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Tim Bradner: Lots of oil remains on the North Slope

Tim Bradner

How much oil is left on the North Slope? Will the tank run dry?

We need to know. A third of our state's economy depends on oil, according to University of Alaska studies. Oil pays for 90 percent of our state budget too.

The short answer to this is no - there's lots of oil. A more complete answer, though, is that it also depends on the economics.

It's very unlikely we'll find any more super-giant deposits like the Prudhoe Bay and Kuparuk River fields. We can find a lot of smaller fields, though.

These will be expensive, and less profitable than big fields, and that's where the economics come in.

Geologically-speaking, the oil source rocks underlying the North Slope are some of the most prolific in the world. That means there's a lot of oil and gas around.

That's confirmed by the fact that Repsol, a Spain-based company, found oil in all three of its test wells drilled last winter in a North Slope area it was exploring. Two of these are worthy of more testing, Repsol said, which the company is doing this winter.

Oil and gas appears to be widely spread across the region and in some other parts of the central North Slope, but the oil is most likely in thin, small traps. We know of examples of what might be typical. One is the small Mustang field that Alaska-based independent Brooks Range Petroleum hopes to develop. Mustang would produce about 15,000 barrels a day at its peak. Luckily it is right next to a pipeline, too.

Another example is Nuna, a small onshore find by Pioneer Natural Resources near that company's Oooguruk offshore field. Nuna appears to be about the same size as Mustang; unfortunately, it is not next to a pipeline.

One other example is ConocoPhillips' CD-5 project now under construction. It's expected to produce about 18,000 barrels a day at peak. CD-5 is relatively near the producing Alpine field and its pipelines, but it needs an expensive bridge across a channel of the Colville River.

These fields are modest in size but will still cost hundreds of millions to a billion dollars each, so we're lucky oil prices are high. Still, if you get enough of these developments, the oil production adds up, a point that Brooks Range Petroleum makes. Brooks Range feels there could be two or three small fields near its Mustang project that could be developed once Mustang's infrastructure, mainly a small oil and gas processing plant, is in place.

There are also smaller deposits within the existing fields that the larger companies are chasing. Last year the Legislature passed changes to the state's petroleum tax in Senate Bill 21, and the companies are now hustling -- thanks to the new, lower taxes, they say.

BP and ConocoPhillips have both laid on new drill rigs and stepped up remediation of older wells. We're already seeing the benefits of those in added production, according to state agencies who monitor the fields.

Several larger projects have also been announced since SB 21 passed, and if they move forward, the results could be interesting.

ConocoPhillips has announced a new drill site in the Kuparuk field and an expansion of its West Sak "heavy oil" oil project in that field. The company is also working on a new project in the National Petroleum Reserve -Alaska, which is expected to produce 30,000 barrels daily, although this still needs federal approval.

BP has announced development of a series of projects in the Prudhoe Bay field, where it is the operator. One, in the west end of the field, will produce about 40,000 barrels daily at peak, the company says.

Since the Legislature passed its oil tax reform bill, Senate Bill 21, in 2013, I count almost 90,000 barrels a day of new oil if these projects produce oil at the rates the companies have announced.

When CD-5 and Point Thomson, another project now under construction, are included (these were under way before the SB 21 passage) the total increases to about 116,000 barrels a day.

This sounds great considering that we're now producing about 530,000 barrels a day but let's remember these estimates are for peak output, which would happen sometime after a field starts up. How quickly it happens depends on the field. These projects would cycle up at different times, too. However, we can expect to see some of these new barrels in late 2015 and a lot of new oil online by 2018 through 2022.

These fields will decline, too, so we need to keep new barrels coming to replace what's being produced.

Despite the caveats, all this is encouraging. I believe we might soon bend the curve on our production decline. Instead of production dropping 6 percent, the long-term trend, we might see a 1 percent decline this year and, if we're lucky, no decline next year.

However, voters could repeal the oil tax change in the referendum on the primary election ballot in August. Reinstituting the former oil tax would slow a lot of the new activity, I believe.

We should be realistic about the long-term prospects on the Slope, however. Outside of the Arctic National Wildlife Refuge coastal plain the geologic prospects onshore on the North Slope appear to be modest, for small- to medium-sized finds. The gas prospects are better, but we need a gas pipeline for those.

It's different offshore. In the Chukchi Sea, where Shell, ConocoPhillips and StatOil are exploring, there are prospects for really big discoveries, but it will be many years before we see any of this oil.

A better near-term offshore prospect is in the Beaufort Sea, where Shell started drilling in 2012. Any new production there could be brought to shore and to the Trans-Alaska Pipeline System relatively quickly, at least compared with the Chukchi Sea. Shell is exploring 15 miles or so offshore in the Beaufort compared with 60 miles or more in the Chukchi.

Once ashore, Beaufort Sea oil will be able to tie into a new Point Thomson pipeline that will be operating by 2016. In contrast, oil from the Chukchi, once ashore, would still need to cross a couple of hundred miles of the NPR-A to reach TAPS.

We tend to discount offshore oil because it doesn't pay a state production tax and royalty and add to our state treasury. However, it will add to fluids moving through TAPS, which would lower the cost of moving onshore oil, and that will increase our state revenues.

In sum, the North Slope oil outlook is mixed but mostly good. However, we Alaskans have a tendency to fight with our industry and shoot ourselves in the foot occasionally. Let's hope it doesn't happen again.

Tim Bradner is an Anchorage-based business writer. He was a member of BP's external affairs staff in the 1970s and early 1980s.

 


Tim Bradner
Economy