OPINION: The race is on. To avoid looking like a fool, Alaska Gov. Sean Parnell needs his oil tax cuts hammered into law before new oil player Great Bear Petroleum's anticipated production enters the trans-Alaska pipeline. If his proposed cuts do become law, Parnell will look like the rooster that made the sunrise; if he fails at this mission he will look like the emperor with no clothes.
The newly perfected fracking technology fueling the oil boom in North Dakota, Pennsylvania and Texas is now booming on the North Slope, thanks to Great Bear Petroleum. Fracking technology will likely soon be adding oil to Alaska's pipeline with or without Parnell's multibillion-dollar tax cuts.
A few months back, without any mention of the need for tax cuts, Great Bear President Ed Duncan told a committee of the Alaska Senate that if the company's test wells work as anticipated, Great Bear expects to drill about 200 "fracking wells" the following year. At a July 31 seminar in Anchorage, Duncan went on to say that thus far he is "very happy" with test well results.
Duncan explained that fracking wells are drilled into brittle rocks containing billions of tiny deposits of oil that are released when the rocks are fractured by hydraulic pressure from water and sand pumped into the rock. He explained that fracking wells tend to start off producing between 1,000 and 2,000 barrels of oil per day (BPD) and fall off rapidly in their second and third years of production. He explained that the key to continued production in a fracturing operation is a labor-intensive continuation of drilling new wells to replace those that rapidly decline.
Based on this, one possible scenario would be 200 wells averaging 1,500 BPD of production in year one, totaling 300,000 BPD, followed by 200,000 BPD from the same wells in year two, and 100,000 in year three. But each year, Great Bear would plan another 200 wells to replace the declining wells. Their second year of operation might include 200 wells that have fallen off to 200,000 BPD, plus 200 new wells producing 300,000 BPD -- totaling 500,000 BPD. In year three, perhaps we would see 200 wells producing 100,000 BPD, 200 wells producing 200,000 BPD, and 200 new wells producing 300,000 BPD, for a total production of 600,000 BPD.
It was Duncan who provided the 1,500 BPD starting well production information, the rapid decline information, and the production well replacement information at the July 31 conference. Earlier, Duncan told a Senate committee of plans to drill 200 wells in the year following well tests if this work proved favorable. The two snippets of information combined support the 600,000 BPD scenario above.
When Duncan was asked at the conference what he anticipated for production in five years, he gave conflicting answers. His direct answer was a minimum of 100,000 BPD, and probably more. However, he also made reference to Texas ramping fracking well production up from 3,000 BPD to 500,000 BPD in three years and said there was no reason that couldn't happen in Alaska. That evening, KTVA television news reported Great Bear as having told them that production could soon be as much as 700,000 BPD.
Comparatively, Prudhoe Bay's big oil producers – BP, ConocoPhillips and Exxon Mobil Corp. -- simply stick a few oversized straws into a few sweet spots and let them flow. Great Bear's task is far more labor intensive. However, at no time has Great Bear hinted at needing a state oil tax cut to make its proposed operation profitable.
The only conference speaker pushing oil tax concessions was Joe Balash, Parnell's deputy commissioner at the Alaska Department of Natural ResourcesParnell's deputy commissioner Joe Balash. Oddly, as Balash argued that the pipeline would run dry without tax cuts, he also stated that North Slope exploration is now booming under the existing tax regime; go figure.
In an earlier version of this article, I mistakenly painted Homer Republican state Rep. Paul Seaton, who also spoke at the conference, in the same light as Balash. It has since been brought to my attention that Seaton was one of the few House Republicans who voted against Parnell's proposed tax concessions. The tax reductions Seaton did express support for were limited to a proposed downward adjustment to the percentage of profits the state takes; a percentage share that rises as profits increase. While I disagree with the need for an adjustment at higher profits, there is no comparison between the oil tax reductions Seaton supports and the giveaway Parnell has been pushing. I hereby accept responsibility for misunderstanding his comments and extend my sincere apology to state Rep. Paul Seaton for misrepresenting his position.
Great Bear's production, plus existing production, could soon meet Parnell's definition of a filled pipeline. If it happens before Parnell succeeds in redirecting Alaska's dividends to his past employer, his tax cut will be dead. If Parnell's tax cuts pass, Great Bear or no Great Bear, Alaska's oil revenues will fall off so sharply you can probably kiss your PFD goodbye
Ray Metcalfe lives in Anchorage. He was first elected to the Legislature in 1978, and again in 1980. He owns Metcalfe Commercial Real Estate Inc. and runs a small nonprofit that investigates and exposes public corruption.
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