Patrick Crow
Energy Policies Editor
North Slope Oil Production Profile (50876 bytes)
The struggle between the U.S. oil industry and environmentalists over drilling on the Arctic National Wildlife Refuge (ANWR) of Northeast Alaska is again headed for a showdown in Washington.
Alaskan legislators and congressional budget committees are using the budget process to force Congress to decide next month whether to allow leasing of the refuge, east of supergiant Prudhoe Bay oil field.
The oil industry is still enticed by ANWR, which holds 26 geologic structures seeping oil adjacent to the nation's largest oil field.
What's more, Alaska is anxious to reverse the declining oil flow from the North Slope, which contributes $1.3 billion/year to state coffers. And if ANWR exploration yields oil discoveries, producers could keep the trans-Alaska pipeline in operation and marginal North Slope fields on production.
Environmentalists seem to oppose ANWR drilling as much as ever -- but possibly with less vigor. They have the support of the Clinton administration, which has threatened to block drilling. However, some observers think the president is unlikely to veto budget-balancing legislation over an issue like ANWR.
Previously, environmentally minded lawmakers held key committee posts in Congress and were able to head off ANWR leasing. The last time Congress seriously considered the issue was in its 1988-89 session. Exxon's massive oil spill in Alaska's Prince William Sound brought a halt to that debate.
By contrast, in this session of Congress, Alaskans control key committees, the budget panels crave the revenues, and the legislative vehicle -- the budget bill -- can't be filibustered death in the Senate.
The lingering question is which way the issue would go if it were decided by a "yes" or "no" vote by lawmakers.
The Republican controlled Congress is proving surprisingly protective of the environment. Yet there is an air of resignation among some antidrilling congressmen that shows they don't think they have the votes to block the action.
Deficit reduction
Congressional budget committees have assumed an ANWR lease sale within the next few years would generate $2.6 billion, which would be split between Washington and state governments.
The prospect of $1.3 billion for the federal treasury puts antidrilling congressmen in an impossible position: They must find replacement revenues of that amount if they want permission for ANWR drilling deleted from a budget bill.
The budget resolution requires congressional committees to report implementing legislation before Sept. 22. Rep. John Kasich (R-Ohio), House budget committee chairman, has predicted House committees are unlikely to get their assignments completed until Sept. 29.
Chairmen of the energy committees were happy to comply with the budget requirement. Frank Murkowski chairs the Senate energy committee and Don Young the House resources committee. Both are Republicans from Alaska who have long favored ANWR drilling.
The two committees recently conducted ANWR hearings and are prepared to mark up bills when Congress returns to work after the Labor Day holiday Sept. 4.
Alaska has facilitated the process greatly by dropping its demand for 90% of leasing revenues.
Although the Alaska Statehood Act grants the state 90% of federal revenues from mineral leasing, Congress offered only a 50-50 split the last time it considered ANWR legislation.
In an omnibus lawsuit Alaska has filed against the federal government, it maintains it is entitled to 90%. But Gov. Tony Knowles and state officials have agreed in the instance of ANWR leasing -- and in this instance only -- to accept a 50% share.
An Alaskan official quipped, "We figured 50% of something is better than 90% of nothing."
Sen. Ted Stevens (R-Alaska) says oil companies might be willing to pay more than $2.6 billion for ANWR leases.
He said, "That figure is a discounted one because of the probability that whoever gets these leases will have to live through a lawsuit, which undoubtedly will be brought."
Judith Brady, Alaska Oil & Gas Association (AOGA) executive director, thinks even $2.6 billion might be low. She points out that oil companies bid $900 million for Prudhoe Bay leases in 1969 when oil was selling for only $5/bbl and there was no pipeline system to market.
To encourage environmentalists to accept ANWR exploration, Sen. Bennett Johnston (D-La.) has suggested that if lease sales there raise more than $2.6 billion, the excess could be used for badly needed national park improvements.
The potential
ANWR appears to hold the best hope for another giant U.S. oil field.
Congress created the 19.8 million acre ANWR in the 1980 Alaskan Lands Act (67772 bytes). Lawmakers in Section 1002 of the act ordered studies of possible leasing of the 1.5 million acre Coastal Plain because of its petroleum potential.
A later Interior Department study recommended leasing and cited the potential of huge reserves. Antidrilling congressmen blocked legislation.
Leasing ANWR could be a big step toward keeping the North Slope petroleum province healthy.
When Prudhoe Bay field was opened, it held estimated reserves of 9.6 billion bbl, but improved technology has boosted the total by 4 billion bbl.
Prudhoe Bay production began flowing in 1977 through the Trans-Alaska Pipeline System (TAPS), which has moved 10.3 billion bbl so far.
That's possible because six more oil fields have gone on stream near Prudhoe Bay: Kuparuk, Endicott, Lisburne, Milne Point, Point MacIntyre, and Niakuk.
The pipeline flow peaked at 2.1 million b/d in 1989 and now is at 1.5 million b/d, or about 24% of U.S. domestic supplies.
Even if Congress approves leasing this fall, existing rules would prevent ANWR oil production for 10-15 years. That does not include possible delays caused by lawsuits.
A rebound in throughput could show up just in time for TAPS.
The U.S. Department of Energy estimates low volumes might make the line uneconomical to operate between 2008 and 2014. Environmentalists say rising oil prices could keep marginal fields on stream and the pipeline in operation as late as 2030 or 2040.
The Wilderness Society said a survey of 1,000 Americans found 70% favored making the Coastal Plain a refuge, even if leasing revenues might reduce the budget deficit. Meanwhile, a poll of Alaskans found 75% favor ANWR development.
Pros and cons
Arguments for and against ANWR leasing haven't changed much since Congress fought over the issue 6 years ago.
Environmentalists say potential reserves from ANWR development are not large enough to warrant the loss of wilderness.
As Rep. Bruce Vento (D-Minn.) said, "Why do we need to develop ANWR, North America's Serengeti, when there are so many other places in Alaska leased and awaiting exploration and development for oil resources?"
Leasing proponents reply that the U.S. needs all the oil it can get, and ANWR reserves can't be determined before they are tested with the bit. They note that the U.S. depends on imports for 50% of its oil. Those imports carry a price tag of $65 billion/year.
Environmentalists say the Coastal Plain is a pristine wilderness. Leasing proponents scoff at that and say it has little environmental value.
Environmentalists say drilling would disrupt the Porcupine River caribou herd's calving on the Coastal Plain. Leasing proponents note that the Central Arctic herd has grown from 3,000 animals in 1972 to 23,500 in 1992 despite development of Prudhoe Bay field.
Environmentalists say development would destroy the wilderness character of the Coastal Plain. Leasing proponents argue that new techniques have drastically shrunken the "footprint" industry would leave on the plain, and only 2,000 acres of 1.5 million acres would be developed.
Last time around, environmentalists complained Prudhoe Bay development had caused significant pollution. That allegation has not raised much opposition now.
Although Congress is poised to allow exports of Alaskan North Slope crude oil (enabling legislation is in a conference committee) no one is objecting to ANWR leasing solely on the grounds that the oil might be exported.
Wilderness values
In prepared testimony for the Senate energy committee hearing, Interior Sec. Bruce Babbitt said ANWR should not be summarily treated by Congress as just another revenue item.
He said, "The wildlife and wilderness values of the refuge are irreplaceable resources that we have the opportunity to pass on to future generations. No single oil discovery, even a large one, can be expected to fundamentally alter our nation's oil security situation.
"Opening ANWR to oil drilling is the equivalent of offering Yellowstone National Park for geothermal drilling or calling for bids to construct hydropower dams in the Grand Canyon."
Roger Herrera, a consultant for the proleasing group Arctic Power, replied, "To equate the Coastal Plain with the Grand Canyon, presumably in relation to its specialness and attraction to visitors, is absolute nonsense when one considers the far greater scenic attributes the state of Alaska has which nobody bothers to visit."
G. Jon Roush, Wilderness Society president, said, "The Coastal Plain is the biological heart of ANWR and the larger international bioregion. It is truly wilderness -- some of the best we have left in North America.
"Any resource development there would destroy its wilderness values and significantly impact and reduce the wildlife populations. The results would heal very, very slowly, if at all.
"There can be no such thing as environmentally sensitive oil development in ANWR. That is a myth of monumental proportions that reflects a rush of rhetorical wishful thinking designed to promote development."
George Ahmaogak, mayor of the North Slope Borough, said, "Some people have stated that the Coastal Plain of ANWR is a pristine wilderness that should be closed off forever to human activity. This is simply wrong. It is not an unpopulated wilderness. One of our eight villages is in the Coastal Plain.
"The Coastal Plain is used by our people for subsistence and other purposes. The North Slope is home to thousands of Inupiat.
"The North Slope Borough has had close to 25 years of experience with onshore oil and gas exploration and development. We have learned that our traditional culture can be balanced and enhanced with such development. Our local regulations and ordinances have been enacted to both protect subsistence hunting and allow development."
Herrera argued the Coastal Plain is not a wildlife haven. The Porcupine caribou often calve elsewhere, muskoxen were artificially reintroduced but have left, most of the rivers do not support fish populations, and only six species of birds are permanent residents.
He said, "It is obvious that the Coastal Plain is important to wildlife, especially in the brief months of summer. But it is a gross exaggeration to call it the `biological heart of the Arctic.' "
Caribou question
Environmental groups call preservation of the Coastal Plain "critical" for preservation of the Porcupine caribou herd. Biologists report that 92% of the calving by the herd last spring was concentrated on the Coastal Plain.
Michael Joyce, an ARCO Alaska Inc. biological consultant said, "The oil fields have not affected the population growth of the Central Arctic herd at Prudhoe Bay. Why do some people expect the animals 80 miles to the east to behave completely different from those for which we have over 20 years of evidence?"
He said annual tundra snow melt patterns reveal Central Arctic caribou calving locations, and in normal years the coastal strip within 10 miles of the Beaufort Sea is the last to become snow free and calving typically does not occur so far north.
Herds take refuge along the coast in July because of insect harassment, and at Prudhoe Bay "during hot, wind free periods when insects are most active, thousands of caribou move onto our gravel pads and stand there for hours." That's because there are substantially fewer insects there.
At Prudhoe Bay, industry's mitigation measures have allowed free movement of caribou through the oil field. However, cows with calves avoid man made structures until their calves are 2-3 weeks old.
Fearing ANWR development might harm the Porcupine caribou, the Gwich'in people of Arctic Village, south of the wildlife refuge, oppose drilling.
Sarah James said the caribou provide 75% of the protein for her Gwich'in village.
"But it is not just what we eat, it is who we are. Our whole way of life as a people is tied to the Porcupine caribou. It is in our language, and our songs and stories."
That position has angered the Inupiats who live on the Coastal Plain.
Oscar Leavitt, Arctic Slope Regional Corp. vice-president, said, "The caribou is a very adaptive animal. The Canadians showed this when they drilled 50 or more oil wells just east of the Coastal Plain over the past 25 years. They also demonstrated this when they built the Dempster Highway through the heart of the range of the Porcupine caribou herd."
He noted the Gwich'in leased all of their 1.8 million acres of land on the Venetie Indian reservation for $1.8 million without any provision to protect the Porcupine herd and, after the leases expired, offered them again.
Herrera said, "The Gwich'in, who were sufficiently confident that their own oil on their own lands could be safely produced that they opened them to leasing, are totally unwilling to concede that oil can be produced by Inupiats without catastrophic damage to the caribou.
"The Canadian government takes the same position. It's okay for them to drill among caribou, but not for Alaskans."
Murkowski said simply, "The Gwich'ins have found another industry to support them: the environmental movement."
Resources questions
Wilderness Society's Roush argued that ANWR contains only as much as 90 days supply of oil at best, and "with only 4% of the world oil supply and 25% of world oil use, there is no way this country will ever produce enough oil to be self-sufficient."
AOGA's Brady countered, "This assumes the Coastal Plain will be the country's only source of oil. It is more realistic to examine potential production as 1 million b/d for the next 20 years, contributing 12% of current domestic production -- enough to provide all the gasoline used by 14% of America's automobiles."
Drue Pearce, Alaska state senate president, said, "If you used the same logic you would say Prudhoe Bay would provide only 540 days of oil supply for the nation. Prudhoe Bay represents about 20% of America's oil production for the past 17 years and has generated $21 billion for the U.S. treasury."
Mark Myers, an Alaska Natural Resources Department petroleum geologist, said only on the Coastal Plain is industry likely to find a field of Prudhoe Bay's size.
"As of April 1994," Myers said, "over 2,900 wells, including 350 wildcats, have been drilled on the North Slope and adjoining offshore areas. These wells have tested virtually all of the potential Prudhoe look alikes' in areas that were available for leasing, including the National Petroleum Reserve of Alaska (NPRA), where 65 wells have been drilled.
"That is not to say the possibility to discover much smaller -- but still commercial -- fields does not exist in these areas. It clearly does.
"For example, in 1995, after three drilling seasons and completion of nine wells in the Colville Delta area, just east of NPRA, ARCO and Union Texas Petroleum announced the discovery of at least 100 million bbl of recoverable oil. While such discoveries are important, they simply will not significantly offset the loss of Prudhoe production.
"Situated between the prolific North Slope oil fields to the west, and the petroleum rich Canadian Mackenzie Delta province to the east, the Coastal Plain of ANWR has all the key geologic elements requisite for producing major hydrocarbon accumulations.
"Geological and geophysical evidence suggests that reservoir rocks similar to those found in the Prudhoe Kuparuk area to the west and the Mackenzie Delta to the east may be present in the subsurface of the ANWR Coastal Plain."
Myers' interpretation of seismic data identified 26 large prospective structures under ANWR's Coastal Plain.
He said, "Based upon field observations of oil seeps and oil stained reservoir rocks at outcrops in the area, it is evident that oil has been generated by source rocks beneath the Coastal Plain.
"Hopefully, most of the oil has migrated into and has been trapped within reservoir rocks in these very large prospective structures. However, the only way to confirm whether there are commercially exploitable accumulations of oil in these structures is to drill wells into them."
Alaska estimated ANWR resources in 1986, the U.S. Geological Survey in 1987 and in 1995, Energy Information Administration in 1987, and Bureau of Land Management in 1987 and 1991.
Myers said, "All of these studies relied on resource analysis methodologies which created probabilistic ranges of estimates for undiscovered resources in the area. However, that is about the only thing they have in common.
"It is absolutely critical to realize there are significant differences in the approach, methodology, tools (computer models), and output parameters used to derive the final estimates of each study. As a consequence, these studies are not directly comparable."
The latest USGS study said the resource may be "significantly smaller than previously believed." But Myers said that study also shows a fully risked 5% chance of finding more than 4 billion bbl of economically recoverable oil. Only two larger fields -- Prudhoe Bay and East Texas -- have been found in the U.S.
Myers pointed out that oil industry geoscientists repeatedly have said they believe federal resource estimates of ANWR are too low.
"The potential catalytic effect ANWR production would have on the development of discovered but nonproducing fields east of Prudhoe Bay cannot be over emphasized," he said.
"A production pipeline from ANWR would greatly enhance the probability that currently undeveloped fields east of Prudhoe Bay will be brought on line.
"These fields include Hammerhead, Kuvlum, Point Thomson, and Badami. Development of these and other marginal fields would, in turn, spur additional exploration and development throughout the region and add significant reserves."
Smaller footprint
AOGA's Brady said, "Technological advances in arctic drilling, construction, and operating practices in the past 40 years have dramatically reduced industry's `footprint' on the tundra, minimized waste produced, and continued to ensure use of the land by resident and migratory wildlife.
"In the 1970s, a production pad covered 40 acres and wells were spaced as much as 100 ft apart. Drilling wastes were disposed of in reserve pits in compliance with environmental regulations in place at the time.
"Wells were drilled and pipelines were built using gravel pads. Bottomhole locations for wells often extended 112 miles or more from a surface location.
"Today, exploratory wells are drilled and pipelines are built from ice pads and roads that melt in the spring, leaving little trace. Wells are clustered and spaced as close as 10 ft apart on 10 acre production pads, a 70% reduction since the 1970s.
"New waste management techniques have eliminated surface disposal or `reserve pits' for drilling wastes. Extended reach drilling now enables recovery of oil reserves as far as 3 miles away from a single surface location.
"Under a full development scenario, pads, roads, and pipelines associated with oil production would directly affect 5,000-7,000 acres of the Coastal Plain."
Eric Luttrell, BP Exploration (Alaska) Inc. vice-president for exploration and new field development, said technology has enabled ARCO to simplify operations, cut development costs, and reduce environmental effects of development.
"New fields such as Badami and Northstar that are being considered for development will use the best current and new technology," Luttrell said. "For Badami, about 30 miles east of Prudhoe Bay, ARCO is considering building a buried, chilled pipeline to bring the oil to Prudhoe, and not building an access road from Prudhoe."
Drilling wastes are now ground into a slurry and reinjected into a zone 3,000 ft beneath the surface.
Randy Ruedrich, general manger of Doyon Drilling Inc., said horizontal drilling would allow a field the size of Prudhoe Bay to be developed with 11 drillsites instead of the 42 required in the 1970s.
West Sak
An undeveloped resource on the North Slope is West Sak, a 300 sq mile reservoir, 25 miles long and 15 miles wide, at 2,500-4,500 ft. It is a heavy oil reservoir overlying Kuparuk field (64430 bytes) Debbie Miller of the Alaska Wilderness League said, "The West Sak formation is a sleeping giant. If the reason for invading the Arctic Refuge is to find oil, we've already found it near Prudhoe Bay."
John Shively, Alaska natural resources commissioner, said using West Sak as an argument for not leasing ANWR lacks merit. "One, West Sak, which was discovered in 1969, is a shallower, low temperature, heavy oil reservoir that has not proven to be economically recoverable.
"And two, even if oil were recoverable from West Sak, domestic demand for oil indicates that development of ANWR and West Sak reservoirs are not mutually exclusive propositions."
Scott Kerr, ARCO Alaska's manager for Kuparuk development, said, "Because of the large amount of oil in place, West Sak is often mistaken for another Prudhoe Bay. However, due to poor oil quality and poor reservoir rock quality, that is not the case. Put another way, not every 7-footer can play in the NBA.
"We estimate that West Sak oil-in-place exceeds 10 billion bbl, which makes it larger than Kuparuk field but smaller than Prudhoe Bay. ARCO currently carries no West Sak reserves in its Securities & Exchange Commission filings. We have been working to develop technology which will enable us to book West Sak reserves.
"Even under our most optimistic scenario, we anticipate potential reserves of 500 million bbl, a significant number but substantially less than the giant fields to which West Sak is often compared."
Kerr said in addition to containing heavy, viscous oil, West Sak is not one continuous formation but five oil bearing strata of poor rock quality separated by impermeable shales.
ARCO has spent more than $200 million in West Sak and launched a pilot production project in 1983 that was a technical success but an economic failure.
Kerr said, "We developed technology required to provide a 300-400 b/d rate in the very best part of West Sak. However, the cost of operating the pilot project was too high to continue production. It was abandoned in 1986."
ARCO resumed work in West Sak late last year due to technological advances, development of a large scale, tertiary enhanced oil recovery facility at Kuparuk that West Sak can use, and Alaska's action to permit royalty adjustments for fields like West Sak.
ARCO wants to determine if massive hydraulic fractures could break through impermeable shale at West Sak, determine if multilateral wells drilled to multiple strata can provide adequate production rates economically, and test new sand control methods.
Kerr said, "Because West Sak is a marginal resource which can't support the cost of stand-alone development, every barrel of West Sak oil will be produced through existing Kuparuk facilities. As the Kuparuk rates decline and as we eliminate economic and technical hurdles, we will begin developing the very best part of West Sak."
Aid asked
North Slope Borough's Ahmaogak urged Congress to provide economic aid for the village of Kaktovik in any ANWR leasing legislation.
"If the Coastal Plain is opened to development, there will be a lengthy period before any taxes are generated. The time between leasing and oil production in the Arctic is 10-15 years.
"As Coastal Plain development changes the employment base in Kaktovik, public services will have to be greatly expanded. New public needs and problems will be encountered."
The village has no taxing authority, and being forced to pay up front for significant expansion of services will have "a devastating effect" on the borough's budget.
Arctic Slope Regional's Leavitt agreed: "A decision to open the Coastal Plain will bring greatly increased visitor traffic and other pressures on a village whose people support oil development but who desire to retain their privacy, their culture, and their character as a traditional subsistence Eskimo community."
Leavitt complained that previous ANWR leasing bills have contained an amendment blocking the native corporation from drilling on its private land on the Coastal Plain until after the first lease sale is held. It wants to be able to drill as soon as a leasing bill is passed.
"Some major oil companies contend that this amendment will ensure a `level playing field' for all participants in the first lease sale in ANWR," Leavitt said.
"By preventing the (native) corporation from engaging in exploratory drilling on its private land while engaging in these same activities on adjacent offshore leases, these companies are in fact heavily tilting the playing field in their favor."
Copyright 1995 Oil & Gas Journal. All Rights Reserved.