Dec. lease is first test for state’s effort to promote resources

State resources commissioner Dan Sullivan is picking up the drumbeat to promote  the state’s upcoming December oil and gas lease sale on the North Slope.

It’s a key part of Gov. Sean Parnell’s plan to get more oil production moving through the trans-Alaska oil pipeline, the commissioner said. The pipeline is seeing a serious decline in the volume of oil being moved.

Parnell has set a goal of increasing Alaska’s oil production to 1 million barrels per day in 10 years.

“The governor has laid out a vision, and even if it is ambitious that is important,” Sullivan said in an interview. “We’re doing a lot of grunt work to make it happen,” he said, with new initiatives in tax and permit reform and state-supported infrastructure programs.

“The North Slope is a massive hydrocarbon basin. According to the U.S. Geological Survey, Alaska’s North Slope has more oil than any other Arctic nation,” the commissioner said.

There is also new interest by one company, Great Bear Petroleum, in developing oil from large shale formations on the Slope.

Still, there are challenges.

“One message I get continually when I meet with industry is that we do have a world-class resource but that our costs and taxes are high,” Sullivan said.

There are regulatory barriers, too, such as the still-unresolved dispute over a U.S. Army Corps of Engineers permit to build a bridge across the Colville River so oil deposits discovered on the west side of the river can be developed. This is the “CD-5” issue, so named for the proposed drill site that would be built.

The lease sale will be the first big test of industry’s confidence in the state, and Sullivan hopes the result will be good.

Bids will be opened Dec. 7 on nearly 15 million acres of unleased state land in the central North Slope region, the southern “foothills” of the Slope, and state-owned submerged lands in the Beaufort Sea out to Alaska’s three-mile territorial limit.

Northern Alaska is one the world’s great oil and gas basins and most of it is untapped, Sullivan says, but what’s also important is that Alaska is a place that is politically stable and where there is a strong legal system.

To get the word out, and to show what the state is doing to solve impediments, the commissioner has been busy button-holing industry executives in meetings and conferences, among other efforts.

Parnell is doing this too. The governor recently met with senior executives of BP, Shell and Eni Petroleum while in London to attend a number of meetings.

One big accomplishment by Sullivan was in persuading the Department of the Interior to offer a planned 3 million acre federal lease sale in the National Petroleum Reserve-Alaska, or NPR-A, on the same day as the state sale. State officials will announce bids beginning at 9 a.m. in Anchorage Dec. 7 and the U.S. Bureau of Land Management will open bids at 1 p.m.

Sullivan said the nearly simultaneous sale strategy is important because it will allow companies to bid the same day on prospects that straddle the boundary between state lands and the NPR-A.

The U.S. Geological Survey has identified at least 19 oil and gas plays, or sections of prospective geology, that lie across the border.

In another significant move, the Department of Natural Resources has bulked up the state lease sale with an additional 200,000 acres. About 72,000 acres of this involve eight tracts that were formerly in the Point Thomson Unit east of Prudhoe Bay and another 22 tracts that were in adjacent to the unit.

This acreage should attract interest because it is near Point Thomson, which is a large discovery of natural gas and liquid gas condensate, with additional accumulations of crude oil.

Another block of strategic acreage added was a group of 45 tracts formerly in the Greater Bullen Unit west of Point Thomson, which contained 106,540 acres. This area has previously attracted industry interest.

The commissioner has been on the road pitching Alaska.

“We’re always looking for opportunities to get in front of people and remind them or tell them about our resource base. We promote Alaska, but we also gain a lot of intelligence, that is useful for fine-tuning the strategy and watching what competitors are doing,” the commissioner said.

It’s also important to send an environmental message that the state is a responsible developer, Sullivan said.

“We have a world-class resource, but we also have very high standards,” for protection, he said.

One recent opportunity for Sullivan to pitch Alaska was at the International Energy Agency’s biannual ministerial meeting in Washington, D.C., on Oct. 18 and 19. This was a high-profile gathering of energy and oil ministers of major industrialized nations gathered to meet with the IEA, arguably the world’s most influential energy information group.

The commissioner had been invited to join with the Energy Business Council, a top-level group of industry CEOs who met with the government ministers to advise them on international oil policies.

Alaska was the only U.S. state invited to have a seat on the council, a signal of the state’s importance, but what was also important was that it gave Sullivan access to CEOs of companies interested in Alaska, including Repsol and Statoil.

The commissioner’s pitch about Alaska is not only about the resource base but of the steps the state is taking to solve problems.

The commissioner talks about the governor’s initiative to streamline permitting, the effort to improve access and infrastructure through the Roads to Resources program and the proposal to ease the state’s high tax on oil production, a bill that is before the Legislature.

Another marketing trip is under way now. In mid-November Sullivan and Deputy State Commerce Commissioner Curtis Thayer will attend the Asia Pipeline Summit 2011 in Beijing to test the interest in Asia for exports of liquefied natural gas, or LNG, from Alaska.

Sullivan and Thayer also will be able to gauge the competition for Alaska from new Asia gas pipeline projects that are planned to serve China.

Sullivan said the governor’s request to North Slope gas producers and the state’s gas pipeline partners, Trans-Canada Corp. and ExxonMobil Corp., that they take a new look at LNG exports is a significant shift in the state’s policy.

TransCanada and ExxonMobil are now focused on a 48-inch pipeline from the North Slope to Alberta. Trans-Canada has signed a contract with the state under the Alaska Gasline Inducement Act, or AGIA, to agree to certain state objectives with the pipeline, in tariff design, financing and expansion plans, in return for a $500 million state investment in front-end engineering costs.

The state has been steady in its support of the Alberta pipeline and the contract it signed, but in a recent speech Parnell acknowledged the commercial challenges the project has encountered and said a fresh look at LNG exports is warranted given strong prices for liquefied gas in Asia.

“We’re communicating this in public and in private because of the urgency we feel about this,” Sullivan said.

Just because Parnell urged a new look at LNG doesn’t mean the state isn’t interested in other ways of marketing North Slope gas, including gas-to-liquids, Sullivan said.

Meanwhile, the state is continuing to support the two separate gas pipeline initiatives, the high-volume, 48-inch pipeline intended to maximize revenues and the use of state resources, and the 24-inch pipeline intended to bring gas to Southcentral Alaska.

TransCanada and ExxonMobil are leading the 48-inch pipeline project while a state corporation, the Alaska Gas Development Corp., is leading the engineering and planning work under way on 24-inch pipeline.

“We don’t see these projects as competing with each other. They are complementary,” in that if a large-diameter pipeline does move forward the 24-inch pipeline can become a spur line to get gas to the Anchorage area, Sullivan said.

However, the administration is also watching developments with new gas discoveries in the Cook Inlet basin, most recently an offshore discovery by Escopeta Oil Co. and earlier this year an onshore Kenai Peninsula discovery by Buccaneer Energy, as to how the new gas might affect the pipeline plans.

There is also a lot of discussion under way on integrating the two pipeline projects in some manner, which could range from the simple sharing of data for environmental permits to something more substantial, Sullivan said.

If an LNG project is built in a south Alaska “tidewater” location – Parnell was careful not to express preference between Valdez and the Kenai Peninsula as a location – the integration of the two projects would be simpler.

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