A small Texas oil company could be leading the way toward Alaska’s next big oil boom, an “unconventional” oil play that lawmakers are hoping could fill up the pipeline and the state treasury for decades to come.
Oil fracking, the highly controversial drilling technique being used Outside, appears headed for the North Slope in a big way. Great Bear Petroleum LLC, of Austin, Texas, has been the star of the legislative show in Juneau in recent days, with power points and promises of a new drilling program that could soon boost oil flow through the trans-Alaska pipeline considerably — even to 1 million barrels a day if the state or other investors wanted to help finance more wells than Great Bear can currently afford.
“Spectacular,” “extraordinary” and “amazing” are words echoing through the Capitol since Great Bear’s presentation on Saturday, a meeting that kept committee members in their seats for nearly three hours.
“I think it’s potentially huge,” says Sen. Bill Wielechowski, vice chair of the Senate Resources Committee which hosted the presentation. “It’s one of the biggest developments in the Alaska oil fields in years.”
Alaska’s high hopes for Texas oilmen
Earlier last week, the committee also heard from state Department of Natural Resource officials including petroleum geologist Paul Decker who cautiously acknowledged that oil fracking projects on the North Slope “could be quite a whirlwind.” Decker noted that the new drilling technology and its potential to reach vast untapped resources is something the department is only just beginning to study.
But the company, like others in the Lower 48, is moving fast. In October, Great Bear surprised state officials and industry observers by scooping up 500,000 acres at a North Slope lease sale. The company paid more than $8 million for exploration rights to about 92 percent of the acreage being offered that day. ConocoPhillips bought one tract, and another private investor bought a handful more.
Great Bear President Ed Duncan and vice president Bob Rosenthal are veterans of the Alaska oil fields, having worked for BP and Exxon for years. The two along with other business partners formed Great Bear specifically to focus solely on Alaska oil production, Duncan told the Senate Resources Committee on Saturday.
What Duncan and his partners are hoping to get at is some of the billions of barrels of oil that remain trapped in the “source rocks” that have already fueled Prudhoe Bay, the largest oil field in North America and one of the largest in the world.
Duncan, who didn’t return a call to his Texas office for this story, told the committee that Great Bear hopes to pump 2 billion barrels of oil and 12 trillion cubic feet of gas from the leases they bought last year. And they plan to do it in fairly short order — he said the company could be “selling oil into TAPS” by the summer of 2012.
According to Duncan, who says he has more than 30 years experience as a petroleum geoscientist and business development manager, there is still a tremendous amount of oil and gas deep in the Earth, trapped in geologic formations that have been far from fully tapped by the major oil producers at Prudhoe Bay.
In fact, he told lawmakers, only about 20 percent of the oil from the source rocks has been pumped, and that is oil that had migrated to areas where it flowed relatively easily when conventional wells were drilled.
But 80 percent of the resource is still there, stuck in the rock, Duncan believes. The challenge is how to get it out both from an engineering standpoint and an economic one.
In just the last few years, breakthroughs have been made in drilling technology, most notably with hydraulic fracturing, or fracking, as it’s come to be called. It’s considered unconventional because the engineering risk is greater and the resource doesn’t flow naturally so “massive stimulations” are needed to recover the oil or gas, geologists say.
Basically, a vertical well is drilled straight down for several thousand feet then turned and continued horizontally, sometimes for as long as two miles or more. Large amounts of water, chemicals and sand are pumped in until the pressure is great enough to shatter the horizontal arm, creating tiny fractures that spread the entire length. The sand keeps the cracks open but is porous enough to allow the oil to flow through the cracks and into the well bore where it’s then pumped to the surface.
In the Lower 48, the public is hearing plenty about the Bakken formation in North Dakota, the Marcellus shale gas fracturing operations in Pennsylvania and the Eagle Ford oil formation in south Texas.
According to Duncan and Decker, unlike the new areas in the Lower 48 where a single geologic formation is being tapped, the North Slope has three potentially prolific formations right on top of each other that extend from the Chukchi Sea on the west to the edge of the Arctic National Wildlife Refuge on the east. Legislators have now been briefed — twice — in great scientific detail on the Shublik, the Kingak and the Hue, sometimes called the GRZ. And, taken together, the three offer a potentially a far richer resource than any of the finds Outside, the geologists say.
“The fact that we have three on the North Slope provides truly an extraordinary opportunity,” Duncan said.
Fracking could pump 1 million barrels of oil a day
Great Bear’s leases are basically south of the existing Prudhoe Bay operating area and near the trans-Alaska pipeline system and haul road. The company wants to first tap what is roughly the eastern end of the Shublik — its “primary target,” according to Duncan — and, later, the Kingak and Hue.
Great Bear hopes to drill two wells early next year in a pilot project that that would also produce commercial although small amounts of oil. Phase 1 of the development envisions drilling 200 wells a year for 15 years. Each well would level off at about 500 barrels a day but Duncan said that added up to 150,000 barrels a day “for a long way out.”
That scenario is just the basic business plan the company is now working with. But Duncan said the technology is there — and advancing every year — to delver 1 million barrels a day “if the state needed it and wanted to drill the wells.”
Lawmakers wanted to know why not 1,000 wells a year and Duncan pointed out that Great Bear is limited by financing — company officials have put the cost of one of the wells on the North Slope well at about $10 million compared to about $6 million per well in North Dakota or Texas. But “if the capital is there and the ability to move oil into the pipeline, it can be done. There is nothing we are waiting for from technology.”
Even at 200 wells, that’s a $2 billion a year drilling program, and Duncan said the company is still lining up investors and capital while trying to refine the costs.
Some of the expenses include building gravel roads and pads throughout the lease area, and Duncan was supportive of a “roads to resources” program that would involve the state helping pay for infrastructure. Much North Slope work at existing fields is done with ice roads, but Great Bear needs to work year-round including during the warmer months when ice roads melt. The company also plans to truck oil from drill sites to existing pipeline facilities, at least until enough production is being done to warrant other facilities.
The frack wells can be drilled fairly quickly — Duncan said drillers are sinking 14,000-foot wells in Texas in 21 days — but 200 wells a year would take about 20 drilling rigs dedicated to the program. Many would likely have to be new builds, he said.
The aggressive drilling program also would result in hundreds of jobs, he said, although specific numbers weren’t given.
Alaska’s fracking different
While stories of oil field camps springing up overnight in North Dakota are captivating public attention, other concerns about water contamination and tap water catching fire when it comes out at the kitchen sink are fueling a controversy over hydraulic fracturing in the Lower 48. “Gasland,” a documentary about shale oil development and fracking, was nominated for an Academy Award over the objections of the industry that claimed it is distorted and misleading.
Lawmakers questioned both Decker and Duncan about environmental problems that might arise on the North Slope. Both said the wells would be drilled far below any aquifer and that permafrost also would prevent any chemicals used in the well from contaminating any water supplies.
“Are there environmental risks?” Decker said. “There is the possibility that the shallow aquifer could be contaminated.”
But, he said, the “frack zones” would be so far removed from the aquifer that with good management based on good geologic data environmental problems are “clearly avoidable.”
A bigger concern may be where Great Bear will get the millions of gallons of water it needs for every well. Duncan said the Sag River would be one likely source along with recycling water from one well to another.
Still, state officials and certainly lawmakers are encouraged by the possibility of a new oil rush on Alaska’s North Slope. They see Great Bear as just the first company to get in on it, and anticipate many more bidders at an upcoming state lease sale next fall.
“They’re kind of ahead of everybody,” said Kevin Banks, director of the state Division of Oil and Gas.
He said whether oil fracking is commercially viable on the North Slope remains to be seen because the wells are expensive and the flow of oil — a few hundred barrels a day — isn’t a lot.
That may be one of the reasons Alaska’s big oil producers haven’t expressed interest in fracking, even though they have been operating on the North Slope for more than 30 years. BP, ConocoPhillips and Exxon have for years said the next big oil play on the North Slope would be “heavy oil” that generally is found closer to the Earth’s surface and thus is thicker and harder to get out. The companies have been working on new technology that would allow heavy, or viscous, oil recovery and BP in particular has a pilot project in the works. The Legislature is scheduled to hear a BP presentation on heavy oil next week.
But that’s different than the oil that Great Bear is going after, and Wielechowski asked Duncan if fracking is such a promising and lucrative new area why haven’t the majors been doing it?
Duncan shrugged and pointed to the booming oil fields of the Lower 48. He noted that big oil producers there “simply weren’t looking for it.” It’s the same on the North Slope, he suggested, adding that the companies now busily drilling wells in North Dakota and Texas are companies few people had ever heard of.
In an interview this week, Wielechowski said Duncan makes sense. “All of the shale plays started with small companies,” he said.
Five years ago, who had ever heard of shale gas,” Wielechowski said. “When we were discussing AGIA (the state’s gas line project), shale gas was not even a thought and then a couple of years after we passed it the Lower 48 was awash in shale gas.”He sees the same thing happening with oil. Now, it’s North Dakota that has “exploded” as an oil producer in just the last couple of years.
Decker told lawmakers that state officials expect other companies — small, medium and even large — to follow Great Bear’s lead. And he cautioned that people should not get too caught up by the problems being debated Outside because Alaska is very different in many ways.
“We’re going to have to have the fact-based dialogue on frack practices and replace some of the emotion around this issue,” he said. “I think it is potentially in our future.”