State will pursue revised rules for NPR-A with Interior Dept.
State officials will push new U.S. Interior Secretary Ryan Zinke for a revamp of Obama administration rules restricting oil and gas development in the National Petroleum Reserve-Alaska, state Natural Resources Commissioner Andy Mack said May 12.
“We will be submitting a specific proposal within the next couple of weeks to Secretary Zinke. This grows out of meetings our governor, Bill Walker, had with the secretary earlier this year in which he seemed receptive,” Mack said in an interview.
“We believe we can help BLM (Bureau of Land Management) in developing a new plan that is balanced,” between resource development and environmental protection, said Mack, who was officially confirmed to his position May 16.
The NPR-A was created in 1923 as a potential source of oil for the U.S. Navy, but despite exploration over the years it is only recently that there have been commercial oil and gas discoveries.
The U.S. Bureau of Land Management, which manages the 23-million-acre petroleum reserve on the western North Slope, would develop the new plan, but Mack said the state hopes to be heavily involved.
BLM’s current management plan, developed under former Interior Secretary Ken Salazar, was implemented in 2013 and placed large parts of the reserve into special conservation areas, effectively putting large areas off-limits to petroleum exploration and development.
The current plan also makes access difficult for transportation infrastructure, such as pipelines or roads for use by communities in the region, state officials have said in the past.
Salazar’s final Record of Decision approving BLM’s plan placed 11 million acres, about half of the reserve, into special conservation areas. This included a 3.6-million-acre special protected area around Teshekpuk Lake and including coastal wetlands near the Beaufort Sea coast.
State officials were critical of the plan because NPR-A’s coastal areas are considered highly prospective for petroleum discoveries. The Barrow Arch, a broad regional geologic formation that hosted the large Prudhoe Bay-area oil discoveries farther east, also extends along the coast of the northeast NPR-A and includes areas Salazar put off limits.
Mack said the restricted areas also impede infrastructure needed to support discoveries on state-owned submerged lands offshore the reserve.
Caelus Energy, a Dallas-based independent, has announced a significant discovery at Smith Bay, offshore the NPR-A and about 100 miles northwest of the nearest industry infrastructure at the Alpine field.
If Caelus is unable to build an onshore pipeline from Smith Bay through coastal areas of the reserve it will be forced to build an offshore pipeline, which creates risks and environmental hazards.
The prospectivity of NPR-A itself for discoveries has now been confirmed by ConocoPhillips and its minority partner, Anadarko Petroleum, who are making discoveries further inland in the reserve.
The companies are now developing one project, Greater Mooses Tooth No. 1, or GMT-1, which is scheduled to start production in late 2018, and have two other prospects, GMT-2 and Willow, a new discovery, in the planning stages.
Any new initiative to unwind restrictions will be highly controversial with national environmental groups, particularly if it eases restrictions in the Teshepuk Lake and coastal wetlands areas of the reserve that are heavily used by migrating waterfowl in the summer.
It would also require a redo of the environmental impact statement for the current NPR-A management plan, which is also likely to spark litigation from conservation groups.
However, what is also different now, Mack said, is that Inupiat communities on the North Slope, now mainly dependent on air and seasonal barge service, are supporting provisions for transportation infrastructure in the NPR-A as a way to bring living costs down.
In other remarks, Mack said in a May 12 briefing that he believes recent new discoveries on the North Slope will continue to prop up North Slope production. The commissioner spoke to Commonwealth North, an Anchorage-based business and public policy group.
“The recent increase in oil production can almost entirely be attributed to the strong performance at CD-5,” a new project near the Alpine field developed by ConocoPhillips and Anadarko Petroleum, Mack said. Strong production at Prudhoe Bay and the Kuparuk River field, which supply most North Slope oil production, were also factors.
The state Department of Natural Resources is now forecasting a 4 percent drop in North Slope crude oil production next year to an average of 505,000 barrels per day. The new estimate revises a number published April 14 in an earlier forecast, that reflected a sharp drop to 445,000 barrels of average slope output, a 12 percent decline which alarmed state legislators working on state budgets.
Ed King, a petroleum economist and the Department of Natural Resource liaison with the Legislature, said the agency adjusted figures in the earlier number to account for new production.
“New information has come in since the production estimates were prepared several months ago. When we assembled the forecast certain new projects were not included but those are included in the revision,” King said.
The forecast period is for state fiscal year 2018, which begins July 1 and extends to June 30, 2018.
The department is also estimating an increase in Cook Inlet oil production in fiscal year 2018 to an average of 17,400 barrels per day, up from a 14,900 barrels per day average for this year, fiscal year 2017.
King cautioned that North Slope production estimates could still vary, depending on the success of producers in the large Prudhoe Bay and Kuparuk River fields holding production even, as they did in 2016, King said.
The two fields provide the bulk of North Slope production and have historically declined at about 5 percent yearly. However, field operators BP, at Prudhoe Bay, and ConocoPhillips, at Kuparuk River, managed to largely stem the declines last year.
BP held production at less than a 1 percent decline at Prudhoe even after cutting its drill rigs from five to two. King said it’s uncertain that performance will be repeated in 2017 with fewer rigs at work.
In the Kuparuk River, field production was roughly even with 2015 with the decline largely offset by production from the new Drill Site 2S. CD-5, a nearby production site, also contributed new production, King said.
No new projects are expected in 2017 that will provide a similar offset to decline. However, new production projects now in construction on the Slope will begin production late 2018 and help stem decline in 2019.
These include ConocoPhillips’ new Greater Mooses Tooth No. 1 project in the National Petroleum Reserve-Alaska, with an expected output of 30,000 barrels per day, and Hilcorp Energy’s new Moose Pad project in the Milne Point field, with an expected output of 12,000 to 18,000 barrels per day.
The state spring forecast also revised a production estimate for current-year fiscal year 2017 production to an average of 523,700 barrels per day, a second straight year of increases and far greater than the 495,000 barrels per day that was projected this past December.
This includes greater output from the Prudhoe Bay than state officials expected earlier as well as more production from CD-5.
While the near-term outlook is for level production in Alaska, or a minor decline, the medium-term, to 2022, is more uncertain because low oil prices have delayed some projects that were expected to come on line in that period, according to Paul Decker, chief of resource evaluation group in the state Division of Oil and Gas.
Those include Caelus Energy’s Nuna project, which could produce 25,000 barrels per day, and Mustang, a small project planned by Brooks Range Petroleum, which will be able to produce 12,000 barrels per day to 15,000 barrels per day. Both are on hold and are unlikely to be put into production before 2022.
However, prospects are brighter for the long-term beyond 2022, Decker said, although this may depend on some improvement in oil prices. Armstrong Oil and Gas and Repsol are engaged with regulators on approvals of the Pikka project, which will be capable of producing 120,000 barrels per day, and ConocoPhillips has its GMT-2 in the NPR-A, which could produce 25,000 to 30,000 barrels per day, the company has said.
King said both of those projects are at least five or six years out.
Further out in the queue is Willow, a new ConocoPhillips discovery in NPR-A, that could be capable of 100,000 barrels per day, and Caelus Energy’s discovery at Smith Bay, in state-owned offshore waters north of the NPR-A, the company believes might produce 200,000 barrels per day.
Tim Bradner is co-publisher of Alaska Legislative Digest and a contributor to the Journal of Commerce. He can be reached at [email protected].