Alaska’s oil producers are working hard to stem the decline of oil production from the North Slope’s aging giant Prudhoe Bay field, but legislators are wondering if they could do more with more money.
So far, the companies have managed to slow the rate of decline with a combination of advanced technology and billions in investment, said Bill Barron, director of the state Division of Oil and Gas.
“As these companies continue to work this field, they get smarter over time,” he said.
He was speaking to the House Resources Committee, which is reviewing House Bill 3001, Gov. Sean Parnell’s oil tax cut legislation.
To get more production out of a field that us undergoing normal field decline after having already produced billions of barrels of oil takes a very targeted and skilled approach, Barron said.
“You are trying to attack the reservoir,” he said, but the newest technologies being employed in Alaska allow that targeting to be successful in ways that weren’t possible before.
Barron described it as “using a rifle, not a shotgun.”
Among ongoing legislative debates on how to best increase production is an important question: What are the normal decline rates for Prudhoe, Kuparuk and other North Slope fields?
The oldest field, Prudhoe Bay, has been declining at a rate of about 6 percent a year after having peaked at more than 2 million barrels day, although state officials expect that to decline to about 3 percent per year over the next decade.
A Senate proposal that failed during the regular session would have rewarded oil companies with lower tax rates on oil production volumes above historic decline rates, but legislators had difficulty coming to agreement on what either the historic decline rate was or what the reward level should be.
“Part of the conundrum is I don’t think anybody can tell you what the base decline rate is,” he said.
The difficulty in identifying what the decline rate would have been without increased oil company investment in new production is there’s been additional work and there’s still been a 6 percent decline.
“If they hadn’t done any work, we would be at an elevated decline rate,” he said.
Rep. Eric Feige, R-Chickaloon, asked if that decline rate could be stopped.
Barron told the committee with additional investment, maybe lots of investment, it might be possible to reverse the decline.
“It’s not a leap of faith to think that they could flatten it, if not reverse it,” he said.
Barron told the committee that there are examples out there that show it can be done. The Forties Field in the United Kingdom’s North Sea has done it, as has the Kenai Gas Field in Alaska, he said.
Rep. Cathy Muñoz, R-Juneau, wanted to know what was being done now that would mean more production later.
Barron told her the field operators were taking a range of steps to boost future production, ranging from finding new ways to profitably produce difficult-to-pump viscous oil to drilling a new exploratory well to the southeast of the Kuparuk field to see if there is more oil to be found there.
“The reservoir management skills of these companies are exceptional,” he said.
Feige wanted to know when new investment stopped being worthwhile for the state and the companies.
“At some point, it is going to take a lot more money to generate the same increases in production,” he said.
Rep. Paul Seaton, R-Homer, asked what kind of production increases Alaska could expect from various North Slope fields with more investment, but Barron called that “speculative.”
Seaton said the legislators still needed that information.
“I know this is speculative, but we are having to make decisions on either no information or speculative information,” he said.
The Senate Resources Committee is scheduled to meet today with consultant Janak Mayer of PFC Energy to continue to review House Bill 3001.
• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com
Comments (13)
Add commentSome things are not speculative
1. The oil is finite. At some point it will be gone. Alaska's oil fields are going through the same decline every other field in the world goes through. It's been well studied and documented.
2. The world is approaching, or is already at, peak oil. Demand is outstripping production. Rising prosperity in China, India, Brazil... means that millions of more cars are on the road. As oil becomes more scarce, the remaining oil becomes much more valuable.
3. Time is on our side. Why rush to pump our dwindling oil today? It will be worth a whole lot more next year, next decade. And we won't have to give the oil companies billions to go get it.
4. If we give the oil companies billions with no strings, they'll pocket it and walk away laughing. Are we that stupid? Seems that the governor and House are. Stupid or corrupt - you decide.
I dont think the oil
I dont think the oil producers are " working hard to stem the decline of oil production" as William Barron would like to have us to believe. The decline of oil production plays right into the oil producers hand. Remember where Mr. Barron is coming from. He use to work for Marathon Oil.
@58 - 1. You write - "The
@58 -
1. You write - "The oil is finite." But the article says this - "Barron told her the field operators were taking a range of steps to boost future production, ranging from finding new ways to profitably produce difficult-to-pump viscous oil to drilling a new exploratory well to the southeast of the Kuparuk field to see if there is more oil to be found there."
2. You write - "The world is approaching, or is already at, peak oil." That's just your imagination and leftist propaganda. The world is no where near peak production.
3. You write - "Time is on our side." Oil production doesn't ramp up in a year. That's what the progressives kept yelling, remember? They told us that even if we started today there wouldn't be any commercial production for a decade or more. Can't have it both ways, get your talking points straight.
And how are you so sure that oil will be more "valuable" in the future with new technologies and innovation? Kind of like keeping piles and piles of wood as an investment. Someone might be willing to buy it to heat their home in the future? Come to think of it, with this bunch in Washington, it might not be a bad idea!
4. And then your big finale - "Are we that stupid? Seems that the governor and House are. Stupid or corrupt - you decide." Can't let your argument stand alone? You have to bring out the Alinsky tactics. Villify and demean the opposition.
As for your big, bold title - Name another industry that's as highly "speculative" as oil?
It is absurd to give more tax
It is absurd to give more tax breaks for more oil production just so people can keep pissing it all away fueling their over the top life styles. Leave it in the ground for future generations that will have better technology and will be able to make better use of it.
We need to adjust our standard of living , focus on ways to do more with less
and stop wasting our resources.
I support research, education, conservation - not tax breaks
Hey jump - sanctimonious
Hey jump - sanctimonious much? Thank God your ancestors brought you into the 21st century so you could lecture all of us elites that are basically destroying Mother Earth, right?
Put away the computer...
Does this guy work for the
Does this guy work for the oil companies? He ought to. He`s doing a great job at selling their "positions" on why giving them three billion dollars a year (at 150 a barrel oil price under Governor`s plan) will spur them out of harvest mode, though he cannot point to one other field in the USA that ever reversed a natural basin decline. That takes "new" oil from new fields outside the "easy"(-LIGHT oil) of the legacy field. There are still 6 billion barrels of that light easy oil..and they want that three billion a year to keep pumping it,..besides getting us to pay their nut for any costly heavy oil project. New fields OUTSIDE the PB unit are the only ones that we should be granting tax credits to. The state has a right to know how any other producers are going to do that (reverse production decline) on STATE land, and how much it will cost for tax figuring purposes, and other reasons that are being attested to right now.
JM
He is a Parnell/Big oil minion. Appointed by the Parnell regime and spent most of his life working for the oil companies....Much like Parnell
orionsbowl 1
You bring up something that I keep reading in many comments and places, that I have tried to check and verify, but have been unable to do so.
For example, I have seen comments saying the Rep.Hawker's wife is employed by an oil company and that a major part of their household income is from the oil industry, and that is why he advocates for the oil industry. I don't have any good, reliable information whether this is true or not. I have asked him directly by e mail, and the only response I got was ,"Let's have coffee some time and talk."
How Rep. Hawker came to the Legislature originally, I don't know. Some say he was appointed, but in whatever biography I can find about him, this is never mentioned.
It is said that William Barron spent most of his past in working for the oil industry and is now a State official. But I can't find anything to support that.
Years ago, I thought I was a pretty good researcher in some fields like history, anthropology, archaeology and languages. But now I find many things that are illusive.
I would sure like some help if others can point in the right direction to find out some of these biographical things I can't find.
WANNA BUY A BRIDGE?
Hey Y'all
...with additional investment, maybe lots of investment, it might be possible to build a bridge here in Ketchikan...
Keep this Tax Reform simple so let Alaskan drill and own the Oil
Alaskan have been blessed with lots of oil and the World needs more fast. All these fine Alaskan Legislators know is something needs to be done to stop the state's oil production decline. They are trying to get all the facts they can so they can balance the need for attracting new drilling investment and take a fair share for the people of Alaska. It can't be easy.
It is a hard job but they are smart to debate this as hard as they are doing, because they know it is important to all Alaskans. I think they are doing the best they can to find that balance. It is very clear the current tax and regulatory regime in Alaska needs repair and these fine leaders are putting forth a lot of effort and they are doing what they think needs to be done. All we can do is try to help them try to keep what few oil companies are still in Alaska from not leaving or cutting their budgets and laying off more Alaskans.
If the legislature and the Governor don't succeed, the backup plan could be to find ways to encourage Alaskans to start their own oil companies and drill these wells in hope for a profit.
We should say thanks to the these Alaskans leaders for all hard work they are doing, but I would like to ask them to write these laws so the Alaskans and smaller oil companies can understand them, this way they can use these laws to create incentives for Alaskans to start their own home grown oil companies so they can share all this untapped oil and gas wealth . For example, for only new oil and gas wells drilled on the North Slope have no production tax for any new oil wells for the frist 5 years of production this will help Alaskans drill new wells and share in the oil and gas wealth.
Alaskans then would have the incentive to risk capital to help stop the decline before the Trans Alaska Pipeline shuts down and the state loses 90% of it's State revenue.
With these incentives It would be easy for Alaskans to find investors to put up risk capital to explore for new oil and gas. Alaskans why not start your own oil company and then they can prosper and the state will have new oil production owned by Alaskans. If these legislators fix the current high tax and add incentives then this one following fact will be a thing of the past,
"Not one Alaskan has ever drilled and found oil and sold it to a market and made a profit in 50 years."
Many people do it all the time in Texas and other oil producing states in the lower 48. Why not help Alaskans profit from this oil and gas?
All I am saying is change the system so Alaskans can drill and profit. I would love to see it happen, really.
Alaska Government get's 90% of it money from those that take the risk and spend their money, so why not work together. Alaskans should be drilling and making the profits, right?
God has Blessed Alaskans with the oil our nation needs, help!
Dear Alaska Legislators and Governor Parnell,
As a small oil and gas investor and manager of several smaller oil companies in Alaska since 1986, I humbly ask you to please look below at my short list of things that will allow smaller companies to compete on a level playing field with the major oil companies in Alaska.
As the legislature considers Tax Reform in it's noble effort to amend "ACES" to make Alaska oil investment more attractive, please understand it is not only the high production tax that repeals investment by Independents. It is also the problems of transporting new oil off the North Slope and high cost of TAPS and bonding on oil tankers, thus a lack of reasonable shipping access of new oil to the West Coast makers from smaller oil and gas Independents. The 6 issues listed below highlights the concerns of many oil and gas Independents looking to Invest in Alaska's North Slope oil richness.
These fine leaders Co-Chair Joe Paskvan, D-Fairbanks; Senator Hollis French, D-Anchorage; Bert Stedman, R-Sitka; Gary Stevens, R-Kodiak; and Bill Wielechowski, D-Anchorage, may need some help understanding what Alaska's independents need to change in order to allow smaller oil companies to compete on a level playing field with the majors.
1. Shorten the permit process. The permitting process is too long and hard as it is with so many agencies involved. We need to establish "The Alaska Energy Department" as a sole jurisdiction with a one stop shop for permitting and regulate all oil and gas activities, and require 30 to 60 deadline to issue permits.
2. Eliminate all high permit fees, bonds, insurance and C-plan (spill). Use the 470 fund with the $50 million and add a $1.00 tax per barrel till it caps at $500 million or more, so the state can have funds to clean up if a spill or accident occurs. Let the smaller oil companies get to the west coast markets. Use this fund to allow the majors to sell its Alaska assets to smaller companies without liability. If the smaller oil companies have a spill then make the oil company pay back the 470 fund if the court to issue a final order that the company was wrong and must pay for the damage. This would make Alaska attractive to independents and open Alaska up to new production.
3. Tax Reform or SB 3001 should be replaced with no tax on new producing oil and gas wells. The State gets only the State royalty of 12.5% for the first ten years of production. Also have an incentive up to a 65% credit on any new wells or seismic work done, like we see in the Cook Inlet. Also do away with tax on North Slope Over Riding Royalty under ACES.
4. Approve more exploration units for seismic and new drilling. The State has been too harsh on unit applications lately should approve more exploration units for seismic and new drilling. On state lease sales, the State should have a flat 12.5% state royalty on all leases with 10 year terms, minimum bids of $1.00, and rentals $1.00 per acre for the full ten year lease. Lower the cost of bidding will help get more exploration activity. Look at the last 5 years on the North Slope the State never sells over 10% of all leases offered each year. Some activity is better then none.
5. Build more roads and bridges. It is hard to get wells drilled without roads and bridges so the State should quickly build state gravel roads and bridges to resources like Point Thompson and other productive areas. Add a $1.00 per barrel tax to build roads to resources on the North Slope and Cook Inlet.
6. Faster due process. Alaska has too many lawsuits with oil companies and this takes too much time and money. Oil companies need better due process than currently provided. Oil companies need a choice of:
(1) Right to Trial by Jury or
(2) Trial De Novo (court hearing not state agencies hearing) or
(3) on oil and gas appeals with the State, an administrative appeal like we have now.
The oil company should have the choice of the three forms of justice. The State should not be able to sell the leases to an oil company and then be a judge in a dispute with the one they sell to. It is a conflict of interest and does not provide certainty of a fair and impartial initial Trial of Fact.
I am sure I missed some points but I think you get the idea. We want to make Alaska attractive. Five rigs running weekly and only 5% of leases being bid on only shows why Alaska oil production is in a major decline. Under the currently regulatory and tax regime, Alaska has not had one oil company with a capitulation of 1 billion dollars or less, ever record a profit in the last 50 years by drilling, producing, transporting and selling oil at the market place. The independents find it very hard to compete under the current system.
By making these six changes above, it would open up Alaska to new exploration and development by America’s independents. It was stated in the 2011-12 membership directory of the Independent Petroleum Association of America (IPAA), on page 24, that "Independents now drill close to 94% of America's oil and gas wells, a figure which is forecasted to remain steady over the next 10 years." Alaska can adopt a regulatory and tax regime that is attractive to America's independent oil & gas producers.
Texas has over 1,000 rigs drilling this week. These leases sell for thousands per acre and they have a real boom! Texas has 10,000 oil companies and Alaska has only a few. Texas has over 18,000 wells drilled last year and Alaska had far less than 200. Alaska can do better by letting Alaskans drill and profit.
Less tax and less regulatory confusion always brings investment and could lead Alaskans to see the lost oil production in the Cook Inlet of 250,000 and 1.5 million barrels of North Slope oil per day as it was in 1980.
At 12.5% royalty on new oil wells for first five years and with now over $100.00 per barrel, the State will see more money than ACES, even if the industry was to invest under such high taxes and the harshness of the current regulatory regime. We need these changes NOW so smaller oil companies can finally drill and profit. Please help let Alaskans and small oil companies drill and profit at long last!
Here is my testimony in 2005: http://www.legis.state.ak.us/basis/get_minutes_comm.asp?hse=H&session=24&comm=O!G&date=20051121&time=1310
I am ready, along with other small competitors, with decades of on hands experience, to provide testimony and give the legislature a different prospective than AOGA did in 2005.
I will be in contact with you after you respond to these ideas. Please understand any improvement is welcome, so I will be happy if we just move in the right direction.
Warm Regards,
Daniel K. Donkel
donkeloil@gmail.com
Agree with Latitude above
He said it all, correctly.
I would add the following:
FACT: Production/throughput is declining.
FACT: Alaska made an additional $1 billion this year due to ACES despite decreased production/throughput.
FACT: Demand for oil likely will not decline.
FACT: Alaska has the largest oil field in North America.
SUMMARY: ACES is working! Alaskans are richer as a result. Decreased production doesn't necessarily pose an immediate problem and doesn't require $2 billion/year in tax breaks to oil companies simply because the governor wants it.
OPINION: Every sound bite I read from any oil representative reeks of greed, spin, ambiguity, empty vague promises, absence of data, and requests for billions of Alaskans' dollars even though they have billions of their own.
They don't need our billions. They have their own billions.
Stand strong Senators!