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Declining Production in Alaska

General discussions of the systemic, societal and civilisational effects of depletion.

Re: Declining Production in Alaska

Unread postby Plantagenet » Wed 25 Jan 2017, 20:03:54

Alaska_geo wrote:turbidites


Delta sequences with turbidites can constitute excellent oil reservoirs and have been successfully developed in many areas of the world. See: lessons-learned-from-43-turbidite-giant-oil-fields

Alaska_geo wrote: I don't think they are running a scam. I think they are trying to put the best spin they can with the data they have.


Thats the nature of the oil biz. Everybody knows there is risk involved, but the exploration geologist tells his story and promotes his plays to management, and after a discovery is made if management wants another company to partner in the development then management tells their story and promotes the sale of a part interest in the discovery to potential partners.


Alaska_geo wrote:
I totally agree that the State should pay up on the exploration tax credit. Trying to postpone those payments is a big mistake by the Walker administration, and probably won't hold up in court. However....The tax credits are (supposed) to be paid just for drilling, whether or not they find anything.


Of course they're supposed to be paid---but they haven't been. This has infuriated Caelus management. The state of Alaska is stiffing Caelus for 200 million dollars and that is a lot of money for a small independent oil company.

Gov. Walker has blocked the legally required payments, and there are folks in the state legislature who strongly oppose the payment program itself. Caelus is owed two hundred million dollars by the state of Alaska, and publicly announcing this discovery puts Caelus in a strong legal position to demand payment, as they have done what they pledged to do and met the rationale behind the tax credits.

alaska-and-oil-a-lesson-in-biting-the-hand-that-feeds-you

"Caelus is the poster child," says [CEO] Musselman, 68. "We were exactly what they wanted to happen."

So imagine his fury when Governor Walker this year vetoed a spending bill that would have paid out $400 million to small oil explorers, as required by law. Walker, an independent politician, is unapologetic....it's easier for politicians like Walker to raise taxes on oil companies than on voters. "The oil tax credit program was not well put together," says Walker, who intends to overhaul the entire law.

"What the governor has done is the opposite of what Alaska needs," says Dave Harbour, former chairman of the state regulatory commission. " Why would anyone invest in a state that has one foot over the edge of a precipice and the other standing on a banana peel? What we need to show investors is that in Alaska a deal is a deal."

"[Alaska] competes for capital with projects around the world," says Joe Marushack, president of Alaska operations for Conoco-Phillips, which is investing billions in the state. "Increasing our costs decreases our ability to invest."

Their importance to Alaska gives the oil companies some leverage in dealing with Walker. "He's kind of stuck his shiv in us," Musselman says. "But he needs us to bail him out." Musselman is not about to back down. He learned long ago that it's worth navigating the political minefield if there's the prospect of a big prize. He has worked in Colombia and Malaysia, and in the late 1990s he led Triton Energy to its discovery of the 500-million-barrel Ceiba field in Equatorial Guinea. After Hess Corp. bought Triton for $3.2 billion in 2001, Musselman formed Kosmos Energy and went exploring off the shore of Ghana. In 2007 Kosmos made the first oil discovery in Ghanaian history, the Jubilee field, which now produces 100,000 bpd. Musselman still holds a big chunk of shares in Kosmos (market cap: $2.2 billion).

Musselman has seen firsthand that amazing amounts of oil can be coaxed out of politically complicated regimes, although it's no compliment to Governor Walker to compare Alaska to Equatorial Guinea and Ghana. He sees the potential for Caelus and its peers to add 400,000 bpd to North Slope output over the next decade. "We can help the state of Alaska solve its fiscal problem for the next three or four generations, if they'll let us." His message to Walker: "Don't spook the money. If you spook the money, they stay spooked."


It can't be any clearer then that----Caelus wants its money from the state.

Cheers!

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Caelus rig drilling at Smith Bay
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Re: Declining Production in Alaska

Unread postby Synapsid » Wed 25 Jan 2017, 21:36:13

Plantagenet,

A gentle reminder, courtesy of Alaska geo:

Caelus does not have a flow test in hand. Start there, please.
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Re: Declining Production in Alaska

Unread postby Plantagenet » Wed 25 Jan 2017, 22:00:15

Synapsid wrote:Plantagenet...
Caelus does not have a flow test in hand. Start there, please.


Patience, my friend. A-Geo's disdain for turbidite reservoirs may be misguided. I've already pointed out that turbidite reservoirs can be successfully produced. Indeed, there are literally dozens of giant oil fields that have been successfully developed in turbidite sequences.

Caelus' estimates are so far based on results from their two test wells. Production tests will come in a third test well planned for the winter of 2017-2018, the company has said.

Cheers!

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Hopefully Caelus will have a successful flow test next winter.
Last edited by Plantagenet on Wed 25 Jan 2017, 22:24:59, edited 1 time in total.
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Re: Declining Production in Alaska

Unread postby rockdoc123 » Wed 25 Jan 2017, 22:06:57

Patience, my friend. A-Geo's disdain for turbidite reservoirs may be misguided. I've already pointed out that turbidite reservoirs can indeed be successfully produced. Indeed, there are literally dozens of giant oil fields that have been successfully developed in turbidite sequences.


The term turbidite covers a lot of ground. There are numerous facies within turbidites some of which have very good reservoir quality and some which do not. There are great fields out there that produce from turbidites but there are just as many that are very poor. This is why it was stated above that the wells need testing. My question is why they would wait to drill a third well before testing. Running a DST is a pretty simple procedure and is done in the Arctic all the time. I could understand if they ran out of time and needed to temporarily abandon the well due to breakup but why not return the next year to test if you think it is that good?
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Re: Declining Production in Alaska

Unread postby Alaska_geo » Thu 26 Jan 2017, 02:26:49

Plantagenet wrote: A-Geo's disdain for turbidite reservoirs may be misguided.
I really wish you would quit crediting me with things that I did not say. For the record, I don't have "disdain" for turbidite reservoirs. I did say that they can be tricky to develop, and that reservoir compartmentalization can be a serious issue.

There are in fact, a quite a number of turbidite reservoirs which have successfully developed. Tarn Field would be a good example on the N Slope. Likewise, there are some that have been not so successful, Badami being a poster child for that.

In any case, this whole discussion of the Caelus play is getting rather tiresome and repetitive. I think I will have no further comment, unless/until some additional data emerges.
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Re: Declining Production in Alaska

Unread postby Plantagenet » Thu 26 Jan 2017, 12:20:08

The Caelus CEO expressed his concerns about getting the money owed to his company under Alaska's oil exploration tax credit plan and expressed optimism about the potential of Smith Bay in a talk given in Fairbanks

caelus-energy-ceo-gives-oil-tax-presentation

The fact that the CEO of Caelus is giving talks about the tax system in Alaska and its relationship to the company's Smith Bay work supports my view that these tax credits were a factor in the announcement of the Smith Bay discovery at this time, before the flow testing was done. I believe this announcement was brought forward to help Caelus make its case for the $200 million it is owed by the state of Alaska.

Caelus Energy Alaska CEO Jim Musselman...at Alaska Support Industry Alliance’s Fairbanks update ....made the case for Alaska’s oil tax credit system.

“... it worries me because I don’t know where we’re going in the state.”

Caelus this week announced its exploration in the Smith Bay oilfield on the North Slope, northwest of Prudhoe Bay, struck a world-class find that could provide some 200,000 barrels a day into the trans-Alaska Pipeline System. For comparison, Prudhoe Bay was estimated to contain about 10 billion barrels when it was first discovered, though further work put it at well more than 20 billion barrels.

The news sparked headlines worldwide and plenty of excitement in Alaska, where those 200,000 barrels would help bolster throughput in TAPS as well as the state’s oil-dependent budget.

“We think this is going to be very valuable to the state of Alaska,” he told the audience. “What it really represents the most is jobs, it’s going to be hundreds and hundreds of jobs. ... This is going to make the North Slope like it was in the early ’80s.”

...Musselman said the biggest challenge to bringing the field online will be the state’s shifting oil tax policies. He argued the Legislature’s most recent efforts have harmed smaller explorers and producers while largely protecting the large companies.

“Something could yet go wrong down the road, but most of the things I worry about are fiscal,” he said. “We need certainty from the state how we’re to be treated. ... We would like to get that locked down for the long term.”

Amid budget pressures, Gov. Bill Walker has vetoed funding for some of the oil tax credits, essentially delaying their payment. Musselman said that veto has slowed progress on the field.

And even though the hundreds of millions in tax credits owed to the company by the state are dwarfed by the roughly $10 billion cost to develop the site, Musselman said it affects the company’s ability to find investors.

“If you don’t have a legitimate tax regime and you don’t have a stable tax regime, it’s going to be terribly, terribly difficult to bring that amount of money in,” he said.

Musselman said .... Caelus is different from the major, legacy producers.

(Without stability in the oil tax system) the state is going to be stuck with the legacy producers forever, who’re basically harvesting their reserves,” he said. “They’re not doing what we’re doing. When’s the last time any of them has drilled a significant exploration well?”


Again, my point here is that the announcement of the Smith Bay discovery by Caelus at this time has two main targets

(1) Caelus wants the state of Alaska to get its act together on oil taxes and it wants the $200 million the state owes it. This announcement helps Caelus put pressure on the state. The CEO says right out loud that if Alaska wants this development, then it had better pay the back taxes. You can't be much clearer then that.

(2) Caelus needs outside backers to develop Smith Bay and the Caelus announcement is meant to get the talks on outside investment started In this talk the CEO puts a number on the price of developing this field---he puts it at 10 BILLION dollars. That would bring another construction boom in Alaska for sure.

Cheers!

Image
The Caelus CEO in Fairbanks making his pitch for State tax rebates of $200 million and outside investment of $10 billion (!) in the Smith Bay project. WOW! Is Alaska going to get another giant oil pipeline project?????!!!! That would make the economy sizzle again. WOW WOW WOW!!
Last edited by Plantagenet on Thu 26 Jan 2017, 14:03:30, edited 1 time in total.
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Re: Declining Production in Alaska

Unread postby Plantagenet » Thu 26 Jan 2017, 14:01:05

Alaska_geo wrote:this whole discussion of the Caelus play is getting rather tiresome and repetitive. I think I will have no further comment, unless/until some additional data emerges.


I hope you will continue to comment on the Caelus play and on any other subject you find interesting. IMHO you are very knowledgable on Alaska's oil geology, and you evidently have excellent contacts within the Alaskan oil community. Your posts in this thread have been excellent.

If If I had to guess, I'd say you are a geologist yourself, and maybe even a development geologist working in the Alaskan oil patch at Conoco or somewhere like that?

CHEERS!
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Re: Declining Production in Alaska

Unread postby pstarr » Sat 10 Jun 2017, 17:19:26

“Caelus postpones appraisal well for big North Slope oil discovery”
“Last October — with great fanfare — Caelus Energy announced it found 6 to 10 billion barrels of oil beneath the North Slope’s Smith Bay, about 2 billion barrels of which is recoverable. If developed, the company said the field could increase the amount of oil going down the Trans-Alaska Pipeline by nearly 40 percent.
At the time, the company said it would release crucial final tests on the discovery in 2018 after drilling an appraisal well this winter. But today, Caelus spokesperson Casey Sullivan confirmed that those plans have changed.”

Meanwhile without the additional oil flow from the much-vaunted new play, the great Alaskan pipeline is ever closer to freezing up (paraffin and water) for ever. It's down from a high of 2 million barrels per day to around 400,000bpd now. Endtimes . . . 300,000bpd . . . within a few years and after that the oil just stops.
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Re: Declining Production in Alaska

Unread postby Hawkcreek » Sat 10 Jun 2017, 17:54:26

They have been working on plans to keep oil flowing down the pipeline for years.
This is part of a study that looked at that:
https://www.nrdc.org/sites/default/files/ene_11092001a.pdf
"Conclusion
In contrast to the “sky is falling claims” by certain groups and individuals, the
TAPS is not in danger of being shut down in the immediate future without opening up
new areas to drilling or a reduction to Alaska’s production tax as long as modest
investments are made to reduce the minimum throughput on the pipeline. Minimum
throughput can be reduced by making a moderate investment in the pipeline which
would pay substantial dividends to the pipeline owners as well as the State of Alaska.
Indeed, our analysis shows that the TAPS owners would lose money by not making
such investments. This is because, without reducing the TAPS minimum throughput,
billions of barrels of oil would be stranded on the North Slope.
"

Another 5 or 6 hundred million investment in heaters, pigging locations, solvent injection, etc, will probably let it get down to 150 K barrels a day pretty easy. Like most everything else in the oil business, money is the most important thing, not the difficulty of the process.
Just depends on how much they can afford to spend to get another 2 billion barrels out of the ground.
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Re: Declining Production in Alaska

Unread postby pstarr » Sat 10 Jun 2017, 18:45:09

Hawk, that's from the Natural Resources Defense Council. Interesting an environmental rather than oil-industry group downplays such a threat? Enviro groups are driven by concerns for global warming. But its an issue we can afford to ignore practically forever, as long as we have cheap energy to huddle and cuddle. Peak oil is scary :?

The article written in 2011 and mentions Alyeska has also having problems implementing its strategic reconfiguration project. To replace four of the original pumps with electric pumps, with a 2005 completion. Never happened. Electricity hardly exists along the 1,500 miles pipeline. What would the heaters run on? Precious oil.
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Re: Declining Production in Alaska

Unread postby Hawkcreek » Sat 10 Jun 2017, 19:58:35

pstarr wrote:Hawk, that's from the Natural Resources Defense Council. Interesting an environmental rather than oil-industry group downplays such a threat? Enviro groups are driven by concerns for global warming. But its an issue we can afford to ignore practically forever, as long as we have cheap energy to huddle and cuddle. Peak oil is scary :?

The article written in 2011 and mentions Alyeska has also having problems implementing its strategic reconfiguration project. To replace four of the original pumps with electric pumps, with a 2005 completion. Never happened. Electricity hardly exists along the 1,500 miles pipeline. What would the heaters run on? Precious oil.

Sorry pstarr, but the strategic reconfiguration project did happen. I happened to be a commissioning lead on the project, and spent 20 months of 12 to 16 hour days making sure it worked. The biggest problem was the cost went from estimated 300 million, to a billion dollars for completion. Because of the cost overruns they did delay the completion of Pump Station One for a few years, but it finally got completed. Where they didn't have enough juice they built new gas fired generators to drive the pumps.
The variable speed pumps and newer automation controls allow much better control of low flow rates, and help somewhat in a cold startup situation.
I always thought it was funny that they spent a billion dollars to reduce the capacity of the line from 2.2 million barrels a day to 1 million a day. Proves they knew that production of the north slope would never go back to its great days - 2.2 million at peak.
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Re: Declining Production in Alaska

Unread postby pstarr » Sat 10 Jun 2017, 20:10:28

Hawkcreek wrote:
pstarr wrote:Hawk, that's from the Natural Resources Defense Council. Interesting an environmental rather than oil-industry group downplays such a threat? Enviro groups are driven by concerns for global warming. But its an issue we can afford to ignore practically forever, as long as we have cheap energy to huddle and cuddle. Peak oil is scary :?

The article written in 2011 and mentions Alyeska has also having problems implementing its strategic reconfiguration project. To replace four of the original pumps with electric pumps, with a 2005 completion. Never happened. Electricity hardly exists along the 1,500 miles pipeline. What would the heaters run on? Precious oil.

I always thought it was funny that they spent a billion dollars to reduce the capacity of the line from 2.2 million barrels a day to 1 million a day. Proves they knew that production of the north slope would never go back to its great days - 2.2 million at peak.

I stand corrected.

But no one reduced capacity, didn't it reduce itself through production decline? Perhaps what was meant was a small-diameter sleeve was inserted to maintain flow rate and friction heat?
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Re: Declining Production in Alaska

Unread postby Hawkcreek » Sat 10 Jun 2017, 20:22:27

No, the capacity was actually reduced due to eliminating the pumping capabilities of the pump stations. They went from 11 pumping stations to just 4 (PS9, PS4, PS3, and PS1). The others are still there, but only serve for leak detection, maintenance repair stations, and surge stations. The old turbine driven pumps don't exist any more, and it would take probably another billion dollar new investment to be able to pump more than a million barrels a day now.
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Re: Declining Production in Alaska

Unread postby Hawkcreek » Sat 10 Jun 2017, 20:24:37

It really was an interesting job. I probably have more miles on the haul road than most full time truckers.
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Re: Declining Production in Alaska

Unread postby pstarr » Sat 10 Jun 2017, 22:04:30

I always thought it was funny that they spent a billion dollars to reduce the capacity of the line from 2.2 million barrels a day to 1 million a day. Proves they knew that production of the north slope would never go back to its great days - 2.2 million at peak.

I find it difficult to believe the people of Alaska would spend even a red cent (much less a billion dollars) to give up $54 million/day income . . . for lack of 7 pumping stations.
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Re: Declining Production in Alaska

Unread postby Hawkcreek » Sat 10 Jun 2017, 22:32:36

When they did that project production had already fallen to below one million barrels a day, so they didn't give up any future cash. They were admitting that they would never make as much production or as much money as they had in the past, and the billion dollar investment would end up saving money on reduction of staff and maintenance at the pumping stations, and allow them to pump at lower volumes for years in the future.
They were correct, even though a lot of people in Alaska seem to have hopes of production increasing again. Most of them don't even know that the pipeline can never transport more than a million barrels of oil per day again. Unless they spend a lot more money to upgrade it again.
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Re: Declining Production in Alaska

Unread postby Subjectivist » Sun 11 Jun 2017, 08:44:02

Hawkcreek wrote:When they did that project production had already fallen to below one million barrels a day, so they didn't give up any future cash. They were admitting that they would never make as much production or as much money as they had in the past, and the billion dollar investment would end up saving money on reduction of staff and maintenance at the pumping stations, and allow them to pump at lower volumes for years in the future.
They were correct, even though a lot of people in Alaska seem to have hopes of production increasing again. Most of them don't even know that the pipeline can never transport more than a million barrels of oil per day again. Unless they spend a lot more money to upgrade it again.
Oh Lord, please give me one more oil boom, and I promise I won't piss this one away. :-D :-D


It seems to me they made a mistake building the pipe so large to start with, what they ended up doing was pumping at peak capacity right at the worst oil slump in decades. If they had sized the pipe at say 1.5 or even 1 MM/bbl/d max capacity they would still have been pumping at that rate or close to it in 2005 when pricestook off. They would also have had the ability to keep flow going down to say 200,000/bbl/d without modifications if they had used the smaller pipe. IMO once again the short term profit margin caused them to miss out on the long term potential gains.
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Re: Declining Production in Alaska

Unread postby Hawkcreek » Sun 11 Jun 2017, 10:45:09

Subjectivist wrote:It seems to me they made a mistake building the pipe so large to start with, what they ended up doing was pumping at peak capacity right at the worst oil slump in decades. If they had sized the pipe at say 1.5 or even 1 MM/bbl/d max capacity they would still have been pumping at that rate or close to it in 2005 when pricestook off. They would also have had the ability to keep flow going down to say 200,000/bbl/d without modifications if they had used the smaller pipe. IMO once again the short term profit margin caused them to miss out on the long term potential gains.

Very possible. When they started building they knew they had the largest reservoir of oil in the US, and probably wanted to make as much profit as possible, as soon as possible.
If they had started out with a limit of 1 million barrels a day, they would have had to give up around 5 to 7 hundred thousand barrels a day for most of the 80's and 90's. During that time oil prices averaged between 15 and 20 dollars a barrel, with the notable exceptions of 1986 and 1998.
If they would have started producing those barrels in the year 2000 instead of 1980, they would have probably made around 120 billion instead of only 60 billion.
But, like Yogi says, “'It's tough to make predictions, especially about the future'”
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Re: Declining Production in Alaska

Unread postby pstarr » Sun 11 Jun 2017, 11:14:24

Guys you are dreaming. We are not OPEC. This here's Murica. Our job is to make money . . . fast. Ever hear of the shale scam? sheesh :P 8)
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Re: Declining Production in Alaska

Unread postby rockdoc123 » Sun 11 Jun 2017, 11:22:28

If they had sized the pipe at say 1.5 or even 1 MM/bbl/d max capacity they would still have been pumping at that rate or close to it in 2005 when pricestook off. They would also have had the ability to keep flow going down to say 200,000/bbl/d without modifications if they had used the smaller pipe. IMO once again the short term profit margin caused them to miss out on the long term potential gains.


time value of money comes into the equation. Whether you have a large diameter or a small diameter line the expense upfront is very large. In order to achieve the best economics it is important to get as much net return early in the game which is probably what drove their decision.
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