4-3-13 Celebrating Prudhoe Bay's 12 Billion Barrel Milestone!

03 April 2013 6:55am

This morning we sent this email to our readers regarding pending oil tax reform legislation

Use Technology To Magnify Our Message!
 
For Our Alaska Readers:
 
1.  We note, somewhat belatedly, that the grand, Prudhoe Bay oil field passed the 12 billion barrel production mark recently (i.e. from the Initial Production Area only--not including production from surrounding areas).  We also regret this milestone occurred with too little fanfare!  (See Frank Baker's story, left)
 
2.  Alaska's economic future depends upon whether our tax and regulatory policies will deflect investment to other less costly areas, or whether elected leaders will act in time to make Alaska competitive:  invigorating investment and Trans Alaska Pipeline System (TAPS) throughput upon which our state is dependent!

Our Friends at the Resource Development Council for Alaska have given us a link to Prosperity Alaska's great new technology for commenting on current tax reform legislation.  Please follow the link below, now, while there is still time for your opinion to have impact:
 
 
Thanks to Prosperity Alaska, emailing our elected officials with this important message takes less than two minutes. Choose from a letter template or personalize your own, and your message will be emailed directly. You can email just your representative, the entire House, or pick and choose which legislators you would like to contact. 
 
Let's Email  legislators now and let them know we support meaningful oil tax reform.   I just sent in my letter and am hoping you'll also let them know how important it is for Alaska to be a competitive producing area.  
 
Respectfully,
 
Dave

Prudhoe Bay oil production passes 12 billion barrels

(See editor's note, below)
 
by
 
Frank E. Baker
 
When valves were opened to allow the first Prudhoe Bay crude oil to flow into the 800-mile-long trans Alaska pipeline on the morning of June 20, 1977, everyone, including industry experts, didn’t expect that North America’s largest oil field would yield more than 9.6 billion barrels.
 
Today, 35 years after startup, more than 12 billion barrels have been produced. This is about 53 percent of the estimated 22.6 billion barrels in place--and it’s believed up to two billion more barrels are recoverable.
 
In cumulative production, the Prudhoe Bay field is now ranked number one in the U.S. and 20th in the world.
 
In technical terms, the 12-billion-barrel figure includes only the Prudhoe Bay Ivishak production from the Initial Participating Area (IPA), and includes all liquids such as black oil, separator liquids, and natural gas liquids (NGLs).
 
“The 12-billion barrels figure that we reached in October 2012 is consistent with the figures used initially to describe the original Prudhoe discovery and development,” says Scott Digert, BP Alaska’s reservoir management team lead . ”It does not include the West End satellites (Aurora, Borealis, Orion, and Polaris), nor does it include the GPB fields that come in through the Lisburne Production Center (LPC) such as Lisburne, Greater Point McIntyre Area, (GPMA) and Niakuk”
 
Boosting production: Digert says that during the last three decades Prudhoe Bay has been a proving ground for oil field technology that has helped BP Alaska and other companies go beyond what was ever thought possible in maximizing production from the super-giant field.
 
“Advances in enhanced oil recovery (EOR) techniques boosted our overall oil recovery by about three billion barrels,” says Digert. “Large-scale gas cycling, water flooding around the periphery of the field, miscible gas injection (MI) and a technique called water-alternating gas (WAG) were effectively used.  Improved reservoir analysis and delineation; advanced drilling techniques, such as horizontal and multi-lateral drilling; and advanced well completion methods, also made significant contributions.”
 
To date, more than 1,000 wells and sidetracks have been drilled in the IPA, and with seven drilling rigs currently operating, BP Alaska plans to sustain its active drilling and sidetrack program in upcoming years.
 
“We’re now aggressively going after light oil in known accumulations,” says Digert.  ”We are using advance seismic imaging, reservoir simulation, and extensive surveillance and analysis of our current wells to identify further drilling targets.  We are continuing to deploy innovative methods such as Gas Cap Water Injection to support the reservoir pressure.  We are applying new technologies such as BrightWater to improve the sweep efficiency of our water injection, and pursuing new technologies that could similarly improve MI sweep.”
 
Digert adds that BP Alaska has increased its rig fleet capacity in 2013 to add more drilling and workover capability to refresh and maintain well stock.  He says the company is also working with other working interest owners, contractors, suppliers and with the State to sustain the financial health of BP Alaska’s base oil business.
 
“This will be needed to either maximize oil recovery as we head into the next 35 years of production, or to underpin future major gas sales,” he says.
 
Some fast facts about the Prudhoe Bay field:
 
·         Accounted for about 15-20 percent of America’s oil production for almost three decades; but is less 12% today;
 
·         Because of Prudhoe Bay, there are now 24 separate oil fields producing on the North Slope;
 
·         Mostly because of Prudhoe Bay, Alaska’s Permanent Fund Savings Account balance is more than $42 billion;
 
·         According to the University of Alaska’s Institute for Social and Economic Research (ISER), Alaska’s petroleum wealth (money in the bank and petroleum in the ground) is  valued at $160 billion;
 
·         Has accounted for about 126,000 jobs;
·         Continues to provide about 85-90% of the state’s annual revenues;
·         Imported technology to other BP assets across the world.
_____________________________
We received this note from BP's Dawn Patience this week:  "In late 2012 the Prudhoe Bay oil field surpassed the 12 billion barrel mark, a significant achievement in view of the fact that upon discovery in 1968, it was estimated to contain about 9.6 billion barrels of recoverable oil. This historic occasion passed with little fanfare."

 

4-2-13

02 April 2013 6:17am

Today we heard this tax reform 'thank you' commercial on a local radio station, sponsored by the Alaska Support Industry Alliance -- illustrating the many dimensions the controversy covers.  The point about sustainable policy benefiting many generations -- not just this one --  is a cultural value we have stressed for years and we thank the Alliance for its message.  -dh

Status of Alaska In-State Gas Pipeline: 

Mike Chenault, Speaker of the House, Kenai, Alaska, ACES, Photo by Dave Harbour, AGDC, AGIAMike Hawker, AGDC, Alaska House of Representatives, Photo by Dave HarbourThe Alaska House of Representatives last night passed legislation enabling the state’s gasline development corporation to continue progressing towards building its Alaska Stand Alone Pipeline (ASAP) project.   Here is a session late yesterday wherein the House Finance Committee discussed the bill and amendments.  Of particular interest is the back-and-forth regarding responsibilities accorded the Regulatory Commission of Alaska by the legislature.  
Representative Les Gara, Alaska, Alaska Dispatch, AGDC, Alaska Gas Pipeline, ASAP, Photo by Dave HarbourAlaska Dispatch Op-Ed by Representative Les Gara (NGP Photo).  No one who knows natural gas pipelines disagrees with this point: a line that delivers a vastly higher volume of gas does it more efficiently, for less cost. Alaska is in the middle of a shell game with a lot of potential, but not perfect, pipeline prospects. Some people say “just pick something.”  Here’s why that’s not so easy, and picking the wrong project can harm the state with high natural gas prices.
The Alaska Gasline Development Corporation is planning a 500 million cubic feet per day buried natural gas pipeline from the North Slope to tidewater in Southcentral.  House Bill 4, sponsored by Representative Mike Hawker (NGP Photo above-L) and Alaska House Speaker Mike Chenault (NGP Photo-R), empowers AGDC to connect Alaskans with the Arctic gas.  According to the sponsors, "The legislation establishes AGDC as an independent state corporation; provides a clear, strong regulatory framework; and calls on the state to assist AGDC in getting gas to Alaskans within six years. The Legislature created AGDC through passage of House Bill 369 in 2010."

Status of Alaska Oil Tax Reform:  (Here is the status of Alaska production compared with other states, including Texas and North Dakota.)

  • Today's House Resources hearing video.
  • Yesterday's House Finance Committee consideration of SB 21.   Below is testimony prepared by Steve Pratt, Consumer Energy Alliance - Alaska.  
  • Yesterday we offered an "April Fools" update and commentary.  Part of that commentary revealed that Alaska has virtually no savings -- aside from the Alaska Permanent Fund -- when one deducts outstanding liabilities.  Here is a letter dated March 27 from Jay Dulany, President of the Retired Public Employees of Alaska.  Among his many relevant points is this: " based on calculations of the Alaska Retirement Management Board (“ARMB”), the State’s annual appropriation to PERS/TRS will soon exceed $1 billion.  Payments at this level, which will only continue to grow as the UL (i.e. unfunded liability) advances beyond its current $12 billion level, will simply not be sustainable, by neither the state nor by local government employers.  A benefits crisis may not be right around the corner; an employer contributions crisis is."   If Alaska is to fulfill its public employee obligations, the $12 billion liability should be paid off now while Alaska has the savings available.  Otherwise, public employees can expect to have their annual income reduced by a judge someday, as retired employees in Detroit and Stockton can attest.   This is because the state's fiscal house is in disorder, a fact which we believe the bond rating agencies will soon discover.  We also believe the rating agencies have not competently assessed the gravity of Alaska's fiscal crisis for bond holders and future investors.  Any decrease in Alaska's credit worthiness will result in higher rates paid on public debt, further exacerbating Alaska's pending, economic decline.  We believe this challenge is a requirement for increased investment and oil tax reform.  Keeping a predatory tax policy in place is a short term solution to a looming fiscal crisis.  Reforming the oil production tax to create a more attractive investment climate is a long term solution.  The short term model benefits this generation at the expense of the next while the long term approach can make the economy sustainable for this and future generations.  -dh
  • Here are results of a poll on this subject.  Dittman Corp. surveyed 800 Alaskans last week (March 13-14), resulting in a 3.4-percent margin of error. All regions of the state were represented and balanced to the 2010 Census. The House traditionally commissions a poll to help inform members and the public on priority issues before the Legislature.
    “Alaskans, generally, feel our economy is stable, and support many of the issues we have identified,” Alaska Speaker of the House Mike Chenault, R-Nikiski, said. “They agree with us that we need to modify our oil tax system to make us competitive, and build an in-state gasline for in-state use. Alaskans, also, want the chance to decide whether we amend our constitution to allow parents the right to choose where to send their kids to school. Dittman Research and staff have provided us with another top-shelf document we can add to our discussions over the course of the next three weeks. It’s a valuable and informative tool to help us understand where Alaskans stand on issues before the legislature.”

AK urges North Slope producers to grow LNG commitment - Gas Business Briefing - A pending bill would give the state-owned Alaska Gasline Development Corp, which is planning the project, more flexibility in doing engineering along with ...

Members of the House Resources Committee –
 
My name is Steve Pratt, Executive Director of Consumer Energy Alaska, a regional chapter affiliated with the national Consumer Energy Alliance.  We believe the greatest economic threat to Alaska energy consumers is declining TAPS throughput as state spending increases.  We need to reverse these decade long trends.  Consequently your focus on declining throughput and fiscal issues this legislative session is critical.
 
CEA Presentation on Economy 2013 TAPS Budget V1A.jpg
 
As energy consumers, we all have a direct interest in obtaining competitively priced domestic energy.  We also have a direct interest in robust overall economic activity to maintain livelihoods and at least 30% of working Alaskans are dependent upon oil and gas exploration and development for employment.
  
Unfortunately, Alaska oil production has declined from a peak of over 2 million barrels a day to a little over 500 thousand barrels, and is in freefall at the rate of 5 - 7% per year.  What is especially remarkable is that these declines have occurred during times of high and increasing oil prices. 
 
Alaska is capable of making a substantially greater contribution to U.S. domestic oil production and the nation’s energy and economic security than it does today.  Five weeks ago CEA met with Adam Sieminski, the head of the Energy Information Administration in the U.S. Department of Energy.  Mr. Sieminski gave us a presentation on the agency’s draft 2013 Energy Outlook.  To me, Alaska was a disappointment.  In the Energy Outlook, Alaska’s contribution to the nation’s energy supply will never return even to 2011 levels let alone increase unless state fiscal and federal regulatory changes occur.  We are not doing our part to secure US energy security or fulfill our constitutional mandate to develop our resources.
 
 
A sustainable increase of only 500,000 bbls/day from today’s levels, at $100/bbl., would add $1.5 Billion per month to overall U.S. economic activity.  It might also reduce the export of 1.5 Billion U.S. consumer dollars per month to OPEC nations.
 
However, new, risky exploratory and development drilling is necessary to stem the decline in Alaska oil production.  Alaska students need to compete globally for jobs.  Alaska natural gas needs to compete globally to secure markets.  And Alaska oil field development needs to compete globally for investment dollars.  Your work here can enable that ability.
 
The rates and Progressivity structure of Alaska’s current tax regime provide a disincentive to attracting risk capital to the state as evidenced by declining production during times of high oil prices.  As demonstrated in the EIA’s Energy Outlook, increased prices and new technologies have resulted in substantial increases in oil production in other locations around the United States, but not in Alaska, and not because more oil is not available.
 
Alaska’s remoteness from the markets, Arctic climate, high labor and logistical costs argue for a more competitive tax and regulatory structure.
 
Consumer Energy Alliance – Alaska, along with a solid majority of Alaskans, is in favor of the Alaska State Legislature reviewing and approving revisions to the Alaska Tax Code that will improve the investment climate in Alaska. 
 
In closing I will simply note that something is terribly wrong here, and I thank you, members of the Resources Committee, for taking on the task, with the Governor, of coming up with useful changes to the tax code.

  The point about sustainable policy benefiting many generations is one we have stressed for years.

Audio: 
audio/mpeg iconAlaska's Future Voices
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4-1-13 - Beware Of The April Fools

01 April 2013 8:00am

 Governor Sean Parnell Urges Alaskans To Comment On Tax Reform TODAY!

Commentary: Just for Alaskans

by 

Dave Harbour

Normally, our commentary is designed for consumption of Alaskans, Canadians and decision makers in the Lower 48--and our readers in other countries who are interested in how Alaskans and Canadians are confronting Northern energy challenges.  

Today, we direct a comment to fellow Alaskans.

Most of us know that Alaska's economy hangs on by a thread.  Elected officials talk about billions in various savings accounts in addition to the Alaska Permanent Fund.  But the Public Employee and Teachers' Retirement fund liability is bigger than Detroit's at an amount approaching $15 billion.  This doesn't include hundreds of billions of dollars of state and municipal bond indebtedness -- that also requires 24/7 gigantic pipeline gushing a reliable torrent of currency.

So we are really living from paycheck to paycheck with Alaska North Slope (ANS) oil paying for almost 95% of the state budget.  That undiversified budget revenue, in turn, depends on the price of oil growing at rates exceeding $100/barrel in order to compensate for oil production declining at an annual rate of 5-7%.  Meanwhile, no matter what the politicians say publicly, the state budget continues to creep higher.   Even we optimists should view this situation realistically: as frightening, unsustainable and requiring immediate action.

What immediate action could rescue such foolish fiscal planning and such an unsustainable economy?  

The near term step: stop digging the hole deeper and cut spending dramatically--say, by 5-7% annually to make up for oil production declines (Note, the cuts would have to be deeper if the price of oil begins to decline.)  In doing so, lawmakers will have to decide if Alaska can continue to afford to be the most attractive magnet state in the nation to those coming North for entitlement benefits rather than benefits associated with free enterprise, self sufficiency and procreation of the pioneering spirit.

The medium term step: since Alaska's oil taxes are among the highest in the world, higher taxes are now proven to not be the answer.  In fact, the experiment of exorbitant oil taxes has failed to sustain -- and even threatens -- Alaska's long term future.  

Accordingly, this is now the time to view the future through a different lens: the lens of competition.  In recent weeks, opponents of tax reform have argued:

  • that since Norway's take is high, Alaska's should be high.  But Norway's production is closer to markets and doesn't have to subsidize an 800 mile pipeline.  Its tax base is very diversified and it does not give out permanent fund dividend entitlements to every man, woman and child.  In Norway, unlike Alaska, a deal is a deal, protecting investors from unpredictable, expensive lawsuits and environmental activist delays.
  • that taxes are just fine because oil employment is high.  They neglect to say that high Alaska oil employment results from decreasing production and increased maintainance of aging facilities. 

(Continued below)

April Fools....  The best of the April Fools emails we received today were one from a Canadian environmental organization describing a project to use injected dry ice to bind cracks in the Arctic icepack due to global warming.  Another announced that the President of the United States had hired one of our readers (a distinguished, think tank energy executive) as a special advisor.  With all the crazy happenings abounding everywhere, we give this warning so our readers will not to confuse trickster efforts to fool us today with normal, foolish policy initiatives.  -dh

Carl Portman, Resource Development Council for Alaska, Alaska oil taxes, ACES, Photo by Dave HarbourThe Resource Development Council for Alaska's Deputy Director, Carl Portman (NGP Photo, at earlier hearing), reminds us that Governor Sean Parnell¹s oil production tax reform bill, SB 21 is now "front and center in the House", having passed the Senate by an 11-9 margin.  The House Resources Committee will be taking public testimony on the bill Today, April 1 from 1:00 to 3:00 p.m. Testimony will be taken statewide and the preference is for people to testify in person at local  Legislative Information Offices (LIO). Comments should be limited to two minutes.  ...  The State House Majority released its annual statewide survey last week that found Alaskans support modifying ACES and want the Legislature to stop studying the issue and act this session. The survey found that 56 percent believe ACES should be modified and 63 percent say its time for the Legislature to take action to stem the decline.  For additional information ... see RDC's updated Action Alert at:  http://www.akrdc.org/alerts/2013/housesupportcssb21alert.html

 

Tom Brennan, Snowflake, ARCO, ACES, AGIA, Anchorage Daily Planet, Anchorage Times, Photo by Dave HarbourAnchorage Daily Planet by Tom Brennan (NGP Photo).   ... Hopefully Shell will be back in the game next year. ConocoPhillips will also be exploring in Arctic waters in 2014 with plans to drill one well in its Devilʼs Paw prospect. So far federal authorities seem agreeable to ConocoPhillips plans.  We wish both companies good luck, good fortune and safe seas.      ***      Let's hope that the state's new oil tax schedule is reasonable enough to attract new oil development investments, which could increase Alaska's oil output and give a big boost to its economy.

 

 

(Continued)

 Likewise, some oil lobbyists say the current tax reform being considered is too little, too late.   This is a dangerous position to take since it begs the question, "OK, fine, what production will you guarantee for what level of tax reform?"  That would stop them short since no lobbyist can predict what a board of directors will allocate to Alaska exploration or development years from now.  It also ushers forth the specter of a state embracing concepts of blackmail or bribery depending on who is on the offering or accepting end of the transaction.

One adult position to take over these squabbles might simply be this: 

If...

  • ...Alaska is losing investment and production because its rich but remote resources are more costly to develop than those in North Dakota, Texas and California, then...
  • ...why not reform Alaska's tax-royalty burden to be competitive with tax-royalty costs of those competing areas -- further discounted for Alaska's higher costs: labor, logistics, 800 mile Arctic pipeline, tanker and port costs, weather, etc.?  That would reduce the uncertainty and bickering to a more scientific, mathematical calculus. 

If lawmakers took this less emotional and more logical approach, they wouldn't argue with lobbyists about what amount of tax relief was 'too little' or 'too much'.  They could still collaborate on issues like how to make the tax and regulatory environment more clear and predictable.

The long term step the country could take to make Alaska more productive to itself and to the Nation at large, is to make Arctic Offshore, Arctic National Wildlife Refuge and National Petroleum Reserve Alaska more friendly to reasonable development and permitting processes more reliable and timely.

*     *     *

We referred to three steps above as solutions for Alaska's imminent fiscal crisis.  Most will require several years to mature and bear fruit--even if the seeds of reform are planted this spring.

That leaves cost cutting as the only effective near-term tool available.   Though tax reform, is critical to long term survival, it will require courageous lawmakers willing to run over constituent fires and through the gauntlet of entitlement program beneficiaries who see reform as an immediate threat to their subsidized lifestyles.  

But even that challenge will be easy compared with the challenge of curing this year's budget and succeeding budgets in proportion to declining oil production and volitile oil prices.

One's view of human nature leads to a conclusion that politicians, by nature, will not be able to successfully confront these short and long term challenges.

One's optimistic nature aches for the courageous Alaskan leadership which believes that, "The future of our Children is more important than my reelection."  While we see signs of such courage, we are not sure it exists as a majority favoring meaningful spending and taxing reform.  

While we hope for courageous leaders, we know that Jesus, the Beowulfs and Medal of Honor recipients typically represent a minority and not a majority of spiritual or physical warriors.  Furthermore, we have been told that hope can never be a wartime or political strategy.  

But we also remember others who have shared our challenges with dignity and reason and had reason to be optimistic.  Through the awful political struggles of early 17th Century England, we are thankful for Alexander Pope's message to us amid today's unrest, that, still, "Hope springs eternal in the human breast". 

 100 demonstrators protest Pacific Trails Pipeline - CBC.ca - The pipeline will run more than 450 kilometres through the BC Interior from Prince George to Kitimat, transporting liquefied natural gas to be sold to ...

Ewart: Pipelines proving to be industry's Achilles heel - Calgary Herald - By Stephen Ewart, Calgary Herald March 9, 2013. Tweet. Comment. ... Oilpatch historian David Finch calls pipelines the Achilles tendon of the oil and gas industry - critically important to movement and a complete nightmare if they rupture. From ...

 

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3-31-13

31 March 2013 5:49pm

Petroleum News Alaska.  ANWR's fate on hold (Full story) A federal website says a “record of decision” is due this spring on a new management plan for the Arctic National Wildlife Refuge, including a potential recommendation to designate more of the refuge as wilderness. But an official with the U.S. Fish and Wildlife Service, which manages ANWR, said the....

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3-30-13

30 March 2013 8:51am

Valdez Star.  The war of words between city officials in Valdez and Alaska House leaders in Juneau over natural gas development has moved to Facebook.  The latest disagreement between the two erupted last Thursday when Republican leaders in the Alaska House posted negative statements on its Facebook page regarding the city’s media campaign against HB4.  The AK House Majority said this in its post “An advertising push is being made by the City of Valdez against the Alaska Stand Alone Pipeline project and Rep. Mike Hawker and Speaker Mike Chenault's House Bill 4. Here's the ASAP Project page. Click over and get informed on the only real project moving forward to bring Alaska's gas to Alaskans.”  (Scroll down for yesterday's links on this subject.  -dh)

3-29-13

29 March 2013 5:40am

Chicago Tribune Editorial.  The president should approve the Keystone XL pipeline, which would link the rich oil sands in the Canadian province of Alberta to U.S. refineries and ports in the Gulf of Mexico. Last Friday evening, 17 Democrats joined all of the U.S. Senate's Republicans in urging Obama to do just that. The 62-37 vote was nonbinding but signaled bipartisan frustration with the administration's reluctance to approve the project.

Seward Phoenix Log by Wolfgang Kurtz.  There’s no plan to get critical natural gas supplies to Mike Chenault, Alaska, Speaker of the House, Representative, Kenai, AGDC, AGIA, HB4, Photo by Dave HarbourSouthcentral Alaska that has the momentum that the Alaska Gasline Development Corp. Alaska Stand-Alone Pipeline project has, according to District 34 Representative Mike Chenault (NGP Photo). Chenault, who is serving as speaker of the house, discounts other initiatives as mere proposals at best. Furthermore, with Conoco-Phillips apparently due to abandon their long standing export permit for Cook Inlet gas from their Nikiski facility, there may be onerous demands to be faced for export permits.  Chenault also pointed out at a town hall meeting on Saturday that interest from end users could merely be them leveraging the market to add the Alaska supply to a global pool. The more capacity available, the lower price buyers have to pay, according to that theory. He reasons that it’s quite easy to get stated interest in exporting Alaskan gas but much more difficult to get a contract  (Ref. HB4)

 

Fairbanks News Miner.  The supporters and opponents of a state-backed small-diameter natural gas pipeline from the North Slope to Southcentral Alaska sparred over broad legislation that would allow the state to continue work on what could be a $7 billion project.  On Thursday, the House Finance Committee heard from Alaska Gasline Port Authority general counsel Bill Walker, who was speaking on behalf of the city of Valdez, which launched a $900,000 ad campaign against House Bill 4.

 

Meera Kohler, AVEC, Alaska Village Electric Cooperative, Photo by Dave HarbourYesterday, Meera Kohler (NGP Photo), President of the Alaska Village Electric Cooperative, briefed Commonwealth North (CWN) members on, "a new proposal to transmit affordable electrical energy statewide and monetize Alaska's stranded North Slope gas resources."  According to CWN, "High Voltage Direct Current technology, in conjunction with modern high efficiency compound gas turbine generation has the potential to provide a cost effective means of powering the Railbelt, taking Alaska gas to market and integrating Alaska's diversified and spatially scattered population centers into a viable economic engine."

 

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