DNR commissioner: Oil investments must ramp up

The petroleum industry has to ratchet up Alaska investments in new exploration and development to at least $4 billion a year if the decline in oil production is to be reversed, state Commissioner of Natural Resources Dan Sullivan says.

“We need $4 billion minimum, and we’re not even close to that now,” Sullivan told the Resource Development Council in Anchorage Sept. 15. RDC is natural resource development advocacy group. The number could be higher, too.

The industry is now spending about $2.5 billion a year in capital investment, according to the state Department of Revenue, but most of that is related to facility upgrades in existing fields and not in new drilling or developments that add new production.

Sullivan said he has read reports that 2012 is a record year for new industry capital investment.

“Alaska isn’t part of that and we should be, given our resource endowment and the fact that we have a pipeline that’s only one-third full,” he told the RDC.

The commissioner said the state administration is pursuing a multi-part strategy to get new investment, the centerpiece being Gov. Sean Parnell’s proposal to reduce the state production tax on oil. The governor says the tax is too high and is impeding investment.

Other parts of the strategy include possible modifications of state royalty with economically marginal new fields, authority which the Department of Natural Resources now has, and a new state policy to improve access to oil and gas processing facilities by companies who are exploring but do not own infrastructure.

Meanwhile, Sullivan said he is pounding the pavement in cities like Houston, where oil companies have their headquarters, to drum up interest in Alaska and particularly the annual North Slope areawide lease sale now planned for Dec. 7.

The state will offer almost 15 million acres of unleased state acreage in the central North Slope, the Foothills region of the southern slope, and state-owned submerged lands in the Beaufort Sea out to Alaska’s three-mile territorial limit. State-owned submerged lands off the Arctic National Wildlife Refuge and the National Petroleum Reserve-Alaska may also be included in the sale.

The U.S. Bureau of Land Management also plans a federal lease sale in the National Petroleum Reserve-Alaska in December, and Sullivan said he is hoping the federal sale can be held near the time the state offers its acreage, if not on the same day.

If both sales are held on the same day it is likely they would be at different times, however.

BLM spokeswoman Artealia Gilliard said her agency has not yet set a date for the NPR-A sale, but confirmed it will be in December. BLM is still working on preparations, including a determination of compliance with NPR-A’s National Environmental Policy Act statement and must publish a notice of the sale, Gilliard said.

Sullivan said he is getting a positive response after knocking on corporate doors in the Lower 48.

“Some of them ask me what I’m doing there, that they’re not thinking of Alaska and never have. I reply, ‘That’s why I’m here. You need to be looking at Alaska,’” he said. “Some doors were closed on us but 80 percent of the people we’ve called on have asked for follow-up meetings by our technical teams.”

The upcoming winter exploration season looks promising with several test wells planned by small and large companies, a welcome change from last year when only one exploration well was drilled on the Slope. However, too many Alaskans are misinterpreting this, Sullivan said.

“Some people are saying ‘happy days are here again’ but the explorers are telling us that if they find oil they must still do an analysis of whether they can produce it. They’re saying Alaska still has to be competitive.”

Sullivan’s remark was aimed at some state legislators who say the increased exploration is a signal that no change in the state production tax is needed.

The possibility that shale oil could be produced on the Slope, as it is now in North Dakota and Texas, has excited many people.

Sullivan told the RDC he has tasked Bill Barron, director of the Division of Oil and Gas, to head a special task force on potential shale oil development.

Great Bear Petroleum, a Texas-based independent, acquired 500,000 acres in a state North Slope lease sale held last year and is planning test wells this winter to assess possible production of oil from shale.

Sullivan said the DNR team is working to understand possible shale oil issues for the North Slope including access to water and surface impacts. A state team has been in contact with state regulators in North Dakota where there is intensive activity in shale oil drilling.

“Alaska has huge potential in unconventional oil including shale oil, and we want to facilitate this and not become an obstacle,” by failing to get on top of regulatory issues, the commissioner said.

Tim Bradner can be reached at [email protected].