Winter drilling in Alaska: almost shuttered by high state taxes and the feds.

AuthorBradner, Mike
PositionOIL & GAS

This year's winter exploration season on the North Slope looks to be another modest one. Three rigs are contracted to work on exploration drilling in areas west and northwest of the producing Prudhoe Bay and Kuparuk River fields. A fourth will be drilling far to the southwest, near Umiat.

Three of the rigs contracted are by one company, Repsol. The fourth is by Linc Energy, an Australian independent. Exploration drilling in northern Alaska is typically done in winter when the tundra is frozen and drilling rigs and equipment can be moved overland.

Overall it is not a bad season compared to two years ago when only one rig worked on exploration drilling. Things may get better be cause two other companies may be drilling test wells. They are Brooks Range Petroleum and Great Bear Petroleum, both Alaska-based independent companies--but those plans aren't certain yet.

Four rigs at work, besides those drilling production wells in the producing fields, is not a bad season. However, many feel there should be far more exploration activity on the North Slope given the high geologic potential of the region, the high level of crude oil prices, and particularly the generous state exploration incentives that can pay as much as 50 percent to 70 percent of the cost of a well.

Most people in industry, however, blame the lack of more activity on the state's high oil and gas production tax, which basically takes most of the profit if an explorer is lucky enough to make a find.

The state's high tax rate wouldn't be so bad if there were enormously profitable giant oilfields on the North Slope waiting to be discovered, but there aren't. The outlook is instead for discoveries that are modest in size, as acknowledged by explorers like Repsol and Brooks Range Petroleum, although there is always hope for a larger find.

Drilling Factors

When the modest expectation is combined with the high state tax rate--and with the North Slope's notorious high costs, particularly for remote wells where temporary ice roads and ice pads are needed--there's no wonder few companies are looking for oil on the slope.

The state's exploration incentives are only one factor a company weighs when considering exploration. Most important is the resource potential and whether lands with potential are available. Even though the prospects are for only modest discoveries in the central North Slope area there is a good possibility that a number of discoveries can be made. If enough of these are made...

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