CHAPTER 7 STATUS REPORT OIL AND GAS INDUSTRY ALASKA — AUGUST, 1978

• Jurisdiction: United States

Alaska Mineral Development
(Sep 1978)
CHAPTER 7
STATUS REPORT OIL AND GAS INDUSTRY ALASKA — AUGUST, 1978
Marcus K. Singletary
Regional Attorney Atlantic Richfield Company
Anchorage, Alaska

INTRODUCTION

Some contend that the State of Alaska's identification with the oil and gas industry can be dated from the discovery of the Swanson River Field on the Kenai Peninsula in 1957. See Exhibit 7-A. This is for several reasons. First, it represented the first commercial discovery of any consequence. Second, the discovery triggered active exploration efforts on the Kenai Peninsula and in nearby Cook Inlet which resulted in the discovery of several large oil and gas fields in the area. Third, and most important, it provided a much needed boost in the area's economy and played an important role in Alaska becoming a state (January 3, 1959).

However, there are some who argue that it all began some 55 years earlier (1902) when a cable tool rig discovered oil at Katalla on the Gulf of Alaska. It wasn't a big find, but it proved to be commercial and a score of wells eventually produced some 150,000 barrels of oil. In 1911 a small topping plant or refinery was built nearby by the Chilkat Oil Company and the production was processed in this facility until it was destroyed by fire in 1933. The production operation, which was marginal at best, was soon abandoned.

EXPLORATION

Subsequent to the Katalla discovery sporatic exploration efforts took place for some 42 years. Wells were drilled in the Kanatak area on the southern coast of the Alaska Peninsula and additional wells were drilled in the Yakataga area near the Katalla discovery; and a few wells were drilled in the Matanuska Valley near Anchorage — all without success.

With the advent of the second World War, the Department of the Navy beginning in 1944 undertook an active exploration program covering Naval Petroleum Reserve No. 4 (NPR 4). This reserve was created by President Harding in 1923 and covers some 37,000 square miles on the Arctic Slope. The area reflects numerous oil seeps as does the Katalla area. Nine years and $60,000,000 later

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the Navy's exploration program ended. Some 37 test wells were drilled. It is estimated that this effort resulted in the discovery of crude oil reserves approaching 100,000,000 barrels and several small gas fields including the Barrow Gas Field, which even today continues to serve, at least in part, the fuel needs of the North Slope community of Barrow.

Exploration efforts subsequent to the Swanson River discovery resulted in the discovery of the North Cook Inlet Gas Field by PanAmerican Petroleum Corporation (now Amoco) in September of 1962 and the discovery of the Beluga River Gas Field by Standard Oil Company of California in December of 1962. Shell Oil Company and Amoco discovered the Middle Ground Shoal Field in Cook Inlet in June of 1962. This discovery was followed in 1965 by the discovery of the Granite Point, McArthur River, and Trading Bay Oil Fields in Cook Inlet. These fields and others are identified on Exhibit 7-A.

In 1964 the State of Alaska, pursuant to the Alaska Statehood Act, selected 1,616,745 acres on the North Slope of Alaska. It was bordered on the west by NPR 4 and on the east by the Arctic National Wildlife Range. Subsequently, the State of Alaska leased a portion of these lands through several competitive lease sales. Thereafter a number of wells were drilled without success until Atlantic Richfield Company announced the discovery of the Prudhoe Bay Field in 1968 — the largest oil field ever discovered on the North American Continent. The American Petroleum Institute has estimated its crude oil reserves at 9.6 billion barrels. Gas reserves, according to the American Gas Association, are estimated at 26 Trillion cubic feet. This represents 29% of the nation's crude oil and 11% of the nation's natural gas reserves.

This discovery, as expected, ushered in an era of intense interest in Alaska, and prompted the State of Alaska to hold a lease sale in 1969 covering acreage near the Prudhoe Bay discovery. This sale generated $900,000,000 in bonuses. However, most, if not all the exploration which subsequently took place on these lands has been extremely disappointing, once again proving the old adage "oil is where you find it".

Since that momentous discovery, the owners have spent in excess of $10 billion in further exploring and developing the Field and constructing the Trans-Alaska Pipeline system (TAPS) and it is estimated that they may ultimately spend an additional $10 — 15 billion in this effort during the life of the field.

Except for the exploration which followed the 1969 lease sale and the further exploration and development of the Prudhoe Bay Field which continues through the present time, oil and gas exploration activities have since been limited. However, a significant

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exploration effort recently took place in the Gulf of Alaska near Yakutat. This effort followed the drilling of some 26 wells on shore during the 1950's and 60's, and an OCS lease sale which took place in April of 1976. The leases cost something in excess of $560 million. Twelve wells, including a stratigraphic test well were drilled at an average cost of something in excess of $20 million per well. Unfortunately, the results were discouraging. Further drilling exploration of the leases involved has ceased, and the drilling rigs released for drilling efforts elsewhere.

NPR-4 (now National Petroleum Reserve of Alaska) is also once again the subject matter of an extensive exploration effort. This work is being conducted by Husky Oil pursuant to a contract with the Department of Interior. The contract runs through 1980 and contemplates the drilling of as many as 21 more wells. This is in addition to the 10 wells that have been drilled to date. While the results of this effort have not been made public, speculation is to the effect that the results are not encouraging.

Cook Inlet is also the subject matter of a determined exploration effort. However, this effort involves Lower Cook Inlet and is just now getting under way. The leases were acquired in October of 1977 pursuant to a lease sale by the Department of Interior. In June of this year Marathon commenced the drilling of the first exploratory well covering this acreage. It is located several miles west of Homer, Alaska. Phillips is also drilling a well in the area. It is located near Port Graham and is scheduled to be completed in October of this year. It is expected that a minimum of six wells will be drilled in the area by the end of 1979 and depending upon results, other wells may be drilled. Once again as with Upper Cook Inlet, all of the wells will be drilled as expendable holes in water depths to 500 feet, at a cost of between $14,000,000 to $19,000,000 per well. This exploration effort including lease costs is expected to exceed $500 million.

PRODUCTION

Currently our industry is producing oil and gas from fields located on the Kenai Peninsula, in Cook Inlet and from the Prudhoe Bay Field located on the North Slope. These operations are located on Exhibits 7-A and 7-B. Crude oil production from the fields located on the Kenai Peninsula and in Cook Inlet averaged 153,683 B/D in 1977. Gas production averaged 1,021,730 MCF per day. Production from the Prudhoe Bay Field is expected to average something in excess of 1.1 million B/D through 1978 and for several years thereafter pending some further...