As world leaders meet for discussions on climate change and Leonardo DiCaprio gives speeches to the UN and makes documentaries about global warming (“Before The Flood” is scheduled for release on October 31), no one can deny the ever-existing need for fossil fuels in our daily lives – fuel, electricity, heat, medicine, cosmetics, plastics, synthetic fabrics, lubricants, etc.
According to a July report from Norway-based Rystad Energy, America has more untapped oil than Saudi Arabia and Russia, with more than half being unconventional shale oil. The company said much of this shale oil was previously unreachable but that updated fracking techniques and new technologies have “reshaped the global energy landscape,” according to money.cnn.com.
After drilling two exploration wells, Caelus Energy Alaska LLC estimate the recently discovered Smith Bay reservoir contains roughly 6 billion barrels of oil under the current leasehold and upward of 10 billion barrels if adjoining acreage is included. (Photograph courtesy of Caelus Energy Alaska LLC)
“This has been a revolution. Ten years ago, nobody would have dreamt this would have been the result,” Jarand Rystad, chief executive officer of Rystad Energy, told CNNMoney.
With the United States’ new status of potential king of the oil field, and despite the push for alternative fuels and a lowering of emissions, oil and gas exploration is still an important and profitable business.
Earlier this month, Caelus Energy Alaska LLC announced its subsidiary in Smith Bay made a significant light oil discovery on its state leases on the North Slope of Alaska. With 126 square miles of 3-D seismic imaging, the company drilled two wells earlier this year and now estimates roughly 6 billion barrels of oil are under the current leasehold (upward of 10 billion barrels when adjoining acreage is included), according to a press release.
“This discovery could be really exciting for the state of Alaska. It has the size and scale to play a meaningful role in sustaining the Alaskan oil business over the next three or four decades,” Jim Musselman, chief executive officer of Caelus, explained in a statement. “Fiscal stability going forward is critical for a project of this magnitude. Without the state tax credit programs, none of this would’ve happened, and I’m not sure Caelus would’ve come to explore in Alaska. We’re proof that the credit programs work.”
In Alaska, almost all oil and gas is on state-leased land, according to Kara Moriarty, president and chief executive officer of the Alaska Oil and Gas Association. She said twice a year the state conducts lease sales in which the highest bidder wins. Moriarty explained that this is different than in areas like Texas where much of the drilling is on private land.
When exploring for oil, the first step companies take is to conduct a seismic survey using 3-D imaging technology that allows them to discover possible gases and liquids in rock formations without intrusive drilling. Moriarty said permitting for a seismic survey is not a big deal, but if oil or gas is discovered, every step afterward is extensive and expensive.
Because of Alaska’s wetlands and its population’s overall pride in its landscape, companies’ permitting processes usually involve dealing with the National Environmental Policy Act and could require working with upward of 20 or 30 different state and federal regulatory agencies, more than required by companies in the lower 48, Moriarty said.
“It can be very expensive. Depending on how big the project is and how extensive it is, you can get into hundreds of millions of dollars to do permitting,” Moriarty said. “Rig costs can range anywhere from $50 million to $100 million. We don’t have any new fields that have come online on the North Slope for under a billion dollars.”
Along with added regulations, Alaska faces other challenges: the terrain and the weather. Moriarty explained that unlike the lower 48 states that can explore, produce and move rigs practically 365 days a year, the sensitive environment in Alaska leaves a very small window for exploration. Without existing infrastructure, ice roads must be built, which can only be done in the winter. So timing is a lot more calculated in Alaska and timeframes from lease to production are a lot longer, taking six to seven years on average.
In contrast, Moriarty said companies in places like North Dakota or the Permian Basin can go from exploration to production in a matter of months. However, she pointed out that rigs can come down just as fast as they go up, which can lead to a severe drop in jobs.
Due to the high cost and constant permitting processes, Moriarty explained that sometimes companies will simply walk away from an investment. She recalled an instance where Shell Oil Company spent $7 billion on a project in which they drilled one exploration well. The well did not yield the results they were hoping for, so instead of spending more money on permits and wells, the company abandoned the project.
The future of oil production in the U.S., and Alaska specifically, is in question during this election cycle. Moriarty said that Hillary Clinton’s stance on ending the leasing of federal land to oil companies and her call to cease hydraulic fracturing (fracking), which has been utilized in Alaska without incident for the last 50 years, would be a huge blow to the Alaskan economy. Moriarty explained that between the elections and recent state government changes, Alaskan companies’ challenges aren’t below ground, as there is plenty of oil, but rather above ground through excessive regulations.
“The reason we live here is because of its natural beauty and the pristine nature that we all love and enjoy literally in our backyard,” Moriarty said when speaking about safety precautions oil companies take. “We don’t give safety lip service – it is real. It’s part of our business. We budget for it, we plan for it. And we would not be able to be successful without keeping our employees and our environment safe.”
Locally, Signal Hill Petroleum (SHP) faces these same challenges of permitting, regulations and safety, but with one major addition: people. Being an oil company that explores, drills and produces oil within established communities adds new hurdles to overcome.
Dave Slater, the executive vice president and chief operating officer for SHP, said the company is very proud of its accomplishments over the last 10 years. One of the top achievements Slater mentioned was the company’s completion of its 3-D seismic imaging project of about 40 square miles of the Greater Long Beach Area. As a result of the project, the company discovered new wells and reserves.
“Cumulative recovery to date is around a billion barrels, which makes it a super giant field,” Slater said. “With the imaging technology and drilling deeper, we’ve discovered whole new horizons underlying existing production that hasn’t been produced before in a 100-year-old oil field. In a lot of ways, we’re just starting to scratch the surface.”
Earlier this month, Caelus Energy Alaska LLC announced that its subsidiary in Smith Bay made a significant oil discover on the North Slope of Alaska on its government-leased land. (Photograph courtesy of Caelus Energy Alaska LLC)
According to Slater, the Long Beach Oil Field is the only field of this magnitude and size that doesn’t have a fence around it as a buffer zone with the public, and that is why the operations here are so unique. Because wells are surrounded by residents’ homes and businesses, Slater boasts the company’s dedication to safety as being above and beyond best industry practices.
The company encourages residents to report noises, smells or leaks immediately so that they can be addressed quickly in order to avoid being a nuisance or becoming a bigger problem. He said this policy, along with allowing project access to anyone who requests a tour, goes a long way in helping the company coexist with the community.
Signal Hill Petroleum takes community and environmental safety very seriously and monitors its operations with surveillance operators and personnel that are on patrol and working 24/7, Slater explained.
Though the company is not currently drilling – as part of a recent cost structure adjustment to offset oil prices – it does have more than 400 operational wells, according to its website. Slater said that once every quarter, the company contracts a third party to conduct an inspection of more than 70,000 components to assure all of SHP’s equipment is up to code and not at risk of failing.
“Our overarching paradigm is to be a good neighbor. And when we do that, our neighbors return the courtesy, and we coexist very peacefully,” Slater said. “If we can’t do it and keep our neighbors happy, then we shouldn’t be doing it.”