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More questions than answers for oil and gas in 2014

Posted: January 6, 2014 - 10:20pm

What’s in store for Alaska’s oil and gas industry in 2014? There are more questions than answers at this point with three major uncertainties.

First, will North Slope producers and TransCanada finally reach a commercial alignment to proceed with the big North Slope gas pipeline and LNG project? That was unresolved as 2013 ended.

Second, will North Slope producers and explorers quicken the tempo of new development enough to convince Alaskans that Senate Bill 21, the oil tax reform bill passed by state legislators in 2013, was a good idea? Voters will decide on a possible repeal of SB 21 in the August primary election.

People want to see more activity, and Alaskans going to work, as a result of the tax.

Third, will Shell decide — and will it be allowed — to proceed with a Chukchi Sea exploration program now proposed for summer 2014? The company has at least $5 billion sunk in its Arctic offshore exploration since 2005, when leases were first acquired, and has nothing to show for it except two partially-drilled holes done in 2012.

Lawsuits, changes in government rules and operational mishaps, mainly the loss of the Kulluk drillship in a 2012 New Year’s Eve Gulf of Alaska storm, have dogged Shell’s efforts.

Shell has filed an exploration plan for 2014 with the U.S. Bureau of Ocean Energy Management, or BOEM, that lays out a strengthened program for renewed drilling in the Chukchi Sea.

Another question to follow in 2014 will be whether momentum in new Cook Inlet development led by independents Hilcorp Energy, Buccaneer Energy and Furie Operating Alaska is sustained?

Hilcorp’s activity is centered on redevelopment of mature producing fields in the Inlet and it is highly likely this will continue, unless oil prices crash.

Furie is now planning the installation of a gas production platform, so its 2014 activities seem assured.

As for Shell, its renewed drilling in the Beaufort is on hold while the company focuses on the Chukchi. Although Shell is drilling on two prospects where discoveries were previously made, Burger in the Chukchi Sea and Siivuk in the Beaufort, the prospects for major finds in the Chukchi are considered greater, causing the company to focus its available resources there.

The exploration plan calls for a fleet of 29 vessels and aerial support from a support base in Barrow and an alternative base in Wainwright. Oil spill response equipment would be kept on hand near Kotzebue Sound and a standby rig, the Polar Pioneer, will be in Dutch Harbor.

The drillship Noble Discoverer would be used for drilling, as in 2012, but it will have had considerable overhauls and upgrades to resolve problems encountered in 2012.

Arctic offshore drilling is considered to have the best prospects for halting, or even reversing, the decline of oil flowing through the Trans-Alaska Pipeline System. That’s because the offshore prospects are large while onshore prospects on the North Slope are more modest.

In the aftermath of oil tax reform passed by the Legislature, the North Slope producers have announced new drilling and new projects that total about $4.6 billion in new investment, and that could add about 55,000 barrels per day more oil production by 2018, although about 18,000 barrels per day of this will come from CD-5, a project by ConocoPhillips that was planned and approved before the Legislature’s passage of SB 21 last April.

A significant new project planned by ConocoPhillips and its minority partner, Anadarko Petroleum, is GMT-1 in the National Petroleum Reserve-Alaska. This is eight miles west of CD-5, which is also within the petroleum reserve although barely because it is near the Colville River, the eastern boundary of NPR-A.

These are projects that have been announced, but there are also two other projects planned by independent companies that, if they proceed, could add another 30,000 barrels per day roughly in the same time period.

One is the Mustang field project planned by Brooks Range Petroleum, an Alaska-based company. The other is Nuna, a satellite of the small Oooguruk field previously owned by Pioneer Natural Resources, which sold its North Slope assets for $550 million to Caelus, another Texas-based independent in September 2013.

Neither company has yet given the go-ahead for the projects, however.

There are also other possible developments. Repsol made three oil discoveries in three exploration wells drilled last winter, two of them that could be commercially viable, the company has said. More test drilling is planned this winter to delineate the two most attractive discoveries. If those are developed there would be more oil added to TAPS, but the timing may be beyond 2018.

Likewise, Linc Energy is in the second winter of test drilling at the small Umiat oil field in the far southeast NPR-A. Umiat is where early U.S.-government sponsored drilling found oil in shallow formations, but the find was uneconomic at the time. Linc hopes to harness new technology, like horizontal production wells, to produce up to 50,000 barrels per day.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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