American Geological Institute

Government Affairs Program


Another Legislative Drive to Open ANWR? (8-10-98)

The Senate Energy and Natural Resources Committee held an oversight hearing to discuss the United States Geological Survey's (USGS) 1998 petroleum assessment of the Arctic National Wildlife Refuge (ANWR) 1002 Area. This area derives its name from a section of the 1980 bill that originally set aside the land for the refuge.  In section 1002 of the Alaska National Interest Lands Conservation Act,  Congress tagged 1.5 million acres of arctic coastal plain for further research into its wildlife and petroleum resources.  Representatives of the USGS, led by Acting Director Tom Casadevall, testified on the petroleum reserves estimated to be in-place, technically recoverable, and economically recoverable.  Kenneth Boyd, a  geologist with the state of Alaska, commented on the data available to him from the USGS study.  At the end of the hearing, Committee Chair Frank Murkowski (R-AK) announced his plans to draft a bill calling for a seismic survey to be conducted in ANWR and for the USGS to have the "resources necessary to assess the country's jewels".

Excitement over ANWR was recently stirred up after the USGS released its updated estimated reserves of the area, which were made public at the annual meeting of the American Association of Petroleum Geologists in Salt Lake City on May 17th.  Information surrounding the history and activity of ANWR evaluation is given in a June 1998 AGI update and a July 1998 Geotimes article.  The USGS increased its estimate on the mean reserves from 898 million barrels of oil in their 1995 assessment to 7.7 billion barrels of oil in the May 1998 report.  The other major difference from their 1995 report is the shift in geographical location of the major reserves from the eastern part of ANWR in the 1995 study to the western part in the most recent study. With declining production of Prudhoe Bay, oil companies are looking for replacement reserves to keep the capcacity necessary to maintain the Trans-Alaska Pipeline System.

Petroleum industry activity in the Arctic is usually a contentious issue with supporters of the oil industry and environmentalists each citing "misleading information" expounded by the opposing groups.  The 104th Congress sent a bill to the president to open up the 1002 area of ANWR for oil exploration.  Supporters of opening ANWR include Sen. Murkowski, House Resources Committee Chair Don Young (R-AK), Alaska Governor Tony Knowles (D), and the  Inupiat Eskimo village.  In line with Secretary of the Interior Bruce Babbitt, President Clinton vetoed the appropriations bill specifically because of the ANWR provision.  Other opponents to drilling include various environmental groups and the Gwich'in native people.

In Murkowski's opening statement, he listed the results of various efforts to estimate reserves in ANWR.  He continued with a description of ANWR and this country's history of oil consumption.  Murkowski related that the size of the Arctic National Wildlife Refuge is comparable to the area of South Carolina; Alaska produces 20% of the country's oil; and the US is currently importing 54% of its oil.  Stressing the length of time necessary to take a project from exploration to production online as 10 years, Sen. Murkowski said that a scenario of oil consumption for the year 2008 should be governing the policy decisions of today.  He posed questions as to the benefits of a 3D seismic survey in estimating resources and the varying field sizes cited as necessary for economic recoverability.  Sen. Ben Nighthorse Campbell (R-CO), the other committee member present for much of the hearing, voiced his concerns of increasing dependence of foreign oil and the need to make decisions proactively.

Dr. Thomas Casadevall, Acting Director of the USGS, spoke of the procedures used to assess the oil potential of the ANWR 1002 area, the USGS's findings of the study, and a comparison of the new results with those of previous assessments.  The comprehensive study centered around the reprocessing of 2D seismic acquired in 1984 and 1985 by an industry consortium.  The USGS also incorporated log data from wells adjacent to the area being evaluated as well as aeromagnetic information.  Analysis of ten plays, ranging from deformed Paleozoic units to Cenozoic turbidites, incorporated aspects of field size, lithology, and distrubution of accumulations.  Then, they were risked based on source rock, reservoir, and trap.  The technical aspects of the assessment, although not the actual results, were peer-reviewed by the American Association of Petroleum Geologists' Committee on Resource Evaluation.  While the USGS study also assessed the potential for natural gas and natural gas liquids, the testimony only reported on the oil evaluation.

The testimony only reported on the oil reserves despite the inclusion of natural gas and condensate in the USGS study.  The lighter hydrocarbons were excluded because they cannot currently be produced economically on the North Slope.

The study yielded a mean estimate of 7.7 billion barrels of oil (BBO) that could be extracted using current technology (or technically recoverable oil) and without regard to cost.  An economic analysis using 1996 costs associated with producing oil and revenue generated by price per barrel (which ranged that year from $12 to $30) yielded estimates of the quantity of oil that could be extracted for varying prices of oil.  At a market price of $15 per barrel of oil, the mean estimates show that it is not economically feasible to produce that oil.  At that same market price, there is a one in twenty chance (5th percentile) that 2.7 BBO could be recovered economically.  At $16 per barrel, mean estimates put economic recoverability at 1 BBO.  Statistical analysis places the 95th and 5th percentile of economical recoverable oil from 0 to 3.6 BBO at $16 per barrel.  At $20 per barrel, the mean estimate is that 3 billion barrels can be recovered economically with the statistically significant range extending from 0.7 to 6.9 BBO.  Below is a figure from the USGS report expressing the relationship between economic recovery and prices for a barrel of oil.


 

Figure 1. Preliminary summary of new USGS estimates of economically recoverable oil that may occur beneath the Arctic National Wildlife Refuge 1002 area.  The three curves are based on estimates of the technically recoverable oil volumes at the mean (expected) probability, and at 95 percent and 5 percent probabilities.  Each curve relates the market price of oil to the volume of oil estimated to be profitably recoverable.  Market price includes the cost of finding, developing, producing, and transporting oil to a lower-48 refinery plus a 12% after-tax return on investment. Source: USGS
Compared to the USGS's 1987 evaluation, the mean estimate of in-place reserves increased from 13.8 BBO to 20.7 BBO.  The May 1998 study places 85% of the reserves in the undeformed western region of the 1002 area and is less optimistic for the eastern half of ANWR.  Murkowski presented the USGS's view of the eastern part as being overly pessimistic.  In 1986, the Kaktovik Inupiat Corporation in partnership with British Petroleum and Chevron drilled the only well ever inside ANWR. This well was located in the deformed eastern part of the ANWR 1002 area.  Although the results are being held confidential by industry as proprietary information, Murkowski inferred that the eastern part must be rich in oil because those companies have continued financial investment in this part of ANWR.  While acknowledging that the USGS study was not able to include the data from that well, Dr. David Houseknecht, the USGS energy program coordinator who was accompanying Dr. Casadevall, reiterated that the study was based on all data available which which indicated a questionable presence of Ellesmerian reservoir rock in the east.

Mr. Kenneth Boyd, Director of the Alaska Division of Oil and Gas was called to testify about the USGS findings.  He reviewed the factsheet available to the public and not the full report which will be finalized within the next two to three months as assured by Dr. Houseknecht.  Mr. Boyd made the following general observations from the USGS fact sheet:

  1. "the estimates for finding recoverable oil are quite high, and in fact, have been increased from previous assessments;
  2. "these scientists believe the bulk of the undiscovered oil resides in the northwest part of the 1002 area rather than to the east as was assessed in previous studies;
  3. "more oil has been allocated to the younger (Brookian) reservoirs in stratigraphic traps; less oil has been allocated to the deeper Ellesmerian reservoirs in structural traps;
  4. "the assumed 512 million barrel commercially developable field size for ANWR is probably too conservative for the undeformed, western part; smaller accumulations are likely to be economic, especially if infrastructure is established in the Point Thomson, Sourdough and Flaxman areas."
Boyd stressed that the improved visualization that 3D seismic surveys bring to exploration and production has led to a decrease in development risk and a reduction of environmental impacts.  He commented that legislation from the past few years has been partly responsible for the good business climate (likely referring to a law, P.L.104-58, passed by the 104th Congress allowing Alaska to export oil to the foreign market).  He testified that the threshold size for an economic field continues to shrink with greater technological innovation, such as 3D seismic, directional drilling, coiled tubing drilling, and through-tubing rotary drilling.  Mr. Boyd cited favorable development costs for fields of 120-365 million barrels compared to the USGS assigned 512 million barrels for a stand-alone field to be commercial.

Boyd addressed the application of 3D seismic to unitization and royalty issues.  He referred to how British Petroleum's Sourdough field abuts the northwest corner of ANWR (see fig. 2).  Murkowski expressed concern about the potential drainage of "taxpayers oil" by British Petroleum if their field extends into ANWR.  This appeared to be a main factor in Murkowski's decision to introduce a bill allowing a 3D survey within ANWR.  With that reasoning, the federal purse would benefit from Sourdough royalties.  The well spacing and associated drainage areas on the North Slope are generally small due to the higher viscosity of the oil. Therefore, if the reserves associated with Sourdough are the only consideration for a survey, one question to ask would be, "Are the potential lost reserves in excess of the cost of a 3D survey?"  Boyd's written testimony expounds on the clarity a 3D survey would lend to the deformed areas of ANWR that the 2D seismic cannot resolve.  However, the deformed areas are in the east in contrast to the Sourdough well being in the west.

 

Figure 2.  Map of the ANWR 1002 area.  Dashed line labeled Marsh Creek anticline marks approximate boundary between undeformed area (where rocks are generally horizontal) and deformed area (where rocks are folded and faulted).  Boundary is defined by Marsh Creek anticline along western half of dashed line and by other geological elements along eastern half of dashed line.  Exploration wells are coded to show whether information from them was available for the 1987 USGS assessment of in-place petroleum resources.  Dashed red line shows the offshore extent of the entire assessment area.  Source: USGS
During the question and answer session, there was much talk among Mr. Boyd and Senators Campbell and Murkowski about the minimal impact drilling has on the land. Mr. Boyd discussed the short lifetime of fields, mitigation efforts, and the technological advancements that have come to reduce the impact on the environment.  Sen. Campbell spoke of his observation of areas of the Southwest where vibraseis trucks have been and left no trace.  Sen. Murkowski held up photographs of bears walking on top of the Trans-Alaskan Pipeline System.  This was likely done to counter environmental groups' claims of damage to lands with oil drilling and infrastructure.
 
Concluding the hearing, Murkowski took the opportunity to voice his opinion on the report as being too conservative in its estimates.  He holds enthusiasm for the deformed eastern part of ANWR based on the activity of the companies with confidential well log information inside of ANWR.  He closed with remarks that as an oil-dependent country, we cannot ignore an area of such potential significance.  An Energy Committee staffer said that Murkowski and his own staff are currently discussing whether the bill to allow 3D surveys within ANWR will be introduced after the August recess or in the beginning of the 106th Congress.
 

Sources and Related Sites
USGS ANWR factsheet
Congressional Research Service issue brief
Senate Committee on Energy and the Environment
Arctic Power's ANWR website
Alaska Wilderness League and  NRDC factsheet
Brown, David. How much oil is really there?  AAPG Explorer.  April 1998.


Please send any comments or requests for information to the AGI Government Affairs Program at govt@agiweb.org.

Contributed by Joy Roth, AGI Government Affairs Intern

Posted 10 August 1998


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