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The future's heavy

Heavy oil and natural gas development could partly offset the North Slope's declining production of conventional oil, writes Anne Feltus

FOR three decades, the North Slope of Alaska has been one of the US' main domestic crude oil supply sources. But with production in decline, hopes for prolonging the region's productive life rest with the North Slope's natural gas and unconventional oil resources.

The discovery in the late 1960s of the Prudhoe Bay and Kuparuk River fields, the two largest oilfields in the US, brought prosperity to the country's northernmost state. Since then, however, the 0.5bn barrel Alpine field and a number of other smaller – yet still large – fields have been found nearby. There are more than a dozen producing fields on the North Slope and cumulative oil production has exceeded 15bn barrels, according to the Resource Development Council for Alaska.

Despite decades of activity, companies believe there is still plenty of life left in this petroleum province. A Department of Energy report estimates the ultimate recoverable reserves on the Slope to be 22.2bn barrels of oil, including reserves from existing fields as well as undiscovered resources, and 23-124 trillion cf of natural gas.

Discoveries are still coming on stream. Last year, ConocoPhillips began production from Fiord and Nanuq, satellites of Alpine. It is developing another Alpine satellite, Qannik, which should begin producing next year. Additionally, the firm plans to drill on its Intrepid prospect south of Barrow and on Noatak in the northeastern part of the National Petroleum Reserve-Alaska (NPRA).

Motivated by higher oil prices, several new players – smaller companies, typically – are also planning projects on the Slope. Pioneer Natural Resources, which ventured into Alaska in 2006, will begin production from its Oooguruk Development Unit next year, making it the first non-major to produce offshore oil from the Slope. Anadarko intends to drill an exploratory well on its Jacob's Ladder prospect southeast of Prudhoe Bay; it will begin a pilot programme on Nikaitchuq, acquired through its merger with Kerr-McGee, that could contain as much as 200m barrels of oil.

Alaska Venture Capital Group and its operating company, Brooks Range Petroleum, have scheduled two exploratory wells this winter on the Gwydyr Bay prospect on the North Slope. Italy's Eni intends to drill several exploratory wells on Rock Flour south of the Kuparuk River field and Talisman Energy subsidiary FEX hopes to drill two exploratory wells this season in the NPRA.

Still off-limits

However, this activity is not expected to offset the North Slope's declining production, which has slowed from a peak of more than 2m barrels a day (b/d) in 1988 to about 0.85m b/d. Explorers had hoped sections of the North Slope that have been off-limits to drilling would become available to offset some of this decline.

Although about 87% of the 22m-acre NPRA, just west of Prudhoe Bay, was opened for leasing in the 1990s, drilling in the reserve's 4.6m-acre northeastern corner has been banned for environmental reasons. In January 2006, the US Department of the Interior said it would allow development of about 0.5m acres in the corner, an area that contains an estimated 2bn barrels of recoverable oil and 3.5 trillion cubic feet (cf) of gas. The acreage was included in the tracts to be offered in a lease sale scheduled for late September 2006. Explorers' hopes were dashed, however, when a US District Court judge removed more than 400,000 acres from the sale until further environmental analysis could be completed.

The Alaska National Wildlife Refuge (ANWR), to the east of Prudhoe Bay, is said to contain more than 10bn barrels of oil. For over 25 years, explorers have been asking the government to open the 19m-acre region for development, with no success. Although President George Bush has supported opening the area to drilling, the chances of that happening were reduced by the election of a Democratic majority to Congress. Several moderate Republicans have also expressed opposition to the exploitation of ANWR. One of the first measures introduced when Congress convened in early January was a bill that would make 1.2m acres of ANWR's coastal plain a permanently protected wilderness.

Pursuing heavy oil

As the supplies of light, easy-to-pump oil diminish, producers are focusing on the five heavy-oil fields – West Sak, Schrader Bluff, Orion, Polaris and Ugnu – that sit above the main producing zones of Prudhoe Bay and Kuparuk River. "Estimates are that there are 20bn barrels of (heavy oil) resource, which is roughly the size of Prudhoe Bay," BP America chairman Bob Malone said at the Meet Alaska conference in mid-January.

However, the problem is that the heavy-oil formations are weak and lie relatively close to the thick subsurface permafrost, which cools the crude, reducing its viscosity and impeding its ability to flow. Furthermore, sand tends to come to the surface with the oil. The upside is that operators can take advantage of existing infrastructure, including the 800 mile Trans-Alaska Pipeline that carries oil from the North Slope to Valdez, on Alaska's southern coast.

In recent years, ConocoPhillips has dramatically increased production rates at West Sak by using advanced-recovery techniques, such as combining horizontal multilateral drilling with a water-alternating-gas process, which involves injecting gas into the formation to thin the oil, then water to push it out of the reservoir. According to the Alaska Oil and Gas Conservation Commission, the development has already yielded more than 25.9m barrels of heavy oil.

More challenging is Ugnu, which is shallower and, therefore, more viscous than West Sak. BP is evaluating techniques for developing this field and plans to drill a well. "Viscous oil accounts for more than 5% of all North Slope production," says BP. "But, with additional investment over the next few years, viscous production could double by 2010."

As production from the North Slope's oilfields continues to decline, the region's future could depend on natural gas. The Alaska Department of Natural Resources Division of Oil and Gas estimates the region holds 33.9 trillion cf of gas reserves. "However, if you talk to most geologists, you'll hear there's a good chance there's hundreds of trillions of cubic feet in the ground," Alaska Governor Sarah Palin said in her State of the State address in mid-January.

Since the 1970s, the state has been looking at ways to transport those hydrocarbons from northern Alaska to the Lower 48 states. Palin's predecessor, Frank Murkowski, negotiated a deal with BP, ConocoPhillips and ExxonMobil, the largest producers on the Slope, to build a pipeline, but in a special session in 2006, the Alaskan Congress voted down the idea.

Palin plans to offer potential project participants a broader range of inducements. "This might be the three major oil producers, it might be an independent pipeline company, it might be a state-owned or quasi-state-owned entity, or a combination of entities," she said. "The pipeline construction incentives will be valuable and will encourage companies to compete for the right to build this line."

The incentives, she said, will be outlined in the planned Alaska Gasline Inducement Act. The proposal would also include measures aimed at generating jobs for Alaskans, supplying gas to the local economy and ensuring exploration activity on the North Slope continues. The government also plans to create strong inducements to encourage leaseholders to commit their gas to the pipeline project.

About 9 trillion cf of the North Slope's gas reserves are in the Point Thompson Unit, which has been leased by ExxonMobil, BP, Chevron and ConocoPhillips since the late 1970s. However, in late November, the State of Alaska revoked the companies' oil and gas leases, claiming that they had failed to provide a viable plan for developing the field. The State could offer the 106,000 acres involved for lease with more stringent terms or renegotiate leases with the former leaseholders that would expedite pipeline construction.

At an estimated cost of more than $25bn, the gas pipeline would be the largest in the world. According to the Department of Energy, it would also be the largest non-government energy project in the country's history.

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