Background

The first major discovery of oil in Alaska was on the Kenai Peninsula at Swanson River in 1957. The U.S. Congress viewed that discovery as the foundation for a secure economic base in Alaska, and Statehood was granted two years later. However, it was the discovery of the giant Prudhoe Bay oil field on Alaska’s North Slope in 1967 that established Alaska as a world-class oil and gas province. Two years later, the discovery of the nearby Kuparuk field, the second largest in North America after Prudhoe Bay, confirmed Alaska’s position. Four of the ten largest oilfields to date are located on the North Slope.

Since these discoveries, a series of major oil and gas fields have been developed along the central North Slope. Although production is declining at Prudhoe Bay and Kuparuk, as well as other nearby fields, there is high potential for new discoveries in the Arctic.

A U.S. Department of Energy report estimates the ultimate recoverable oil reserves on the North Slope to be 22.2 billion barrels, including reserves from existing fields as well as undiscovered resources. Natural gas estimates range from 23 trillion cubic feet (tcf) to 124 tcf. A 2002 U.S. geological Survey assessment of the National Petroleum Reserve-Alaska (NPR-A) resulted in a mean estimate of 10.6 billion barrels of oil and 61 tcf of natural gas. A 1998 assessment of the 1002 Area of Arctic National Wildlife Refuge (ANWR) gave a mean estimate of 10.4 billion barrels of technically-recoverable oil.

Offshore in the Beaufort Sea, the U.S. Minerals Management Service (MMS) estimates the mean recoverable oil at 6.94 billion barrels and a mean projection of 32 tcf of natural gas. With huge geological structures, the continental shelf under the Chukchi Sea offers great promise. MMS estimates a mean of 15.4 billion barrels of oil and 77 tcf of gas. In February 2008, the second most successful oil and gas lease sale in the history of the United States took place, covering millions of acres in the Chukchi Sea. The sale raised a record $2.7 billion in revenue.

With the discovery of Prudhoe Bay and the construction of the trans-Alaska Pipeline, the oil and gas industry has become Alaska’s economic lifeline and a major secure source of domestic energy. North Slope oil fields account for an average of 20 percent of the nation’s domestic production.

The oil and gas industry generates an overwhelming majority of Alaska’s general fund revenues.  In FY 2007, the state collected $4.6 billion in revenues from the oil industry, accounting for 87 percent of Alaska’s unrestricted general fund revenues.  In the current fiscal year, revenue officials expect state revenues to add up to $8.6 billion, about 90 percent from oil ($7.7 billion). The new production tax enacted in 2007 accounted for $780 million of the increase in revenues. Oil revenues pay for the state’s education system, transportation infrastructure, public health and safety services and a host of other programs throughout Alaska.

Facts & Economic Impact

• Alaska's oil and gas industry has produced more than 16 billion barrels of oil and 6 billion cubic feet of natural gas, accounting for an average of 20 percent of the entire nation's domestic production.
• Since 1957, the State of Alaska has collected $80 billion from the oil and gas industry.
• The oil industry continues to be the largest source of unrestricted revenue to the state, accounting for 87 percent, or $4.6 billion, of all unrestricted state revenue in fiscal year 2007. Unrestricted general fund revenues from the oil and gas industry in fiscal year 2008 is expected to reach a record $7.76 billion.
• Since the completion of the trans-Alaska oil pipeline, petroleum revenues to the State of Alaska have averaged 84 percent of the state's unrestricted general fund. Total petroleum revenues are projected to be 90 percent in fiscal year 2008.
• While state oil revenues are hitting record highs, production in Alaska has dropped 63 percent since hitting a peak of 2 millions barrels per day in 1988.
• As much as $60 billion in new investment may be required to slow the decline and develop new fields.
• The oil and gas industry accounts for more than 8,500 direct jobs in Alaska and generates an additional 25,500 indirect jobs.
• The Alaska Permanent Fund, worth $37.3 billion in spring 2008, was created in 1976 to set aside a portion of oil revenues for future generations. The fund has paid out more than $13 billion in dividends to Alaskans.
• The oil and gas industry has invested over $50 billion in North Slope and Cook Inlet infrastructure since the 1950s.
• Over 15 billion barrels of oil have been transported through the 800-mile Trans-Alaska Pipeline System (TAPS).
• In 1974, the building of TAPS began, the largest construction project in the world. The original estimated cost was $900 million, but when it was completed in 1977, final costs were over $8 billion.
• The proposed Alaska Natural Gas Pipeline Project, estimated to cost $30 billion, will be the largest pipeline project in the world.

Production & Processing

• Four of the nation’s top ten producing oil fields are located on the North Slope. Alaska ranks second behind Texas in daily oil production.
• There are more than a dozen producing fields on the North Slope. Cumulative oil production from these fields is over 15 billion barrels. Ultimate production from Prudhoe Bay is expected to exceed 13 billion barrels.
• The long-term outlook for oil production on the North Slope is one of gradual decline supplemented with smaller field-size oil development with gas field development in or near existing infrastructure. The state expects average daily production in the current fiscal year to drop to 722,000 barrels per day and 689,000 barrels per day in fiscal year 2009. The decline is expected to average six percent annually.
• Current Alaska production accounts for approximately 15 percent of U.S. domestic production. The State currently estimates Prudhoe Bay contains an additional 2.5 billion barrels of recoverable oil plus another 426 million in reserves from satellite development. New investments and improved technologies may increase future reserve estimates.
• There are seven producing oil and gas fields on the Kenai Peninsula and offshore Cook Inlet. This area has produced a cumulative total of over 1.3 billion barrels of oil and 7.3 trillion cubic feet of natural gas. The largest oil field, the McArthur River field, is expected to recover 639,000 barrels of oil. The largest gas field, the Kenai field, is ultimately projected to produce 2.427 trillion cubic feet of natural gas. Cook Inlet oil production peaked at 230,000 barrels per day in 1970 to 15,500 barrels per day in 2007.
• Alaska has four refineries that produce gasoline, diesel and jet fuel for Alaska markets. Refineries are located in Nikiski, Valdez and near Fairbanks.
• A gas liquefaction plant at Nikiski, the only one of its type in North America, supplies liquefied natural gas (LNG) to Japan each month.
• LNG exports to Japan accounted for about a third of total Cook Inlet gas production. Total industrial use of Cook Inlet gas, including LNG exports, fertilizer manufacture and oil field operations, has remained constant at about 75 percent of total consumption since 1990. In recent years, Cook Inlet natural gas production has been steadily declining with current production at approximately 190 bcf per year.

Producers & Explorers

BP Exploration (Alaska) Inc.: In 2009, BP will celebrate its 50th anniversary in Alaska. The company is one of Alaska's largest private investors and plans to spend approximately $800 million in capital in 2008. On average, BP spends an additional $1 billion annually to sustain its Alaska operations. BP has a long-term view in Alaska, and that includes community involvement. Since 2000, BP has contributed more than $55 million to educational and community organizations and programs in Alaska.

During the past two years, BP has grown its Alaska workforce by 40 percent, to more than 2,000 employees. In that same time, its contractor workforce has increased to more than 6,000 jobs. BP's Alaska business strategy is underpinned by a world-class resource base and years of pioneering experience on Alaska's North Slope. BP's Alaska investment is focused on developing the known resource base, including: managing light oil decline; continue working to unlock the potential of Alaska heavy oil; and renewal of its facilities, infrastructure and people. BP and ConocoPhillips recently initiated a major new project to commercialize the North Slope's vast natural gas resources.  The project is named Denali - The Alaska Gas Pipeline.  When completed, the project will deliver much needed natural gas to consumers in Alaska, Canada, and the Lower 48 states.

ConocoPhillips Alaska Inc.: ConocoPhillips and its heritage companies have more than 50 years of history in Alaska. Today, ConocoPhillips is Alaska's largest oil and gas producer, with major ownership in the Prudhoe Bay Unit, the Kuparuk River Unit, the Colville River Unit (Alpine), and the Greater Mooses Tooth Unit (NPRA). ConocoPhillips operates the Kuparuk and Alpine oil fields, Greater Mooses Tooth Unit (NPRA), as well as the Kenai Liquefied Natural Gas Plant, North Cook Inlet platform and Beluga River Unit gas field.  The company also owns 28 percent of the Trans-Alaska Pipeline System.

ConocoPhillips' oil production in Alaska in 2007 was more than 260,000 barrels of oil per day and its gas production was 110 million cubic feet per day.  ConocoPhillips is the largest holder of federal and state leases in Alaska. The company holds interests in 1.48 million gross acres in the National Petroleum Reserve-Alaska, and 2.24 million gross undeveloped acres in total outside of producing fields.

As Alaska's number one explorer, the company has participated in more than three dozen exploration wells since 2000. Over the past ten years, ConocoPhillips has reinvested more than $12 billion of direct capital in Alaska; these dollars contributed to the construction of the Alpine satellite oil fields and Alaska's largest-ever development of heavy oil at the West Sak field, as well as continued development within the existing Prudhoe Bay and Kuparuk areas.  ConocoPhillips also recently formed a major unit, the Greater Mooses Tooth Unit, in the northeast National Petroleum Reserve-Alaska, to develop the resources discovered in that area.

ExxonMobil: One of Alaska’s top three oil producers, ExxonMobil has been working in the state for over 50 years, from Cook Inlet to the North Slope. The company’s core asset in Alaska is its 36 percent working interest in the Prudhoe Bay field where significant capital investments continue to be spent to enhance field performance and develop satellite fields. ExxonMobil owns 20 percent of the Trans-Alaska Pipeline System. The company holds the largest gas resource on the North Slope and is working with the state and other North Slope producers to commercialize the gas.

Chevron: Chevron’s history in the State of Alaska goes back more than 100 years. The company has long held partnership interests in the Prudhoe Bay unit, the undeveloped Point Thomson unit, the Beluga Gas field in Cook Inlet, and the Trans-Alaska Pipeline System. The company is a major explorer in Alaska, including activities in the Beaufort Sea. Chevron is a partner with BP in the only leased acreage inside the 1002 Area of the Arctic National Wildlife Refuge. The leases are on private land with surface rights held by Kaktovik Inupiat Corporation (KIC) and subsurface rights owned by Arctic Slope Regional Corporation. Chevron drilled the KIC well southeast of the village of Kaktovik in the winters of 1985 and 1986, and the results of the drilling are still confidential. Chevron is a major supplier of gas for Southcentral Alaska through its Cook Inlet fields. It also owns major interests in the gas fields and prospects in the Ninilchik, Nikolaevsk and Deep Creek units.

Eni Petroleum: An affiliate of Italy’s mega-major Eni SpA, Eni Petroleum picked up its first oil and gas leases in Alaska in 2005, both onshore and offshore the North Slope in state and federal waters. Eni estimates potential oil reserves in these leases at 170 million barrels. The company has a minority working interest in Pioneer’s Oooguruk and Kerr-McGee’s Nikaitchuq developments. The company’s entry in Alaska comes with an emphasis on consistent growth, particularly in the Beaufort and Chukchi seas, but Eni is also interested in expanding in other areas of the state. The company has acquired the Rock Flour exploration unit adjacent to the southeastern corner of the Kuparuk River unit. The target is West Sak/Schrader Bluff viscous crude.

Shell: In February 2008, Shell dominated the second most successful oil and gas lease sale in the history of the nation, picking up 275 lease blocks in the Chukchi Sea for $2.1 billion. Shell returned to Alaska in 2005, buying 84 Beaufort Sea leases stretching east from Harrison Bay to an area north of ANWR. Shell’s return to the 49th state could signal a new era of exploration in the Arctic. The leases Shell picked up in 2005 included Unocal’s Hammerhead discovery and ARCO’s Kuvlum discovery. Initially, Shell focused its attention on its Chukchi and Beaufort leases, but the company is also looking for other opportunities across Alaska, including Bristol Bay OCS. Shell left Alaska in 1998 after 40 years of activity in the state. It was a Cook Inlet producer and was involved in exploration drilling in the Chukchi Sea and Gulf of Alaska. Its exploration program in the Beaufort led to the Northstar and Liberty fields. The company opened an office in Anchorage in 2005.

The Independents

For many years, basic economics severely restricted the number of companies with the capability to invest in Alaska’s oil and gas industry. The sheer magnitude of capital required to develop remote and huge Arctic oil and gas fields limited participants to the major companies that could afford to invest. As the state’s giant fields mature, a new set of investment opportunities is emerging in smaller, more marginal fields that remain to be developed. With these new opportunities, a new set of investors, known as the independent producers, have turned their sights on Alaska and these new prospects.

Anadarko Petroleum Corporation: Houston-based Anadarko is an active explorer on the North Slope, holding approximately 2 million net exploration acres.  Anadarko is a 22% partner with ConocoPhillips in the Alpine field and surrounding satellites.  In 2007, Anadarko operated three wells, conducted a 3-D seismic program and participated in two additional exploration wells.  

Armstrong Alaska: An affiliate of Denver-based Armstrong Oil and Gas, Armstrong Alaska partnered in 2002 with Pioneer Natural Resources Alaska in the Beaufort Sea Oooguruk prospect, and it had been working in partnership with Kerr-McGee on several projects. However, Armstrong sold all of its oil and gas assets on the Slope to Eni Petroleum, but the company has returned to Alaska to buy leases in the Cook Inlet basin. New affiliate Armstrong Cook Inlet LLC has taken over as operator of the North Fork gas unit and 18,000 acres of surrounding and nearby leases. The company is planning to drill an exploration well in the unit during the summer of 2008. North Fork is seen as one of several gas fields that could eventually justify infrastructure extensions into the Southern Kenai Peninsula.

Aurora Gas LLC: Aurora Gas was formed in 2000 to explore and develop natural gas related opportunities in Alaska, with operations currently in the Cook Inlet.  The company’s primary focus is on shallow gas prospects in or near known oil and gas accumulations.  It also has interests in several oil prospects on the Kenai Peninsula and the west side of the Cook Inlet. Aurora Gas has acquired more than 142,000 acres of leasehold area, approximately 21,000 acres of mineral estate, and a sizeable inventory of development and exploration prospects throughout the Cook Inlet basin.  The company is the operator of the Kaloa, Lone Creek, Moquawkie, Three Mile Creek and Nicolai Creek gas fields on the west side of the Cook Inlet.

AVCG/Brooks Range Petroleum: Brooks Range Petroleum (BRPC), a subsidiary of AVCG, LLC, operates on behalf of a Joint Venture (JV) including working interest owners AVCG, LLC, TG World Energy Inc., Bow Valley Alaska Corporation and Ramshorn Investments Inc. to provide land, exploration and operation services for Alaska exploration. The JV controls blocks of contiguous leases covering approximately 340,000 acres on the North Slope. The 2008 drilling season included drilling one well called North Shore #1 in the Gwydyr Bay area and one well with two sidetracks called Tofkat #1, #1A and #1B respectively near the Native village of Nuiqsut.  More than 48,000 feet was drilled by the JV, which is more than any other exploration company drilled in Alaska this year.  BRPC is completing a seismic shoot that covers more than 200 square miles over the core of the Tofkat prospect area, which will be processed and analyzed in preparation for the its 2009 and 2010 drilling program.

Pacific Energy Resources: The Long Beach-based company is looking to make Cook Inlet a core area of its operations after buying Forest Oil’s assets in Southcentral Alaska in August 2007. The company produces 3,000 barrels of oil per day in California and 5,900 barrels per day in Alaska. Pacific energy produces Cook Inlet oil from its Osprey platform on the Redoubt Shoal field and from the onshore West McArthur River field. The company is planning on moving forward with exploration of its Cook Inlet acreage it acquired from Forest. It has signed a three-year $156 million contract for a jack-up rig, expected to be drilling on its Cook Inlet acreage in spring 2009.The company plans to drill its Corsair prospect first. If successful, Pacific Energy could begin permitting commercial production at Corsair as early as late 2012.

Marathon Oil Corporation: In 2004, Marathon Oil celebrated 50 years in Alaska. The company participated in the discovery of the Kenai gas field in 1959 and discoveries at Trading Bay and McArthur River in 1965. Marathon operates a number of key production fields in the Cook Inlet basin and is one of the largest suppliers of natural gas to the Southcentral Alaska market. Marathon is pursuing new onshore developments around Cook Inlet and continues to focus on natural gas.  The company has ownership in more than 118 miles of major natural gas pipelines serving the Cook Inlet market.

Pioneer Natural Resources Alaska: Pioneer Natural Resources is a top-tier U.S. independent oil and gas exploration and production company headquartered in Dallas, TX.  Pioneer has operations in Alaska, the Lower 48, Tunisia and South Africa.  In Alaska Pioneer operates the Oooguruk Unit on the North Slope and the Cosmopolitan Unit in Cook Inlet.  In addition, the company has a 1.2 million acre (gross) lease position on the North Slope and has participated in 11 exploration wells since 2002. Oooguruk is being developed in the shallow waters of the Beaufort Sea northwest of the Kuparuk River Unit.  Flowline and facility construction was completed in late 2007, development drilling began in early 2008 and first production is expected mid-year.  The gross reserve potential at Oooguruk is 70-90 MMBO and peak production is expected to be 15-20 MBOPD.  Oooguruk is the first field operated by an independent company on the North Slope.

Cosmopolitan is being developed from onshore north of Anchor Point on the Kenai Peninsula.  Pioneer drilled an appraisal well – the Hansen 1A-L1 well – in late 2007 and expects to drill a second appraisal well in early 2009.  The Hansen 1A-L1 well was the longest extended reach well in Cook Inlet with a total depth of 22,650 ft.  Cosmopolitan has a gross resource potential of 30-50 MMBO.  Pioneer expects to drill another appraisal well at Cosmopolitan in early 2009.

Petro-Canada: Calgary-based Petro-Canada has been building its land position on the North Slope since the mid-1990s. In 2005, the company announced an exploration partnership in the Brooks Range Foothills with Anadarko Petroleum. Currently it has a 50 percent interest in the 1.5 million-acres it shares with Anadarko. Both companies hold a strong land position in the gas-prone area, much of which is contiguous. Petro Canada has also formed a partnership with FEX, a subsidiary of Talisman Energy. Both companies have cross-assigned a majority of their NPR-A leaseholdings, covering about 1.2 million acres. Petro-Canada’s net position in NPR-A is now over 500,000 acres.

XTO Energy: The operator of the Middle Ground Shoal field in Cook Inlet is XTO Energy. Although the field came on line in 1967, XTO has achieved almost constant production since buying two state leases and the field’s A and C platforms from Shell in 1998.  XTO has increased field reserves by 42 percent and there are likely another 10 to 15 years of production remaining. The field is currently producing about 3,650 barrels of oil per day and now has reserves estimated at 24 million barrels.

Talisman Energy: Based in Calgary, Talisman Energy bought out Total E&P USA’s Caribou exploration prospect inside NPR-A in 2004 and picked up its own leases in the petroleum reserve later that year. Initially operating as Fortuna and later FEX, the company has also picked up state leases in the Beaufort Sea. The company has put its Alaska drilling program on hold for two years after the Bureau of Land Management deferred a Northeast NPR-A lease sale from 2007 to sometime in the last half of 2008. Future drilling, the company says, will be driven by land access. Realistically, the company does not expect to drill on its Northwest NPR-A leases until 2009-10 at the earliest.

Other Exploration Companies Active In Alaska

Escopeta Oil & Gas (Cook Inlet), Andex Resources (Nenana Basin), Storm Cat Energy Corporation (Cook Inlet)

Alyeska Pipeline Service Company

Alyeska is responsible for operating and maintaining the Trans-Alaska Pipeline System (TAPS). The company was formed in 1970 and acts as agent for five companies which own the pipeline: BP Pipelines (Alaska)Inc. 46.93%, ConocoPhillips Transportation Alaska, Inc. 28.29%, ExxonMobil Pipeline Company, 20.34%, Unocal Pipeline Company, 1.36%, and Koch Alaska Pipeline Company, L.L.C., 3.08%. Alyeska directly employs about 800 people with a total of 1,600 direct and indirect employment associated with the pipeline.

The 800-mile, 48-inch pipeline is one of the largest pipeline systems in the world. In what it calls strategic reconfiguration, the company has undertaken a multi-year project to upgrade the pipeline’s pump stations and control systems to enhance overall pipeline safety and reliability.

Alaska Refiners

Flint Hills Resources (North Pole)
Petro Star, Inc., (North Pole, Valdez)
Tesoro Alaska Company (Nikiski)

Web Links

• http://www.dog.dnr.state.ak.us/oil/
• http://www.labor.state.ak.us/home.htm
• http://www.eia.doe.gov/
• http://www.blm.gov/wo/st/en.html
• http://www.usgs.gov/
• http://www.alyeska-pipeline.com/

Sources

• Alaska Department of Natural Resources, Division of Oil & Gas
• Alaska Department of Labor
• U.S. Department of the Interior
• U.S. Department of Energy
• Alaska Oil & Gas Association
• Alyeska Pipeline Service Company
• Petroleum News