Winter exploration continues

Exploration activity in the Arctic has been on the rise for the past two years primarily due to the economic viability of projects resulting from higher oil prices.  There are more people working in the Alaskan oil and gas industry today than at any time previously and experienced labor is in high demand.  Most of the activity has been in the surrounding areas of the Central Arctic Coast. Three distinct areas: close to the 10-02 ANWR border to the east of Prudhoe Bay; south in the Brooks Range foothills; and west in the National Petroleum Reserve –Alaska (NPR-A) are the primary onshore areas of operation.  Other activity has taken place offshore north of the 10-02 Area in the Beaufort Sea, as well as far to the Northwest of Alaska in the Chukchi Sea area.  Alaskan Arctic oil and gas exploration operations only take place in winter time to minimize the impact on the environment.  Winter in the Arctic lasts from late September to late May and covers the land and sea in a thick blanket of ice and snow.  Total 24 hour darkness is present for much of this time.  Because of the snow and cold temperatures, ice roads can be constructed that go over land and sea and will completely disappear in summer time.  Operations in this environment where temperatures regularly reach -20F to -30F below zero are some of the most expensive and specialized in the world. 

The USGS estimates that the North Slope of Alaska still contains at least 7 billion barrels of known oil reserves and over 35 trillion cubic feet (cf) of natural gas.  Actual amounts will not be know until test wells are drilled on new lands currently under lease or to be leased in the future.  This does not include reserves within the 10-02 Area of ANWR currently off-limits to exploration, nor the National Petroleum Reserve – Alaska (NPR-A) to the west of Prudhoe Bay.  The NPR-A has had tracts of land put up for bid and some projects already started. 

For the past decade the State of Alaska has offered tracts of State owned land up for bid each year in the hope of stimulating continued oil exploration and keeping the TAPS full.  The State of Alaska has received millions of dollars in revenue from new oil and gas lease sales.  Along with that the State of Alaska has collected over $5 billion dollars in oil royalties and taxes this year, one of its best years ever.  It is estimated that by 2017 over 50% of the oil coming from the North Slope will come from new fields being explored now.  The push by the Alaskan government to build the Alaska Natural Gas Pipeline, for which the bidding process ended Friday, is hoped will provide an extra incentive to energy companies to bid on and develop new tracks of land.  Alaska has long bemoaned the lack of having a natural gas pipeline to allow it to bring its vast natural gas reserves to market. 

Part of the reason for the drive in new exploration activity in Alaska has been the increase in the price of oil.  Despite the low rate of TAPS throughput, compared to the past, the world price per barrel has kept profits to the State and producers above average.  How long this somewhat artificial situation will last is anyone’s guess.  The higher oil prices, however, may allow for the economic recovery of previously uneconomic known oil reservoirs.

Exploration for oil in the Alaskan Arctic is perhaps the most costly natural resource recovery endeavor in America involving hundreds of millions of dollars in equipment and operational costs before any products are seen coming out of the ground.   To put a damper on exploration potential however the State of Alaska has recently increased the Petroleum Profits Tax (PPT) to 25% (up from 20%).  The State defends this increase as acceptable under the current price for oil, yet the industry sees this only as destabilizing to the potential exploration effort.  ENI Petroleum was uncertain of continuing with its Nikaitchuq offshore project partly due to the shift in bottom line caused by the PPT increase.
Below is a list of some of the exploration projects that will be continued or attempted this winter in the Arctic.

Pioneer Alaska Petroleum will procede this winter with their 550 million dollar “Oooguruk” offshore man-made island project as well as test drilling at its site. For Oooguruk Pioneer is partnered with ENI which has a 30% stake. It is hoped that 40 wells will be drilled on the island tapping an estimated 70-90 million barrels of oil.  Production should start in 2008.  The field is expected to have a lifespan of over 25 years.

Anadarko Petroleum, a long term North Slope petroleum operator, will be busy this winter drilling and testing at their Gubik and Chandler sites in the Brooks Range foothills area.  These two new sites are expected to reveal large natural gas reservoirs.   BG Alaska and Petro-Canada will also be drilling exploration wells near the Anadarko site.  Anadarko will continue in its work at the Jacobs Ladder site just to the south of the Fox plays bordering the Badami fields near ANWR.  The Jacobs Ladder field lies within the famous Lisburne limestone rock formation underground.  Rough estimates range upward of 800 million barrels of oil in the formation.  Along with ConocoPhillips, Anadarko will be conducting exploration work at its established Alpine site to the west of the main Prudhoe Bay fields. Anadarko also holds leases in the NPR-A that it is planning to investigate.

Shell Oil has been busy exploring offshore in both the Bering and Beaufort Seas as well as the Chukchi Sea in northwestern Alaska.  Shell’s Tern gravel Island in the Beaufort Sea has been under development for a number of years.  It is part of its exploration process in over 179 leases owned by the company in the Beaufort.  Shell is currently working with the North Slope Borough to enable it to overcome concerns about operations potentially disturbing bowhead whale migrations.  Until that is resolved new Beaufort exploratory operations will be on hold.

Important Links to supplement this article include:

“How North Slope Oil Has Transformed Alaska’s Economy”, Scott Goldsmith Institute of Social and economic Research, University of Alaska Anchorage,
http://www.akrdc.org/membership/events/conference/2007/presentations/goldsmith.pdf

“What Does the Future Hold for Oil & Gas in Alaska” – Marylyn Crocket Alaska Oil and Gas Association
http://www.akrdc.org/membership/events/breakfast/0708/crockett.pdf

“Meet Kevin Banks, Alaska's Oil and Gas Division Director”, By Tim Bradner 
Alaska Journal of Commerce
http://www.alaskajournal.com/stories/091607/oil_20070916013.shtml

“National Petroleum Reserve-Alaska: The Northeast Sector”, Julia Dougan, Associate State Director, Bureau of Land Management
http://www.akrdc.org/membership/events/breakfast/0708/dougan.pdf