
using for both Pikka and Willow.
MR. NOTTINGHAM said DNR references the operator's production
forecast. DNR's technical staff of 24 then assesses and risk
weights the start date. This generates a smooth production
profile that shows an increase in the late 2020s.
SENATOR CLAMAN asked for his understanding of the date of first
production and oil entering TAPS from Pikka and Willow.
MR. NOTTINGHAM said if he were part of that technical group he
would vote for 2026 for Pikka and 2029 for Willow.
4:34:23 PM
MR. NOTTINGHAM displayed slide 8 and explained that it is a
summary of the methane hydrates test project that was previously
mentioned. It's located on the west side of Prudhoe Bay. He
paraphrased the following points:
â?¢ Japanese Organization for Metals and Energy
Security (JOGMEC) and U.S. Department of Energy
(DOE) funded program
â?¢ Program seeks to determine long-term production
potential of methane hydrate reservoirs
â?¢ ASRC Energy Services (AES) is performing operations
which are occurring on the 07-11-12 pad on the west
side of Prudhoe Bay
â?¢ Objectives are to drill a monitoring well and two
production test wells, production testing from April
through December 2024
â?¢ The Geologic Data Well and Production Test Well 1 are
complete. AES is currently drilling Test Well 2
â?¢ Production Test scheduled to start in April 2023 and
will run through December 2024.
MR. NOTTINGHAM explained that the chart on the bottom left of
the slide refers to a US Geodetic Survey (USGS) study that
describes the hydrate potential on the North Slope as containing
undiscovered conventional resources on a mean basis of about 54
trillion cubic feet (TCF).
4:36:10 PM
SENATOR DUNBAR requested the context to understand the
significance of 54 TCF relative to other locations; the amount
of revenue the state potentially might realize; and when these
gas hydrates might be expected to go to market.
MR. NOTTINGHAM suggested that to understand the commerciality of
methane hydrates from the North Slope, it's important to factor
in the existing conventional resource. The known gas in the
Prudhoe Bay gas cap is in the vicinity of 40-50 TCF, and the
mean resource of 54 TCF for this test project is on that order
of magnitude. He said the reality is that the conventional gas
is much easier to produce and would have a substantial life
before the methane hydrates from this test project are likely to
become economic. He noted that this project is working to
understand this resource in conjunction with JOGMEC and DOE
because the Japanese and Asian markets are in pursuit of a
domestic supply for energy. Although it will be far into the
future, he said he believes methane hydrate gas will have a
similar royalty rate as conventional North Slope gas.
SENATOR WIELECHOWSKI asked whether methane hydrates could be
shipped through TAPS or the gasline that is envisioned in the
future.
MR. NOTTINGHAM explained that methane hydrate is methane that is
in the form of ice. It forms in the presence of water, low
temperature, and pressure. It's produced much like natural gas,
but with a lot of water that must be separated. Methane hydrate
gas could be shipped through a gas line but probably not TAPS.
SENATOR KAUFMAN asked whether the technology was the same to
produce subsea hydrates and sub-permafrost hydrates.
MR. NOTTINGHAM said he thought the production methodology was
transferable, but in a deep water environment there would be
more factors to consider in order to make a project commercial.
He described the North Slope as a good place to test the concept
and production methodology.
4:40:56 PM
MR. CROWTHER added that the state of Alaska is uniquely
positioned to be the first participant should there be large-
scale commercial developments of hydrates. It is one of the few
places in the world that has subsurface and surface accumulation
of hydrates coexisting with oil and gas operations.
SENATOR KAUFMAN commented that the state was leveraging its
unique circumstances to gain a technological advantage in this
area by participating in this research and development (R&D)
project.
MR. CROWTHER agreed.
4:42:01 PM
MR. NOTTINGHAM turned to slide 9 to discuss trucking natural gas
to market. He paraphrased the following points:
Agreement between Hilcorp North Slope LLC and the
Interior Gas Utility
â?¢ Hilcorp subsidiary Harvest Midstream to produce
LNG from Prudhoe Bay gas
â?¢ Facilities to produce 150,000 gallons/day to be
built and online in October 2024
â?¢ 20-year contract with opportunity to increase
term and capacity
â?¢ Plans to truck LNG from Deadhorse to Fairbanks
MR. NOTTINGHAM stated that the benefit of supplementing Interior
gas from the North Slope alleviates some of the pressure to
supply gas from Cook Inlet.
CO-CHAIR GIESSEL advised that the committee had plans for Golden
Valley Electric Association (GVA) and Hilcorp Harvest Group to
present on this topic in the future.
4:43:21 PM
MR. NOTTINGHAM turned to slide 10 and provided a brief update on
the Willow project. He paraphrased the following points:
Permitting
â?¢ Comment period for Draft Final Supplemental
Environmental Impact Statement (EIS) closed
August 29, 2022
â?¢ Preliminary Final SEIS January 2023
This review is only cooperating agencies
(includes SOA)
â?¢ Public review of the Final SEIS: March/April 2023
â?¢ Record of Decision (ROD): June/July, 2023
â?¢ Permits to the State Pipeline Coordinator's
Section (SPCS)
Pre-application discussions for pipelines already
begun
Construction
â?¢ Begin staging and early construction works for
winter of 2023-2024
Anticipated performance
â?¢ Expected peak production of 180,000 barrels of
oil per day (BOPD)
â?¢ 600 million barrels of oil estimated (mmboe)
total production over project life
â?¢ $8-17 billion in royalty and property tax payment
to State of Alaska, US, and municipal governments
4:45:09 PM
SENATOR DUNBAR asked whether the state would receive production
tax from Willow and other projects.
MR. CROWTHER clarified that all oil production on the North
Slope is subject to both severance tax and property tax on
the infrastructure.
4:45:37 PM
MR. NOTTINGHAM turned to slide 11 and provided a brief update on
the ANWR leases that were up for lease sale. He noted that the
blue shading on the map on the right reflects the Alaska
Industrial Development and Export Authority's (AIDEA) suspended
leases. He paraphrased the following points:
â?¢ AIDEA's leases remain suspended pending
completion of the SEIS. The other two lessees
relinquished their leases, so AIDEA's are the
only remaining (blue in lease pam).
â?¢ Lease suspension litigation is in briefing cross-
motions for summary judgment
â?¢ Plaintiffs' and State's opening briefs were
filed December 5, 2022
â?¢ BLM's response is due February 3, 2023
â?¢ Briefing should conclude in mid- to late-
March
â?¢ The leasing program litigation remains stayed
pending completion of the SEIS
â?¢ Next status report is due April 28, 2023
4:46:52 PM
SENATOR CLAMAN asked if the foregoing was only about the
AIDEA leases since the other two lessees relinquished their
leases.
MR. NOTTINGHAM answered yes; the only remaining leases in
the Arctic Coastal Plain belong to AIDEA.
SENATOR DUNBAR asked why the other two lessees relinquished
their leases.
MR. NOTTINGHAM said he didn't know.
MR. CROWTHER relayed that it was clear from the start that
the current federal administration intended to limit
development on the Coastal Plain and to change existing
federal law that requires development.
4:49:09 PM
MR. NOTTINGHAM explained that slide 12 was intended to
illustrate the net zero greenhouse gas (GHG) initiatives of
the companies operating on the North Slope. The major
multinational companies have developed initiatives that
target net zero emissions by 2040 to 2050. The scope 1, 2,
and 3 benchmarks outline the path to achieve net zero
emissions by mid-century. He noted that Hilcorp is
privately owned and has not set a goal of being net zero by
a particular date. However, Hilcorp's CEO issued the
following statement:
We have to operate to the same high standards as
everyone else. We may be private, but we have capital
providers, we have partners, we have lots of other
people involved in business with us. They're feeling
those pressures (i.e. ESG, emissions reductions), and
we have to be responsive to those as well. Greg
Lalicker, Hilcorp CEO.
CO-CHAIR GIESSEL commented that it was an interesting
slide.
MR. CROWTHER added that these companies are partners and/or
customers of state programs and to achieve their goals they
will be purchasing carbon capture projects somewhere to
offset their missions. DNR sees Alaska as a place to
develop hydrocarbons and oil & gas resources, and it is
also a place to offset them. DNR views this as a synergy
and potentiation for investments and activity, if the state
is able to offer the needed carbon management products.
4:51:56 PM
MR. NOTTINGHAM turned to the last slide that has several
maps showing areas in Alaska that have potential for carbon
capture utilization and storage. He directed attention to
the map on the lower left and paraphrased the following:
Alaska's storage resources
â?¢ Approximately 50 gigatons (GT) of storage
potential in unmineable coals of Cook Inlet
region
â?¢ Additional storage capacity in depleted fields
and saline aquifers
â?¢ Significant tertiary recovery opportunities
through CO2 flood [both on the North Slope and
Cook Inlet]
Subsurface data available to the public for project
planning
â?¢ Search inventory map at dggs.alaska.gov hosted by
the Division of Geological and Geophysical
Surveys
â?¢ Request well data at commerce.alaska.gov from the
Alaska Oil and Gas Conservation Commission
(AOGCC)
Exploration opportunities on state land
â?¢ Large, contiguous blocks of state land ownership
at tidewater in key storage basins
â?¢ 2023 Carbon Storage bill will address state
leasing regime, Underground Injection Control
(UIC) Class VI primacy, pore space access, and
long-term liability
CO-CHAIR GIESSEL noted that the committee would hear more
about carbon storage when the governor's bill is
introduced.
4:54:43 PM
SENATOR KAUFMAN offered his understanding that on the North
Slope the state was not anticipating commercial storage
from outside sources. Rather, it will be storage of what is
produced through production and separation, which is about
12.5 percent of the volume.
MR. NOTTINGHAM said that's correct in the near future, but
the department doesn't want to exclude any opportunity to
import CO2 to the North Slope at some point in the future.
For that reason the governor's bill will be broad in
application.
4:55:39 PM
SENATOR KAWASAKI referenced the slide that addresses the
agreement between Hilcorp and the Interior gas utility to
truck natural gas to market. He asked what went into the
decision to produce 150,000 gallons/day and whether it was
constrained due to the enhanced oil recovery.
MR. NOTTINGHAM said it's actually a relatively small volume
of gas per year and similar small sales of gas have
occurred over time. The Prudhoe Bay owners are cognizant of
this, and it likely has little effect on the recovery in
the reservoir.
4:57:09 PM
CO-CHAIR GIESSEL thanked the presenters.
4:57:45 PM
There being no further business to come before the
committee, Co-Chair Giessel adjourned the Senate Resources
Standing Committee meeting at 4:57 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2023 01 23 SRES DNR NS Oil and Gas Update v.3 (corrected).pdf |
SRES 1/23/2023 3:30:00 PM |