Friday, July 12, 2013

New BP president outlines aggressive investment plans

Tim Bradner
Alaska Journal of Commerce

More than 900 people crowded into the Dena’ina Center in Anchorage June 23 at the Resource Development Council’s annual meeting, most coming to hear BP’s new Alaska President Janet Weiss talk about the company’s plans for investment on the North Slope.

Weiss was appointed Jan. 29 to replace former president John Minge, but this was her first public address. Her selection to lead the company is significant because she is the first BP Alaska president to have spent most of her entire career in the state, most of it with BP.

That gives here first-hand experience with the company’s operations and with the state as well.

“I’ve just celebrated my 28th anniversary with BP and ARCO, and I’ve spent nearly 20 of those years right here in Alaska … right where I want to be,” Weiss said.

She takes over BP at a pivotal time. The state Legislature passed Senate Bill 21 in mid-April, reshaping and reducing the state’s oil production tax with the hopes for the change to spur renewed oil investment.

Most of that would have to come from BP and its partners ConocoPhillips and ExxonMobil, who own the large producing fields on the Slope where the bulk of the near-term potential for new production is located.

BP is operator of two of the biggest fields, Prudhoe Bay and Milne Point. In her speech, Weiss described her hands-on background with the North Slope:

“I’m an engineer by background. I came to Alaska in the mid-‘80s when times were tough. I’ve seen North Slope production climb to more than 2 million barrels a day and decline (now) to half a million barrels a day. I was here to live through single-digit oil prices and to experience prices well over $100 a barrel,” Weiss said.

“I’ve seen companies go through mergers and acquisitions. From small independents to some of the largest oil companies in the world, I’ve seen new entrants to the Slope come, and I’ve seen some companies go.”

She made personal observations: “Troy and I raised our two kids mostly in Alaska. Alaska is stunning. Our family is attracted by its beauty and the spirit of adventure among Alaskans.

“For me, Alaska’s vastness and sense of adventure apply to the North Slope as well. The extent and quality of the reservoirs are world-class, and the lure of innovation is infectious. Conditions are challenging; innovation and technology are imperative to tap the vast resource potential that’s there. That’s what makes it great.”

Coming together

Weiss cited examples of Alaskans coming together with shared vision: statehood, economic recovery from the 1964 earthquake, and construction of the Trans-Alaska Pipeline System.

She put the Legislature’s passage of SB 21 in the same category as a historic point where people decided to change the economic fundamentals that underlie a major state industry, petroleum.

“I’m inspired by the challenge of ensuring BP does our part to build a strong and sustainable future for Alaska now that you’ve provided us with a more competitive investment climate,” she said. “I believe our 2,300 employees in Alaska feel the same way.

“SB 21 signaled something important to industry: that Alaska wants to be a globally attractive place for investment. This is already having a profound impact on the pace and scale of projects we’re pursuing as a company with our co-owners and as an industry on the North Slope.”

The tax change made by the Legislature in SB 21 effectively lowers the “government take” (federal, state and local, most of its state) share of Alaska oil production from about 75 percent under the previous tax law to between 60 percent and 65 percent under the revised tax approved by the Legislature in April, getting to a mid-range of producing jurisdictions.

Within days after the Legislature passed SB 21 on April 14, North Slope companies including BP began making announcements on projects.

ConocoPhillips announced new work in the North Slope fields it operates, the Kuparuk River field and leases in the National Petroleum Reserve–Alaska, where it is operator. BP announced shortly after it would invest $1 billion in new work in fields it operates.

Project plans

In her June 26 speech, Weiss elaborated on this initial announcement to discuss new projects including a potential $3 billion development in the west end of Prudhoe Bay and a new project in the Milne Point field with an estimated investment of $1 billion to $2 billion.

If the new projects being planned and evaluated by the major North Slope producers go forward, it would total more than $5 billion in new investment.

A separate slate of projects are meanwhile planned by independent companies, including Brooks Range Petroleum, a small Alaska-based company, and Pioneer Natural Resources, a large independent based in Dallas.

Companies are also exploring. Repsol, the Spain-based major oil company, made three oil discoveries in three exploration wells it drilled this past winter season, two of them very encouraging, the company has announced.

Repsol’s drilling has been underway for two winter seasons — and prior to the passage of SB 21 — but the company says that the prospect of a tax change encouraged it to come to Alaska in 2011 when the governor first proposed the reduction.

What the companies have said they will do for certain, so far, is:

• put three new rigs to work;
• develop one small new field outside the producing fields (the Brooks Range “Mustang” field;
• develop a small, economically-marginal reservoir within the Prudhoe field.

BP said it would put two new drill rigs to work in the fields it operates, Prudhoe Bay and Milne Point. Weiss, at the RDC, said the company is now soliciting proposals to build the rigs and that they will be drilling by 2015 and 2016.

The two rigs will add 30 to 40 new production wells per year for at least five years in the BP-operated fields and about 200 new drilling jobs, Weiss said. They will increase BP’s rig fleet to nine.

A new Prudhoe Bay project BP will tackle soon, she said, is development of the Sag River formation, a thin, technically-challenged reservoir that overlies the main Ivishak producing formation of the Prudhoe field.

The first phase of Sag River development involves 16 wells, with drilling to begin in 2015. Ultimately there could be 200 new production and injection wells, and about 200 million barrels of new oil production.

BP will also evaluate the Northwest Schrader prospect in the Milne Point field, Weiss said. Technical hurdles must still be overcome, but the project would require $1 billion to $2 billion in new investment, construction of two new well pads and 70 new wells, with about 80 million barrels of new production added.

“These were projects that were sidelined by the state’s tax policies,” prior to the change made by the Legislature in April, Weiss told the RDC.

Weiss added more details on the potential Prudhoe Bay west end projects also being evaluated. If these proceed they will include “debottlenecking existing facilities and field infrastructure, expansions of existing well pads, construction of one new pad and 100 new wells,” she said.

“We expect appraisal work to last two to three years. Development could last at least a decade. These projects would create thousands of direct and indirect jobs, access hundreds of millions of barrels of additional oil at Prudhoe, and eventually generate tens of thousands of barrels of new production per day.”

ConocoPhillips, meanwhile, has announced new projects in the Kuparuk River field, where it is operator, along with the prospective development in the National Petroleum Reserve–Alaska.

In the Kuparuk field, ConocoPhillips said it will add one drill rig and begin evaluation of a new production pad in the southern part of the field.

The new Kuparuk production pad being considered is Drill Site 2-S at the southern edges of the known Kuparuk reservoir. ConocoPhillips had earlier drilled an exploration well there, “Sharktooth,” to test for potential oil accumulations.

In the NPR–A, ConocoPhillips holds federal leases along with Anadarko Petroleum Corp., a minority owner. ConocoPhillips said it has started work there on permitting and engineering for the development of GMT-1, one of two discoveries made by the company several years ago in the northeast part of the petroleum reserve. GMT-1 is 17 miles southwest of the Alpine field, which is operated by ConocoPhillips.

The company plans to submit permits to the U.S. Bureau of Land Management, which administers the NPR–A, later this year. ConocoPhillips’ other discovery in the area is GMT-2, which is eight miles further west, and which is not being developed at this time.

Even though NPR-A is federally-owned, under federal law half of the NPR-A royalties are shared with the state and production taxes to the state are paid just as if the production were from state-owned or private lands. That means the changes made by SB 21 also benefit the economics of potential NPR-A projects.

Independent moves

While most attention is focused on the companies operating the large producing oil fields independents are also moving aggressively on new projects.

Brooks Range Petroleum is now constructing its new “Mustang” project west of the Kuparuk River field. This is a small field that will produce about 15,00 barrels per day at peak, and will be in operation by 2015.

While Mustang was in development before the tax change, SB-21 has improved its economics and has encouraged Brooks Range to begin work on other nearby prospects that are similar to Mustang, the company has said.

Pioneer Natural Resources, a major independent company, is meanwhile working on a potential new project near its existing Oooguruk field. Pioneer’s “Nuna” prospect has been drilled and evaluated, and the company is expected to make a decision this fall on whether to develop the project. If it moves ahead Nuna could produce about 15,000 barrels per day.

These are relatively small fields, but together they could add an amount of new production for TAPS. While there have been many oil discoveries on the North Slope, the geology is still attractive for the finding of many small to medium-sized fields, Brooks Range and Pioneer have both said.

Read more: