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Page added on March 15, 2017

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An Oil Legend’s Biggest Hunt Ever: 10 Billion Barrels in Alaska

Geology

It’s hard to tell where the world ends here on the Alaska North Slope.

In the subzero twilight, when the Arctic winds snarl, snow and cloud stretch to every horizon in a seamless vault of spectral white. Beyond the tundra, five miles out on the frozen sea, oil workers from a tiny outfit called Caelus Energy have welded the drilling rig shut against trespassing polar bears.

“Spooky,” one of them says into the whiteness, and he’s right. The North Slope in February is beautifully, impossibly spooky.

This is where Jim Musselman hopes to save Alaska, or at least make a fortune trying.

In a shallow estuary called Smith Bay, Musselman’s flyspeck company will work to extract an astonishing 6 billion barrels of crude. The nearby tundra, Caelus says, could yield 4 billion more.

If Musselman is right—if he can actually make this happen—it would be nothing short of a miracle. Everyone in the state knows firsthand that the fracking revolution in the Lower 48 has crushed Alaskan oil, that ‘70s-era answer to OPEC. Four decades after the Trans Alaska Pipeline System went live, transforming the North Slope into a modern-day Klondike, many Alaskans fear the best days have passed. Jobs have vanished. The budget in Juneau is a disaster.

And all of this, every last painful bit, comes down to oil, the state’s lifeblood. Hard economics are slowly rendering the Tans-Alaska obsolete. The great pipeline, and the money, are running low.

Which is why everyone from the governor down hopes Musselman can somehow pull this off.

“With an oil pipeline that is three-quarters empty, this is good news,” Governor Bill Walker said when word came of the Smith Bay find.

Good news, yes. But also a monumental challenge, and a monumentally expensive one. The closest pipeline is 125 frozen miles away. Linking up would cost roughly $800 million, Musselman says. That’s the cheap part. Actual production could run $10 billion over a decade. Even Musselman, a Texas oilman with a record of big discoveries, might have trouble raising that kind of money.

David Houseknecht, a senior research geologist at the U.S. Geological Survey, says the Smith Bay discovery seems to have incredible potential. Then he adds: “But it’s the last one you’d want to bet your retirement money on.”

Even in the winter white-out, work never stops on the North Slope. On this mid-February day, BP Plc workers are plowing snow, fixing pipes and laying ice roads as the temperature falls to 30 below. An archipelago of brightly lit pump stations, drilling rigs and work camps spreads for miles.

Musselman, 69, dreams of turning Smith Bay into a rival to Prudhoe Bay, 150 miles to the east, where the Trans Alaska starts its 800-mile journey southward. Mega-major BP rules Prudhoe Bay. Caelus, by comparison, has 100 employees.

But no one searches for oil in Alaska unless he’s prepared to be lucky. “North to the Future”—that’s the state motto. When the oilmen came to this last great U.S. wilderness, they transformed it into a mini petro-state. Not even the 1989 Exxon Valdez spill, which blackened 1,300 miles of coastline, could cool the oil lust. Every Alaskan gets a cut just for living here. For decades now, the state oil wealth fund has paid each resident an annual dividend.

But in a world of fracking and lower-for-longer oil prices, why bother with Alaska? Big Oil has largely abandoned plans for the North Slope. Last year, a mere 515,000 barrels flowed through the Trans Alaska, roughly a quarter of the volume three decades ago. Walker cut Alaskans’ dividend checks at $1,000, half what they used to be.

What is Jim Musselman thinking? The answer, here in the frozen north, is elephants.

Elephants: that’s what people in the oil game call huge finds. A painting of a herd covers an entire wall of Musselman’s office in Dallas. Maps of all sorts—Victorian London, Viking sea routes, the Roman Empire—dot the cherry paneling.

“I’ve always been fascinated by the early maps, by the spirit of people that didn’t know what was there and would just strike out across the ocean,” Musselman says. He has maps of the North Slope, too, big enough to wallpaper the room.

Musselman is a fourth-generation Texan who grew up on a ranch half the size of Manhattan. He bagged his first elephant in 1999, off the coast of West Africa, and eventually sold his company to Hess Corp. for $3.2 billion. Then, in 2007, he caught another big one, off the coast of Ghana.

Exxon Mobil Corp. offered Musselman $4 billion for the stake in the elephant that was owned by his company, Kosmos Energy, but Ghana blocked the sale in a dispute over royalties. Musselman made plans to take Kosmos public, even as the company became embroiled in a local bribery scandal. Even though investigators found no wrongdoing, Musselman was forced out, four months shy of the initial public offering. He left with shares worth tens of millions of dollars.

Unbowed, Musselman established Caelus, named for the Roman sky god. Apollo Global Management, the private equity giant, agreed to invest as much as $1 billion.

“Jim’s a visionary who’s had rare, repeated successes in discovering billions of barrels of oil in some of the world’s most challenging environments,” said Greg Beard, an Apollo senior partner.

Now Musselman has caught an elephant in Alaska. He just has to figure out how to get all that oil out of the ground and over to the Trans Alaska Pipeline. The shortest route runs through the pristine wildness near Teshekpuk Lake, home to caribou and polar bears. One tricky alternative would be running an undersea pipeline along the coastline, which is eroding because of climate change. Another would be to snake the pipeline somewhere else, away from Teshekpuk Lake.

Whichever way he goes, Musselman needs money first. He says he could take Caelus public or find a merger partner. Or he could simply “turn the keys over” to a bigger company. All of those would have been easier a few years ago, when oil prices were higher and Alaska was handing out generous tax breaks to the industry.

Musselman, in his gravely Texas drawl, told Forbes last year that Walker, the governor, “stuck his shiv in us.” Alaska, Musselman complained, had done an about-face on the tax breaks that helped make Alaskan oil profitable. Walker, an Independent elected in 2014, said Alaska could no longer afford such largesse. He suspended $430 million of tax breaks and took the politically risky step of reducing dividend payments to residents.  Walker says he had little choice. “It would be a little unusual if they were not part of that discussion,” the governor says of the oil companies. He’s promising to help drillers in other ways, such as supporting expanded North Slope processing and building roads to open up more of the area for development.

Musselman tries to be diplomatic about it. Caelus had $100 million of tax breaks frozen. That’s enough to make a difference, given his dreams for Smith Bay. He acknowledges Walker faces an “impossible” fiscal situation, but says he is confident Alaska will make good eventually.

Last week, Spain’s Repsol SA announced a 1.2 billion barrel discovery west of Prudhoe Bay, and Conoco greenlit three new fields in the past year. Still, the scrape over taxes is scaring off some would-be investors just as new discoveries are being made, says Paul Basinski, CEO at Houston-based Burgundy Xploration, another explorer prospecting in the north.

“Every one of them is concerned,” Basinski says of the investors he’s approached. “If there was more certainty there, funding would be a lot easier.”

Plenty of small explorers like Caelus are sniffing around Alaska these days, but Big Oil is still king. Giants like ConocoPhillips, Exxon and BP, the North Slope’s top producers, have the wherewithal to shoulder the high capital costs. But even for these giants, Alaskan oil is still a tough call. Costs vary, but the state estimates that it takes $50 on average to produce a barrel of North Slope oil and move it to market. At current prices, Alaskan oil barely breaks even.

“People are worried about the future,” says Janet Weiss, president of BP’s Alaska division. “It’s a lower-for-longer world, and we’ve got to find a way to adapt to that.”

Back at Smith Bay, Caelus plans to drill a $100 million test well to help determine how much oil can be pumped. To find a buyer or partner, Musselman knows he has to take into account the lower-for-longer reality. He also knows he can’t bring Smith Bay oil to market alone. But he’s never been a corporate guy anyway. He’s an elephant hunter.

“I don’t think I’m any smarter than a lot of people in this business,” Musselman says. “I just have enough stupid confidence where I think that I can find things that no one else can.”

RIGZONE



25 Comments on "An Oil Legend’s Biggest Hunt Ever: 10 Billion Barrels in Alaska"

  1. onlooker on Wed, 15th Mar 2017 4:00 pm 

    Lets see world oil consumption averaged about 98 million barrels per day in the first quarter of 2017, so these 10 billion barrels would service the world about 100 days!! Good to know

  2. MD on Wed, 15th Mar 2017 4:19 pm 

    As always, referring to a single field in it’s number of days of worldwide production is one of, maybe the biggest of all, peak oiler’s straw men. It has no meaning.

  3. onlooker on Wed, 15th Mar 2017 5:17 pm 

    No meaning? Just part of the continued trend of less discoveries in size and quantity. So that IS important. Or should be to a person not blinded by confirmation bias or something worse

  4. MD on Wed, 15th Mar 2017 5:52 pm 

    What’s meaningful is flow rate over time and it’s ultimate production curve. My cynical self assumes that it will come of nothing… a non-starter in other words. But who knows. Maybe it will help fund keeping the pipeline open for a few more years.
    Again “It’s only xx number of days world wide consumption” has no value and adds nothing to the conversation.

  5. MD on Wed, 15th Mar 2017 5:54 pm 

    If you want to add meaning, do what you claimed it was. Total up the discoveries for this year and add their production profiles together. Then you have something meaningful.

  6. makati1 on Wed, 15th Mar 2017 6:41 pm 

    You are a hunter-gatherer in 50,000BCE.

    Last year, you found a herd of wildebeests and ate well.
    Last month, all you could find was a few scrawny wild pigs, but that was enough to survive.
    Last week’s find was some wild rabbits. The tribe is losing weigh fast. A few are dying.
    Yesterday, it was a few roots and berries…

    THAT is what is happening to the FF energy source. We are at the scrawny pig stage, soon to be looking for rabbits and then…?

  7. Boat on Wed, 15th Mar 2017 7:13 pm 

    Metro Manila is over 100 million with dirty air, water, poor trash service, dirty looking, light and noise pollution. Humans just stacked on top of each other. One of the worst places to live in the world. How is that rabbit hunting going for you. Lol

  8. makati1 on Wed, 15th Mar 2017 7:29 pm 

    Boat, you spew a lot of bullshit, but no real facts. Have you ever heard of Google?

    Actually, they have no rabbits here. But then you have no idea what it is like here, only American bullshit, propaganda Koolaid to swill and fuck up your mind. Do some research, or better yet come and visit and see reality, not propaganda.

    Everything you said is wrong in some way. But then, you just want to pretend that America is better. A delusional fantasy soon to be disproved in ways that you cannot ignore. Be patient. LOL

  9. Anonymous on Wed, 15th Mar 2017 8:02 pm 

    ….Boatard is the PO.coms village idiot. You know that. Actually, that’s not fair.

    He too fucking stupid to be ranked village idiot. Even village idiots have a bare minimum of intelligence they can display on occasion.

    With boatard, you don’t even get that much.

  10. Boat on Wed, 15th Mar 2017 8:47 pm 

    When dealing with racist idiots one can never expect to many kumbya moments. The ability to google and have any kind of a normal perspective shows in most of the posts. But hey, what do you expect from humans, common sense? Lol

  11. GregT on Wed, 15th Mar 2017 10:14 pm 

    “When dealing with racist idiots one can never expect to many kumbya moments.”

    The Boat non-sensical quote of the day. Anybody care to take a stab at translating this bastardization of the English language?

  12. makati1 on Wed, 15th Mar 2017 10:47 pm 

    Boat must be a masochist*. He keeps coming back for more…more…more.

    *Masochism is the practice of seeking pain because it is pleasurable, named for Leopold von Sacher-Masoch. WIKI

  13. GregT on Wed, 15th Mar 2017 10:57 pm 

    Somehow, I get the feeling that Boat has been beat up a lot throughout his lifetime.

  14. Sissyfuss on Thu, 16th Mar 2017 12:42 am 

    You have to speak Boataneese to understand him, Greg. Don’t worry, he’ll make sense to you in 40 years when the Alzheimers really kicks in.

  15. superpeasant on Thu, 16th Mar 2017 2:05 am 

    So this guy is going to ‘save Alaska’ by hoping to set in motion the release of several million more tons of CO2 into the atmosphere, which will in turn reduce snow and ice cover to allow more absorption of sunlight and release more millions of tons of methane from the seabed and permafrost as they warm up. What an interesting use of language.

  16. GregT on Thu, 16th Mar 2017 2:37 am 

    superpeasant,

    From my understanding, the only positive self reenforcing feedback mechanism that we humans have any control over, is to not extract more oil from the Arctic. Not surprising in the least, that is exactly what we humans are about to do.

    The only difference between us, and yeast in a Petri dish, is that we are supposedly a highly intelligent species, and we should know better. Apparently this is not the case. We will continue to exploit every source of energy that we can possibly burn, until our Petri dish becomes overly toxic, and we completely kill ourselves off. Human beings, especially those of us of the white variety, are an evolutionary dead end. Our numbers continue to grow at a rate of around 80 million people per year. In ten tears time we will have added as many humans into the biosphere as what is generally thought to be the maximum that the Earth can realistically sustain.

    Short of an alien invasion, or divine intervention, we are done as a species long before the end of this century. If or when runaway climate change kicks in, (which may already be the case) our survival could very well be measured in decades, or less.

  17. dkb on Thu, 16th Mar 2017 3:18 am 

    10 billion barrels won’t be enough, but it will come in handy.

    The Tribine, a new type of combine that has two motors, a 27 ton grain tank, 33 bushels per ton, 900 bushels, has a 500 gallon fuel tank, enough to operate for 24 hours, 20 gallons per hour, needs fuel and oil the most of all.

    It doesn’t go if there is no fuel.

    Tribine:

    https://m.youtube.com/watch?v=bQJzk5x7Pl4

  18. makati1 on Thu, 16th Mar 2017 6:09 am 

    GregT, nice post! But if you want to be liked, you have to put some unicorn rainbow “What if”(s) in there and some “Maybe”(s) and “If only”(s) to give the ignorant masses hope.

    At least yeast will likely survive in some form after the SHTF. Humans won’t. If the climate change hockey stick graph keeps climbing, 2050 may be optimistic for the extinction date. Maybe I’ll get to hear the fat lady sing. I’ll only be 106. LOL

  19. rockman on Thu, 16th Mar 2017 8:40 am 

    MD – “peak oiler’s straw men. It has no meaning.” I’ll split the sheet with you and the Looker. Of course that potential discovery won’t “service the world for 100 days”. In fact, it won’t service the world for 1 day. In fact, even if production reaches a rather optimistic 500,000 bopd it will service the world for only 7 minutes.

    And since the subject of this site is PO (the max rate global production ever attained) how does this POTENTIAL reserve increase that date? Rather hypothetical since we have to make some assumptions…like what I the PO rate and when does it happen. As usual the date has no great relevance so let’s focus on the extension of that date from what it would have been without the new production. So another baseless assumption: global PO is reached the day before the field comes on at whatever rate. So, very theoretically, the new field will extend the GPO by 7 minutes.

    Now we have some f*cking meaningful perspective. LOL.

  20. onlooker on Thu, 16th Mar 2017 9:10 am 

    Thanks Rock your expertise always welcomed. Sorry if I and others make statements that are “all broth and no beans.” Texas saying

  21. MD on Thu, 16th Mar 2017 9:58 am 

    rock: in the referenced case it’s all about how those potential flows impact the TAP over time. That’s all I’m saying. In that context the total contribution of the potential reserve with regard to how many days it can support worldwide consumption is meaningless.

  22. MD on Thu, 16th Mar 2017 9:59 am 

    TAP is still a dead man walking, in my cynical and skeptical view. But time will tell.

  23. onlooker on Thu, 16th Mar 2017 10:16 am 

    Yes, we can narrow down and be more precise about a potential reserve assessing the flow rate, hoe economically viable/recoverable the reserve is within a certain range of oil price. Yet ultimately, we still must concede that discoveries have been drying up in size and quantity. That is what i was getting at considering how as a whole industrialization has continued increasing with the commensurate need for energy

  24. rockman on Thu, 16th Mar 2017 1:08 pm 

    MD – Yes indeed: keeping TAP viable would be a major value of any new production. And having TAP in place with enough useful life left may be a critical go/no go component of developing that new field.

  25. Nony on Thu, 16th Mar 2017 7:50 pm 

    10 bills here, 10 there. Soon it adds up.

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