Australian oil company officials say they've begun drilling within the eastern boundaries of the nation's petroleum reserve in Alaska's Arctic, finding a field that could hold more than a billion barrels of oil and the potential to produce up to 50,000 barrels per day.
If results prove up and production is one day indeed that high, Linc Energy could seriously reverse Alaska's flagging oil production that threatens to put the state treasury in a chokehold. However, the field would provide slightly less revenue for Alaska because it sits on federal land, not state land.
Alaska is home to the nation's largest oil fields and plenty of other resources, but it's also known for overblown speculation and failed projects that leave wildcatters, gold-seekers and investors empty-handed. Time will tell whether this latest hunt bears fruit.
The state has no way to assess the claim of the field's size, said Bob Pawlowski, legislative and policy advisor for the Alaska Division of Oil said Gas. But he said that Gov. Sean Parnell, who has proposed building a gravel road to Umiat, was excited when Linc purchased federal oil and gas leases in 2011.
"Production of up to 50,000 barrels of oil a day will benefit all Alaskans and the communities in the region by helping sustain the long-term operation" of the trans-Alaska pipeline, Parnell said in a press release issued after the acquisition.
The National Petroleum Reserve-Alaska at the top of the 49th state is an area so rich in crude it oozes from the ground. Its black sheen still pollutes some of the wells drilled by the federal government decades ago, and Alaska Natives in the bitterly cold region once burned the seeping stuff to light their dwellings.
After the federal government established the 23-million-acre refuge at the end of World War I, the U.S. Navy and the Interior Department drilled dozens of wells to determine the region's resource potential. At the Umiat field, a dozen of the so-called "legacy wells" were drilled between 1944 and 1979, Linc Energy said in a press release.
With its acquisition of the leases, Linc acquired data from those wells. Petroleum appraiser Ryder Scott says the field contains 1.2 billion barrels of oil, with proved and probable reserves of 154.5 million barrels of oil equivalent. Such quantities bring the field's value to $1.5 billion, the release said.
"It's not every day that one is able to tap into a billion-barrel oil field, and we have now just done that," said Scott Broussard, president of Linc Energy's oil and gas division, in a release issued after drilling began Sunday.
Umiat is located north of the Brooks Range about 100 miles west of Pump Station 2 of the trans-Alaska pipeline and the nearest road along the Dalton Highway. The remote site lies about 200 miles southeast of Barrow, the northernmost town in America.
The two wells planned this winter by Linc Energy, a company based in Brisbane, Australia, will hopefully confirm those rich quantities of oil and determine whether the field can be economically produced, said Paul Ludwig, a manager of stakeholder relations for Linc.
For the first time at Umiat, Linc plans to use modern technology to better assess the wells. For example, after the more traditional vertical well is drilled, Linc plans to drill a horizontal well before the end of May. The horizontal well is expected to provide the most detailed look ever of the field's characteristics.
"It will allow us to really get data that no one has been able to retrieve so far," said Ludwig.
Linc will likely analyze the results in time for the next drilling season. If the data are promising enough, the company will plan a similar drilling program next winter, he said.
Famine, then feast
If the field ever reaches commercial development, it could prove critical for a state starving for more oil. Alaska's budget is about 70 percent dependent on income from oil, but flow in the trans-Alaska pipeline has fallen steadily for more than two decades. The 800-mile-long pipeline now moves 600,000 barrels daily, one-fourth of its high in the late 1980s.
If Umiat were located on state land, the find would reap more money for the state treasury through taxes, royalities and fees. Still, Alaska would collect the full production tax and would split royalties 50-50 with the federal goverment if Umiat were ever developed, said Elizabeth Bluemink, a spokeswoman at the Alaska Department of Natural Resources, via email Tuesday.
An Umiat development could also open a new front along the middle Colville River that might lead to other discoveries. Finally, increased oil in the pipeline helps alleviate shipping troubles associated with low-flow through the pipeline, such as increased ice buildup and corrosion.
Alaska's rich resources drew Linc to the Far North. But the winter weather wasn't welcoming to Linc as the company set the stage to drill its first well. Temperatures at times plunged to 60 below zero, and Arctic storms reduced visibility, preventing work for extended periods.
"It was famine in the beginning, then feast," Ludwig said.
The going was also slow on building a 100-mile snow road to access Umiat from the Dalton Highway.
"It's definitely a challenge," Ludwig said. "You either fly it in or wait until the tundra is at the right temperature to build a snow road. From what I understand, with all the equipment we utilized to haul the load across that road, it was a 12-hour one-way trip. And we had hundreds of loads. It's a logistical challenge, I'll put that way, under extreme challenges."
Parnell has proposed building a controversial gravel road over the tundra from the Dalton Highway to Umiat, part of his "Roads to Resources" proposal.
Linc began working in North America in 2010 and has interests in underground coal gasification projects in the Powder River Basin in Wyoming and, more recently, in Cook Inlet and Interior Alaska.
Why haven't other oil companies swooped in on Umiat, given that some of the early work was done years ago? Ludwig said he doesn't know.
"For Linc Energy, we felt like the data that came with the acquisition of the asset made us feel like it was a good fit for our portfolio and that we were the right-sized company to do it," he said.
Contact Alex DeMarban at alex(at)alaskadispatch.com