Discoveries Boost Hopes for Alaska Oil Output

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By Alan Kovski

Oil discoveries on the North Slope of Alaska during the past few years have increased hopes for the economy of the region and the state.

The developments also could quiet worries about keeping viable the North Slope’s oil lifeline—the Trans-Alaska Pipeline. If its volumes sink too low, it becomes uneconomical to operate.

Oil production on the North Slope increased during the past 12 months as new wells more than made up for declines at older wells, said Ed King, a special assistant to the commissioner of the Alaska Department of Natural Resources.

The increases came from ConocoPhillips Co. operations primarily, and an Exxon Mobil Corp. project to a lesser extent. At the same time, BP Plc has slowed the decline at the super-giant Prudhoe Bay Oil Field.

“I don’t anticipate that it’ll be another increase in 2018,” King said, referring to Alaska’s fiscal 2018, which will start July 1. There are no notable new supplies set to come online during the next 12 months that would allow another increase, he told Bloomberg BNA.

After 2018, the picture becomes more complicated because of the difficulties in forecasting the output of new discoveries.

Sharply Differing Outlooks

The spring 2017 forecast from the Alaska Department of Revenue projected a decade of decline in North Slope output, without benefit of enough information to include significant volumes from recent discoveries.

Interior Secretary Ryan Zinke visited Alaska in late May. He signed an order to accelerate development of the National Petroleum Reserve-Alaska and to make a new estimate of potential oil reserves in part of the Arctic National Wildlife Refuge.

The Wilderness Society issued a report June 19 arguing that expected developments in North Slope oil fields should keep the Trans-Alaska Pipeline viable for many years to come.

“The pipeline will continue operating for decades, with no need to drill in controversial, ecologically important and federally protected Arctic regions, i.e., the Arctic National Wildlife Refuge, off-limits portions of the National Petroleum Reserve-Alaska, and the Arctic Ocean,” the report said.

Pipeline Volumes Rise

The Trans-Alaska Pipeline carried more than 2.1 million barrels a day at its peak in 1988, but now is operating at a quarter of that amount.

Alyeska Pipeline Service Co., operator of the line for a consortium of oil companies, has not determined the lower limit at which the line would become uneconomical, said Michelle Egan, an Alyeska spokeswoman.

Flow through the pipeline rose in 2016 to 517,000 barrels a day, the first annual increase since 2002, according to Alyeska. Year-to-date flows in 2017 have averaged 557,000 barrels a day, Egan said June 26.

The increases in North Slope production that fed the pipeline occurred primarily because of more production from the Alpine and Kuparuk fields, both operated by ConocoPhillips, and the startup of Exxon Mobil’s Point Thomson field.

Good management at the Prudhoe Bay field managed to temporarily arrest the long decline of output there, according to DNR’s King.

“It’ll be interesting to see if they can extend that,” he said of the Prudhoe Bay work. “They did a really great job last year.”

Two Especially Big Fields

But big hopes for future production come from new fields.

Foremost is Nanushuk, which Armstrong Energy LLC is developing in partnership with Spanish oil giant Repsol S.A. The companies estimate that 1.2 billion barrels of light oil can be recovered, their calculation boosted this year by additional exploration wells.

Nanushuk’s location is not too far from existing infrastructure and enough wells have been drilled to boost confidence in estimates.

Less certain is the discovery of Caelus Energy LLC’s Smith Bay Project, because only two wells have been drilled. In October 2016, the company said it estimated that there could be several billion barrels of oil in the field in state waters off the northern coast of Alaska. How much of the oil is recoverable remains to be determined.

To contact the reporter on this story: Alan Kovski in Washington at akovski@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

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