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Proven

Commitment

Late 70s - early 80s VANguard Industries, Inc., a NANA joint venture, constructed drilling rigs that were designed for the extreme conditions of Prudhoe Bay. These were the first arctic drilling rigs constructed entirely in Alaska.

For almost four decades, NANA has delivered essential products and services to Alaska’s resource development industry. From engineering, design and construction, to fabrication, logistics and camp services – we’ve been there for our clients on the Slope and beyond. NANA companies’ expertise has helped shape our state, and we’re looking forward to the future.

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NANA.com 40 YEARS at PRUDHOE BAY

| P.O. Box 49, Kotzebue, Alaska 99752 | 800.478.3301


www.alaskajournal.com facebook.com/alaskajournal twitter/com/alaskajournal

Publisher Deedie McKenzie deedie.mckenzie@morris.com Managing Editor/Graphic Design Andrew Jensen editor@alaskajournal.com Ad Director Jada Nowling jada.nowling@morris.com

Reporters Elwood Brehmer elwood.brehmer@alaskajournal.com Tim Bradner timbradner@gmail.com Advertising Consultants Ryan Estrada ryan.estrada@morris.com Ken Hanni ken.hanni@morris.com

Alaska Before Oil Young state was nearly broke before 1962 Cook Inlet sale Page 6

Striking it Big Prudhoe Bay discovery almost didn’t happen Page 10

To Spend or to Save? Alaska planned to do both with billions in oil revenue Page 12

Hitting the Brakes Legislation, litigation halted early construction Page 14

Coming to Terms How Alaska Natives leveraged oil for a just land settlement Page 18

Gravel Steps In Alaska’s junior senator lobbied behind the scenes for pipeline Page 20

50 YEARS AND COUNTING FOR ALASKA OIL AND GAS ASSOCIATION A history of discoveries, and déjà vu Page 23

FOR ALYESKA TEAM, IT’S 40 YEARS DOWN AND 40 TO GO One thing will keep the pipeline running: More oil Page 28

Inside Information Local knowledge made pipeline safer Page 36

Game Changers Slope drilling techniques revolutionized industry Page 40

Following the Money Alaska has netted $141 billion from oil. Where did it go? Page 44

How Much Slope Oil is Left? Recent discoveries give hope to boost legacy fields Page 46

Cov e r Ph oto /Ju d y Patric k /Alas ka Stock

40 YEARS at PRUDHOE BAY

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40 YEARS at PRUDHOE BAY


Alaska Before Oil: A Faith in the Unknown

Ph oto /Cou rte s y /An ch orag e Mu s e u m

In the years before and after Alaska became the 49th state in 1959, the economy was uncertain, citizens faced a high tax burden and jobs were scarce. In 1962, the young state was essentially broke until revenue from that year’s Cook Inlet lease sale helped to balance the budget, albeit briefly.

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1959

Alaska becomes the 49th state

1962

1964

Cook Inlet Great Alaska Earthquake; lease sale draws Prudhoe leases offered for $14.7M first time

1968

Richfield and Humble Oil announce Prudhoe Bay discovery Ph oto /File /AP

Alaska’s first Gov. Bill Egan, middle, greets President Dwight Eisenhower shortly after his arrival in Anchorage on June 13, 1960. Egan grappled with state budget deficits in the years after statehood as federal transition payments phased out.

Young state was essentially broke before 1962 Cook Inlet Lease Sale By Tim Bradner

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What were things like in Alaska before oil? They were pretty tough. Taxes were high. Jobs were scarce. The economy was dicey. And the young State of Alaska was basically broke. Still, there was an air of optimism. After becoming the 49th state in 1959, Alaskans were in charge, not federal bureaucrats. Conditions were precarious, though. “Alaska was a wonderful place to live, and you could leave your doors unlocked, but we needed everything: schools, hospitals, roads, sewer, water, power, docks. Mostly we did without, unless the federal government had already built it,” said Judy Brady, who arrived in Fairbanks in 1963 from Idaho to work at the Daily News-Miner and eventually became president of the Alaska Oil and Gas Association, which formed three years later in 1966.

40 YEARS at PRUDHOE BAY

She went on: “We had the highest infant death rate in the nation, and the highest incidence of (tuberculosis). We had at least 2,000 high school-age rural students with no school to go to, so they just didn’t.” Almost immediately, an infant state government faced a fiscal crisis: Federal transition payments to the state were running out and the state was $15 million short of meeting the 1962 state budget of $57 million. Responding, the Legislature increased the personal income tax, the most significant revenue source, along with taxes on motor licenses, fuel, cigarettes and alcohol. The gap was still $3 million. “With a small population of under 200,000, there were just too few people to raise the amount of money needed,” Brady recalled. But the unexpected happened: The bids for the state’s first oil and gas lease sale, in Cook Inlet, were opened. About $1 million was expected.


Le ft Ph oto /Cou rte s y /An ch orag e Mu s e u m ; Rig h t Ph oto /File /AP

At left, a tender delivers to a cannery in Anchorage not long after the city was founded in 1915. Fisheries, timber and mining were the industries Alaskans knew in the days before oil. At right, the devastation of the 1964 earthquake is seen on Fourth Avenue in Anchorage.

Gov. Bill Egan was hoping for $7 million. The bids totaled $14.6 million. It was a lucky break, but the money was used up meeting the immediate budget shortfalls. That same year, however, Alaskans demonstrated their unity when voters approved a statewide general obligation bond issue, Alaska’s first borrowing on credit markets, to build a state ferry system to connect coastal communities in Southeast. There was opposition to it but it still passed, with Alaskans in all parts of the state supporting a basic infrastructure for coastal communities, recalls Eric Wohlforth, who was in Alaska working as a financial consultant (he would become Commissioner of Revenue in 1971). Egan, Alaska’s first governor, was still very worried about the budget. “People were beginning to wonder if statehood was such a good idea,” Wohlforth said. The 1964 earthquake, although a disaster for Alaska, brought in a lot of federal reconstruction money and disaster aid. There was money for rebuilding, and it provided a lot of jobs, he said. Education, particularly for rural areas, was a pressing issue at the time, along with jobs and how to create them, Brady recalled. In 1966, Alaska voters approved a state general obligation bond issue to build regional high schools in rural communities. “Urban Alaskans supported the rural needs for

high schools,” in a sign of solidarity, Brady said. As it happened, only one school, the Beltz school in Nome, was actually built. Meanwhile, urban Alaskans also responded to the rural education needs with volunteerism. Families in larger cities took rural high school youths into their homes so they could attend school. The state’s economy was tenuous but people had faith. “There was an optimism in the air,” said Victor Fischer, a member of the 1956 constitutional convention and later a state senator. “Alaskans felt something was going to happen, although they didn’t know what.” Alaskans assumed natural resources would provide an economic foundation, but they were thinking mostly about fishing, mining, timber or agriculture, Brady said. “Those were things Alaskans knew about. Nobody knew anything about oil,” she said. Many pinned their hopes on a big copper discovery at Bornite, in northwest Alaska. The copper is still there. But something big did happen, as Fischer envisioned. Oil was discovered at Prudhoe Bay on March 12, 1968. A state lease sale the next year brought $900 million into the state treasury — an unexpected fortune at the time. Finally, the promise of statehood for Alaska seemed secure.

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Striking it Big Huge oil discoveries on the North Slope almost didn’t happen By Tim Bradner

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Big oil discoveries on the North Slope in the 1960s almost didn’t happen. Alaskans were sharply divided on whether the state should use up some of its 104 million acres of land-selection entitlements under the Alaska Statehood Act on what many thought was useless tundra at Prudhoe Bay. Many opposed it, including Gov. Bill Egan, and, surprisingly, the oil and gas industry. Luckily for Alaska, the idea had its champions, including Tom Marshall, a geologist who was helping the state make its land selections, and thenNatural Resources Commissioner Phil Holdsworth. Egan was influenced, however, by Alaskans who felt the young state’s land selection entitlement should be used to choose from federal lands farther south with mineral, timber or agricultural potential. Alaskans were familiar with those industries in the early 1960s. Holdsworth had a mining background but he understood the benefits oil and gas could bring. Egan reluctantly agreed to make state land selections on the Slope but then a new problem arose: where to make the selections. The petroleum industry pushed the state to choose lands on the southern North Slope near where the U.S. Navy’s early exploration had found oil. “This was a logical and safe way to explore. Oil and gas companies like to explore near where oil was previously discovered,” Marshall said in an interview. But the Navy’s discoveries were very small and not big enough to support a pipeline. Giant discoveries were needed. As a geologist, Marshall liked what he saw

40 YEARS at PRUDHOE BAY

Ph oto /Cou rte s y /BP

The BP Prudhoe Bay confirmation well at the Sag River.

along the Arctic coast, where there were thick sedimentary rocks. Marshall thought that the rocks near Prudhoe Bay would be deep enough for oil to form. This was just Marshall’s hunch, however, because there were no oil seeps or indication that the rocks actually held oil. Other geologists were skeptical. In fact, federal geologists had dismissed the Prudhoe area for inclusion in the Naval Petroleum Reserve No. 4 (now National Petroleum Reserve-Alaska) and other scientists rejected the area for inclusion in the Arctic National Wildlife Range, which would eventually become a congressionally-created refuge. There was no industry interest in the area when the federal government included Prudhoe in its offer of federal lands for a lease sale in 1958. Reluctantly, Bell and Holdsworth rejected Marshall’s recommendation. There was an unexpected development, though. As historian Jack Roderick writes in his book Crude Dreams, a problem arose in the determination of a land boundary along the Arctic coast.


Ph oto /File /AP

This is an aerial view of one of the first oil wells of vast petroleum deposits discovered in the region overlooking Prudhoe Bay in 1968.

The federal government didn’t have money to do surveys of the coastal boundary and recommended the state select adjacent onshore acreage because it would simplify the problem. Because Alaska already owned the offshore waters to three miles out, if the state also owned the onshore acreage a boundary survey wouldn’t be needed. This gave Marshall and Holdsworth a new argument, and in 1964 they were able to convince Egan to select a 1.59 million-acre strip of coastal land that included Prudhoe Bay, according to Roderick’s Crude Dreams. Industry, meanwhile, was becoming more interested in the coastal area. BP and Sinclair Oil, working as partners, and Atlantic Richfield and Humble Oil (now Exxon) in their own partnership, had drilled a series of costly dry holes into the southern Slope. Intrigued by Marshall’s geologic work, the companies looked north.

The state wasted no time putting its newlyselected coastal lands up for lease. The first state North Slope lease sale was held in 1964 and included lands west of Prudhoe. After dry holes were drilled in that area the companies were ready to give up. The state decided to try one more time, with a lease sale in 1965 on lands around Prudhoe. BP bid and acquired leases along with ARCO and Humble, as 50-50 partners. ARCO and Humble had just finished another expensive dry hole to the south. Because the rig ARCO and Humble used had to be hauled to the coast for transport off the Slope and with the new leases along the route, the two companies had permission for one more well, at Prudhoe Bay. What happened then is history. The largest oil field in North America was discovered, and Alaska would never again be the same.

40 YEARS at PRUDHOE BAY

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To Spend or to Save?

Ph oto /Cou rte s y /An ch orag e Mu s e u m

The 1969 Prudhoe Bay lease sale generated more than $900 million in bids a year after oil was discovered on the North Slope. In today’s dollars the bids were worth $5.9 billion. As a young, infrastructure-poor state, Alaska began making plans to spend, and to save, the future revenue from oil.

Alaskans prepared to do both with billions in oil revenue

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40 YEARS at PRUDHOE BAY

By Tim Bradner Things were not going particularly well for Alaska in the mid-1960s, just before the Prudhoe Bay oil discovery. Money was tight for the young state government. Revenue from Cook Inlet oil production was just starting to come in but Alaskans were paying heavy taxes, including an income tax. Jobs were scarce. Military construction, fishing in coastal communities and a few mines provided mostly seasonal employment. Only Southeast Alaska had a real economy thanks to a timber industry that was strong at the time. Native Alaskans in rural communities lived in poverty, at least in terms of cash income.


1969 Sag River State No. 1 well confirms discovery of Prudhoe Bay

State of Alaska lease sale generates $900 million

The state budget had less than $100 million per year to spend and when a major flood hit Fairbanks in 1967, the state had no reserves for the emergency, recalls Mike Bradner, a state legislator at the time (and the brother of this writer). The Legislature had to enact a temporary tax increase on Cook Inlet oil to help Fairbanks cope. Statehood, gained in 1959, had set up expectations. It wasn’t until nearly a decade later they were realized. Oil exploration was underway on the North Slope, and in 1968 drilling began at Prudhoe Bay on a prospect that some geologists felt earlier to be not promising. They were wrong. Atlantic Richfield, Humble Oil and BP found the largest oil field in North America. Alaskans were excited, but they really didn’t understand its significance. “We didn’t know what it meant, and how could we?” said Judy Brady, who moved to Fairbanks in 1963 and eventually became president of the Alaska Oil and Gas Association. “We knew about mining, timber and fishing. We were storekeepers.” The scale of the discovery didn’t hit home until a state lease sale in September 1969 that auctioned Prudhoe Bay tracts not bid on earlier. It brought in $900 million, an astounding sum at the time. Alaskans’ response was cautious but people realized basic public services — water and sewer, roads, and better schools — might now be possible. The Legislature convened a blue-ribbon committee of Alaskans, coordinated by the Brookings Institute, to map out a plan to use the new oil wealth. The conference produced ideas the Legislature adopted, including a school “foundation” program to share state money with cashstrapped local schools; a student loan program; revenue-sharing with local municipalities and a “longevity bonus” for elderly Alaskans. Most of these still exist in modified forms. Bill Egan became governor in 1970 for a second time. Being notoriously tight-fisted, Egan

Prudhoe Bay field development begins

fended off calls to spend the $900 million on development projects. “Egan ran the state like he ran his general store in Valdez. He was very careful in watching money coming in and going out,” said Eric Wolfforth, Egan’s Commissioner of Revenue in 1971. “We had to sell him whenever we wanted to make a business trip.” Egan did loan money, however, to help new Alaska Native corporations formed by the 1971 Alaska Native Claims Settlement Act get organized. Wohlforth and others were still able to lay the foundations for economic growth, mostly by establishing independent state corporations that could borrow on Wall Street to finance Alaska projects. By then Prudhoe was discovered, and the state had credit. The Alaska Housing Finance Corp. started in 1971 with a modest state investment to help leverage out-of-state money for home loans. The Municipal Bond Bank Authority came in 1975, allowing local governments to pool their bond sales with state coordination, which brought lower interest rates. The Alaska Industrial Development and Export Authority was founded to help business and private infrastructure projects. By 1975 Alaskans sensed that huge oil revenues would appear once Prudhoe Bay started up. Legislators worried they would not be able to withstand constituents’ pressures to spend the money. “The idea of a Permanent Fund, to get some of the money into a savings account, was debated in the 1960s,” said Mike Bradner. But this time it happened. A constitutional amendment creating the Permanent Fund was approved in 1976. There were indeed demands for projects, and programs did happen after Prudhoe Bay was bringing revenues to the treasury, but now part of the money would be saved. Thanks to Alaskans’ foresight, the Fund and the alphabet soup of state development agencies remain strong today, a permanent legacy.

40 YEARS at PRUDHOE BAY

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Ph oto /File /AP

Several million dollars worth of construction equipment sits idle at Galbraith Lake near Prudhoe Bay on Nov. 23, 1971 while the sponsors of the project and the State of Alaska awaited a federal go-ahead for the multi-billion dollar project.

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40 YEARS at PRUDHOE BAY


Hitting the Brakes

Legislation, litigation bring initial pipeline construction to a halt By Tim Bradner In 1970, things were off to the races for Alaskans. The state had almost a billion dollars of oil money from the 1969 North Slope lease sale, Native land claims were headed for a settlement, and contractors were firing up to build the Trans-Alaska Pipeline System. The first construction was a road from Livengood to the Yukon River, or what is now the Dalton Highway to the North Slope. Construction companies moved and prepositioned equipment north of the Yukon so they could continue the road-building. The pipeline owners ordered steel pipe from Japan and stored it at Valdez and Prudhoe Bay. Businesses in Fairbanks and Anchorage planned and financed expansions, gearing up for the huge construction effort. Then the door of opportunity slammed shut. National conservation groups filed lawsuits to block permits for the pipeline until it had cleared a review under the brand new National Environmental Policy Act, or NEPA. NEPA had just become law and it was untested. Years of litigation were in store for the pipeline. Environmental protection was a new national priority and the Alaska pipeline was to be the first test of NEPA, enacted in 1969. This was a disaster for Alaska, however. State officials had laid out an orderly plan to expand long-delayed public services using money from the 1969 lease sale. They anticipated completion of the pipeline and start of oil production, and new oil revenues, in 1972 or 1973. This was not to happen. As the lawsuits

40 YEARS at PRUDHOE BAY

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Ph oto /File /AP

Pipes waiting to be used in the Trans-Alaska Pipeline System are seen stacked, crusted with snow and half buried in drifts on April 12, 1974, at Prudhoe Bay. The pipes in this stockpile were for 168 miles of the 48-inch pipeline. Construction of the pipeline was originally expected to begin in 1970, but was delayed until 1975 because of the 1969 National Environmental Policy Act, lawsuits and the settlement of Native land claims.

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dragged on, an atmosphere of panic set in. “Local businessmen, expecting work on the pipeline to begin no later than 1971, had borrowed heavily and could no longer meet their financial obligations. Bankruptcies grew in number,” wrote historian Jack Roderick, in his book Crude Dreams, a history of the Alaska oil industry. State officials and legislators were worried. They knew it would take at least three years to build the pipeline. The 1969 lease sale money in the treasury would be depleted by 1975. Gov. Bill Egan had another worry. The price of oil was low and Egan knew that state revenues, based on the “netback” value of oil on the North Slope, might be lower than hoped, recalls Eric Wohlforth, state Revenue commissioner at the time. “Egan was seriously concerned that he had made a wrong decision in allowing state land selections on the Slope in the mid-1960s,” Wolhforth said. He was worried that the state would be giving

40 YEARS at PRUDHOE BAY

the oil away. Egan’s concern played into his proposal in 1973 that the state build and own the oil pipeline, although the newly-formed Alyeska Pipeline Service Co. would manage the actual construction. The governor felt state ownership, and the assertion of a state transportation right-of-way, might help cut through the environmental lawsuits and also allow the state to make more money as a pipeline owner. The same idea was suggested in 1969 by Gov. Keith Miller, the governor who preceded Egan in his second term. Miller’s initial idea was narrowed down to the state building the North Slope road, and it actually came close to happening. The governor was talked out of the idea by advisors and, in the end, the industry. Three years later, the Legislature didn’t buy into Egan’s later idea for state ownership of the


Ph oto /Patric k En d re s /Alas ka Stock

A truck hauls fuel up the Dalton Highway to the North Slope. The highway, then known as the Haul Road, was the first part of the Trans-Alaska Pipeline System to be constructed when Alyeska Pipeline Service Co. completed a 56-mile stretch between Livengood and the Yukon River in 1970.

pipeline, either, and the lawsuits continued. Congressional action in 1973, pushed by Alaska’s U.S. Sen. Mike Gravel, finally cut through the environmental lawsuits. Congress was then becoming worried about U.S. dependence on imported oil (the Arab oil embargo was to come in 1974). Work on the pipeline finally began in 1974 but the state’s financial problems had become urgent. Oil wouldn’t begin flowing until 1977, but the state’s reserves would be exhausted in 1975. A unique agreement between the oil industry and the state solved this. The industry agreed to a form of advance tax payment that the companies could credit against their production tax liability when oil began flowing in 1977. It was essentially an interest-free loan. The arrangement worked because it was negotiated between willing parties, and it was to provide crucial bridge funding for the state at a time of financial peril.

The Dalton Highway (Formerly North Slope Haul Road) James B. Dalton Highway is the name applied by the state in 1981 to 415 miles of roadway, including the North Slope Haul Road and the 57-mile road from the Yukon River to Livengood, constructed by Alyeska in the winter of 1969-70. This section of road was originally 56 miles, but one mile was added after realignment by the state at Livengood in 1981. James B. Dalton was a native-born Alaskan and graduate mining engineer who supervised construction of the Distant Early Warning Line in Alaska. He was an expert in Arctic engineering and logistics and served as a consultant in early oil exploration in northern Alaska, pioneering winter trails for heavy equipment transport. • Permanent bridges: 20
 • Grade: 12 percent maximum
 • Gravel used: 32 million cubic yards Source: Alyeska Pipeline Service Co.

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Coming to Terms

Photo/File/AP

A group of Alaska Natives demonstrated outside Sydney Auditorium in Anchorage on Sept. 10, 1969, as the oil-rich North Slope lands were being leased by the state. The development of those leases, however, would hinge on settling Native land claims. That was accomplished with the passage of the Alaska Native Claims Settlement Act in 1971.

How Alaska Natives leveraged oil for a just land settlement By Tim Bradner

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For decades the fortunes of Alaska’s Native people and the state’s oil and gas industry have been linked. The relationship was frosty at first, but has mellowed since. In 1964 and 1965, the State of Alaska selected lands at Prudhoe Bay and sold leases to oil companies, getting things off to a bad start. Inupiat people on the Arctic Slope felt the land was theirs. In early 1966 they filed a claim to lands across the Arctic Slope that inspired other Alaska Native groups to file similar large claims, and soon the entire state was covered. Interior Secretary Stewart Udall ordered a freeze on federal lands transfers, halting state land selections and throwing a cloud on titles to land in Alaska.

40 YEARS at PRUDHOE BAY

Prudhoe Bay was discovered in 1968 but the land freeze was still on, and the legal status of lands needed for a pipeline corridor from the North Slope was open to question. When a federal judge ordered an injunction blocking the Interior Department from granting a pipeline corridor, it provided an opening for national environmental groups to file lawsuits that tied up the project for years. Alaskans were upset and many blamed Alaska Natives for holding up the pipeline. The delay was causing economic harm. Emil Notti, then president of the Alaska Federation of Natives, had to request police protection for his home in Anchorage. By 1970 the industry realized the Native land claims needed to be settled, to secure clear title for the pipeline, and Native groups realized they needed the political muscle of the industry to help get


1970

First stretch of North Slope Haul Road completed

1971

1973

Alaska Native Claims Settlement Act enables the development of Prudhoe Bay and Trans-Alaska Pipeline System

Congress approves the Trans-Alaska Pipeline Authorization Act

1974

TAPS construction begins

Photos /Courtesy Ukp eagvik Inup iat Corp . and Tuzzy Consortium Library

of Barrow

LEFT: Emil Notti, the first president of the Alaska Federation of Natives, was a force behind the land claims movement and negotiations that culminated in the Alaska Native Claims Settlement Act. MIDDLE: The late Howard Rock, editor and publisher of the Tundra Times, a weekly newspaper published from the 1960s through the 1980s, is widely credited with creating a voice for Alaska Natives during a crucial time for the land claims effort. RIGHT: While a graduate student at University of Alaska Fairbanks, Native leader Willie Hensley wrote a widelydistributed paper that described the legal foundation for Native claims in Alaska.

a bill through Congress for a settlement. It was an uneasy partnership formed of necessity. Industry support for a lands claims settlement also helped in reducing opposition from some Alaskans. Historian Jack Roderick recalls Ed Patton, president of Alyeska Pipeline Service Co., telling the Anchorage Chamber of Commerce: “No claims act, no pipeline.” Things quieted down after that, Roderick said. However, the prospect of oil production also gave Congress a way to help pay the cash part of a claims settlement, with the rest being a return of aboriginal lands. “Oil greased the skids,” helping Congress accept the deal, said Willie Hensley, a Native leader in the land claims effort. Congress approved the Alaska Native Claims Settlement Act, or ANCSA, in 1971, returning 45 million acres to Native owners and approving a $962 million cash payment, but the pipeline remained mired in environmental lawsuits. If oil companies helped get the land claims act through Congress, Alaska Natives returned the favor with the pipeline. In 1973 they lobbied for passage of a gutsy bill by then-Alaska U.S. Sen. Mike Gravel that would cut through the thicket of lawsuits, granting congressional approval for the pipeline. The newly-formed Alaska Native corporations had a vested interest, of course; $500 million of

the cash settlement was to be paid through a royalty override on Prudhoe Bay, which was not producing because there was no pipeline. It all finally came together in 1973 thanks to a famous tie-breaking vote in the U.S. Senate by Vice President Spiro Agnew. Behind the scenes, however, important relationships were being built between new Alaska Native corporations and industry. First came contracts to support pipeline construction in catering, security and maintenance. In 1976, NANA Regional Corp. negotiated the first North Slope service contract with BP at Prudhoe Bay. The contract still exists after four decades. Other Native corporations followed: Arctic Slope Regional Corp. in construction and oil field services; Doyon Ltd. and Calista Corp. in drilling; Cook Inlet Region Inc. and Bristol Bay Native Corp. in equipment and technical services. The relationships that began with ANCSA helped create an Alaska-based oil and gas service industry that today employs thousands of Alaskans. Prudhoe Bay also brought improvements in villages in the Arctic. “For the first time, our eight villages were able to provide our people electricity, police and fire protection, communications, medical services, and decent education,” said Jacob Adams, former mayor of the North Slope Borough.

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Gravel Steps In Alaska’s junior senator worked behind scenes to secure pipeline By Tim Bradner

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Alaska came very close to not getting the Trans-Alaska Pipeline System built in the 1970s. It took a bold move by then-Alaska U.S. Senator Mike Gravel in 1973 to secure approval by the U.S. Congress for the pipeline, an action that would cut through multiple lawsuits brought by environmental groups. Gravel faced a wall of opposition from powerful senators like Sen. Henry “Scoop” Jackson, then chairman of the Senate Interior Committee, who argued it would be safer to keep the issue in the courts. The pipeline lawsuit was the first major test of the new National Environmental Policy Act, or NEPA, passed in 1969. Jackson was a key sponsor of NEPA. Alaska’s political establishment, and the North Slope oil companies sponsoring the Trans-Alaska Pipeline System, had lined up behind Jackson, as did Alaska Gov. Bill Egan. It put Gravel in a tough spot. He faced wide criticism in Alaska for not following Jackson’s plan to keep the pipeline in the courts. Gravel believed, however, it would have taken years for the lawsuits to wind their way through lower courts and, most likely, the U.S. Supreme Court. Alaskans didn’t have time for that. Businesses, workers and the State of Alaska were financially stressed after several years of delay in pipeline construction. The state was funding its budget off proceeds of a 1969 North Slope lease sale and that money would run out in 1975. The nation didn’t have time either, Gravel came to realize. Few Americans understood at the time the dangers posed by the nation’s reli-

40 YEARS at PRUDHOE BAY

Ph oto /Cou rte s y /Mik e Grav e l

Climbing on the Trans-Alaska Pipeline System is not allowed, but an exception may have been made for former U.S. Sen. Mike Gravel, who lobbied his colleagues to support his amendment to authorize construction in a 1973 vote decided on a tiebreaker by Vice President Spiro Agnew.

ance on Middle East oil. The Arab oil embargo, which shocked the world, was yet to come. Some in Washington did sense what was about to happen. Gravel was alerted when he was briefed on the consequences of an embargo and world oil shortages by the staff of the Senate’s atomic energy committee. “I looked at an economic model of the impacts and said, ‘this is why we have to get the Alaska pipeline going.’ I asked the staff to start briefing other senators, privately, and then followed each of these briefings with my own visit to a senator to pitch oil from Alaska as a solution to our vulnerability,” Gravel said in an interview. Gravel asked each senator for a commitment to vote for his amendment in those private oneby-one meetings. It took persuasion, because in 1973 Gravel was still a junior, first-term senator


1977 First production at Prudhoe Bay and startup of Trans-Alaska Pipeline System

1981 Kuparuk field production startup, ARCO operator

Ph oto /File /AP

Sen. Henry “Scoop” Jackson, D-Wash., left, was a key sponsor of the National Environmental Policy Act and opposed Alaska Sen. Mike Gravel’s attempt to authorize the Trans-Alaska Pipeline with an act of Congress.

without seniority or stature. However, one by one Gravel got his commitments. It was stealth lobbying, kept low profile. While this was underway the senator was visited by a high-level industry delegation including Ed Patton, president of the new Alyeska Pipeline Service Co. Gravel was asked to withdraw his amendment. He refused. “Jackson had told them he would take care of the pipeline in a (House-Senate) conference committee. They believed him, but I didn’t,” Gravel said. Jackson was intending to run for president and at the time was courting environmental groups. “I knew that but the industry didn’t,” the Gravel said. It was a testy meeting. He told Patton: “I was elected by my Alaska constituency and I’ll do what I think is best for my state.” Patton came back later, and Gravel asked, “If I can show you a list of 25 senators who support my amendment, would you support me?” Gravel showed Patton the list and told him to check it out. Patton did. The commitments were solid. “The companies had muscle. They took the list to the White House and told President Richard Nixon, ‘we think we can pull this off,’” Gravel recalled. It was a turning point. Richard Nixon weighed

1985

1986

Milne Point Lisburne field startup, Conoco startup, ARCO operator operator

in and used the power of the White House full bore to get the additional votes. Sen. Ted Stevens joined Gravel as a sponsor and other Alaskans jumped in, ending their criticism. Gravel stayed low profile through all this. “I never even made a speech on the amendment,” he said. It was still an uphill fight. The Arab oil embargo was still months away and there was not yet a sense of urgency over energy. Environmental groups were gaining political strength. Jackson, the author of NEPA, was a powerhouse in the Senate and fiercely opposed an amendment that would be the law’s first big legal test. In the end it was a 50-50 deadlock in the U.S. Senate. Vice President Spiro Agnew stepped in to exercise his power, as President of the Senate, to break the tie. By one vote – Agnew’s – the Alaska pipeline was approved. Would the pipeline have eventually been built had the vote failed? Possibly. It would certainly have been delayed, deepening Alaska’s economic crisis. Gravel is convinced it would not have been built at all. “Had we not done that in 1973 we could have missed a critical window of opportunity. The environmental movement was getting stronger and conservation groups were focused not only on defeating the pipeline but also getting the Alaska National Interest Lands and Conservation Act (ANILCA) passed,” he said. ANILCA created large new Alaska parks, refuges and wilderness areas. “Could Prudhoe Bay have been put into a wildlife refuge? That outcome was not inconceivable when we look back at the situation with ANILCA today,” Gravel said. Even short of that, Alaska would certainly be a different place today without Gravel’s foresight and behind-the-scenes lobbying for his pipeline amendment.

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Creating opportunity on Alaska’s North Slope As Alaska’s leading oil and gas company, ConocoPhillips is proud to join in celebrating the discovery of oil at Prudhoe Bay 40 years ago. Oil production at Prudhoe transformed Alaska, fueling job creation, new investment, revenue for the Permanent Fund, and a modern economy. We look forward to future exploration and development on the North Slope that benefits Alaska and the next generation of Alaskans.

Unlocking Alaska’s Energy Resources

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40 YEARS at PRUDHOE BAY


50 YEARS AND COUNTING FOR THE ALASKA OIL & GAS ASSOCIATION

Ph oto /Mic h ae l Din n e e n /For th e Jou rn al

Parker Drilling Rig 272 rises into a bright spring day at Prudhoe Bay in May 2017. Supporting the state oil and gas industry, and educating the public about its positive impact on the state, has been the mission of the Alaska Oil & Gas Association since it was formed in 1966. See story, next page.

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AOGA AT 50: A HALF-CENTURY OF DISCOVERIES, AND DÉJÀ VU

Photo/Courtesy/U.S. Dep artm ent of the Interior

As Rep. Don Young, Gov. Bill Walker and others celebrate, U.S. Interior Secretary Ryan Zinke signs an order on May 31, 2017, at the annual Alaska Oil & Gas Association conference calling for a reexamination of the development plan for the National Petroleum Reserve-Alaska and a fresh evaluation of the potential oil resource on the coastal plain of the Arctic National Wildlife Refuge.

In 2016, the 14 primary oil and gas companies in Alaska employed 5,033 workers with 4,275 state residents earning $749 million in wages The companies spent $4.6 billion with more than 1,000 Alaska vendors, or about $1 million for each primary company job Source: McDowell Group 2017 Economic Impact Report

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40 YEARS at PRUDHOE BAY

By Elwood Brehmer A select group of people has had the opportunity to watch Alaska grow along with one of its trademark industries from the inside out. Marilyn Crockett is one of those people. As a former leader of the Alaska Oil and Gas Association, she, and the others that have held that position, had the unique task of representing a diverse group of companies — including some of the largest businesses in the world — as one. AOGA marked its 50th anniversary in May 2016 with a special daylong event at the Dena’ina Civic and Convention Center in Anchorage. A year later, new Interior Secretary Ryan Zinke signed an order requiring a reexamination of the development plan for the National Petroleum Reserve-Alaska and a new evaluation of the potential resource in the coastal plain of the Arctic National Wildlife Refuge. Crockett “went to work pounding a typewriter”


Primary company jobs generated multiplier effects totaling 41,300 jobs and $2.4 billion in wages In total, direct and generated impacts totaled 45,575 jobs and $3.1 billion in wages Source: McDowell Group 2017 Economic Impact Report for AOGA as a 17-year-old secretary when it was still the Alaska Division of the Western Oil and Gas Association, she said. She retired as executive director just five years ago after holding nearly every position in the organization. “I’m not going to lie; I needed a job and that was one of the interviews that I got. I stayed through all the years because it was a fascinating place to work because I got to work for all the oil and gas companies,” she recalled. “It was fascinating to be in the trade association and watch all the different dynamics of the different companies, whether they were producers, refiners or explorers.” The name change came a few years later. AOGA’s membership has continued to reflect the industry in the state. Current President and CEO Kara Moriarty said the association had upward of 40 members in the 1980s and 17 when she was hired about a decade ago. AOGA currently has 10 member companies: seven producers, two refineries and Alyeska Pipeline Service Co., which operates the TransAlaska Pipeline System. Crockett was hired by Bill Hopkins, who had taken leadership of the association not long after being hired himself in January 1969 and was responsible for public relations duties. He was hired by Bill Bishop, a former Richfield Oil Corp. geologist that helped discover the Swanson River oilfield on the Kenai Peninsula, Alaska’s first modern-day oil and gas field. “Those were pretty rocking times,” Hopkins

Photo/Michael Dinneen /For the Journal

Alaska Oil & Gas Association President and CEO Kara Moriarty has been at the center of the state debate on taxes since taking over for Marilyn Crockett in 2011.

said. The history-altering discovery of Prudhoe Bay had been made a year prior and the budget-altering first North Slope lease sale that would net the state more than $900 million on Sept. 10, 1969, was yet to come. (That equates to a $5.9 billion lease sale for about 412,000 acres in today’s dollars.) Hopkins called it “Prudhoe mania.” “All of a sudden everyone’s speaking in terms of billions,” he said. To the south, the Cook Inlet and Kenai Peninsula oil and gas fields were growing and the industry and Alaskans were learning how to get along. Before joining the association Hopkins worked as the Southcentral liaison for Gov. Bill Egan. The job acquainted him with the industry managers and also schooled him in the residents’ concerns about local hire and environmental issues, making him a well-suited mediator between the two. One of the first messages he had to relay was that trash could not be tossed over the side of the

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Primary companies’ 2016 payments of $2.1 billion in taxes and royalties created 58,300 jobs and $2.9 billion in wages. In total, the oil and gas industry accounted for 103,875 jobs and $6 billion in wages. That’s 32% of the jobs and 35% of wages in Alaska Source: McDowell Group 2017 Economic Impact Report

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new platforms in Cook Inlet. Commercial salmon fisherman complained about catching pallets and empty concrete bags in their nets. “To the guys on the platforms, Cook Inlet just looked like muddy water that came in on the high tide and went out on the low tide,” Hopkins explained. Environmental practices in the oil and gas industry have certainly changed; Alaska is a model for environmental stewardship and the best practices developed by North Slope companies have been adopted by other industries and other oil and gas regions, Crockett noted. However, other issues haven’t evolved much. “Prudhoe came along at a time when already the public and in particular the politicized portion of the public saw the oil industry as all money and no people,” Hopkins said. “(The companies) were generating large revenues to the state and the more populous-thinking folks said, ‘Well why don’t we get 90 percent and they only get 10 percent? It’s our oil,’ kind of forgetting that there’s a contract stating how much of the oil was whose.” Though a registered lobbyist, the stiff competition between companies meant Hopkins’ role at first was more that of a messenger than a representative for the industry as a whole. Companies that were targets for increased taxation or regulation didn’t want a third party, or worse yet their competitors, to speak on their behalf, he said. “I acted a lot as a referee, but mostly as an

40 YEARS at PRUDHOE BAY

Ph oto /File /Alaska Jou rn al of Comm erce

Marilyn Crockett, right, who retired as AOGA’s president in 2011 and was succeeded by Kara Moriarty, is seen at her predecessor Judy Brady’s retirement in 2007.

information channel,” to assure the companies weren’t, “being played against each other by the hammerheads in the Legislature,” he quipped. When U.S. Vice President Spiro Agnew cast the deciding vote in the Senate to pass the TransAlaska Pipeline Authorization Act on July 17, 1973, Alaskans were ready to get to work on the project that would reroute the history of their state. “I can remember sitting in my office just after TAPS was authorized and seeing who I knew were construction workers coming down the hall because they saw our sign on the building and thought we were the hiring hall for TAPS and we’d have to send them on their way,” Crockett said. Since Prudhoe began production in 1977, one of AOGA’s biggest missions has been to educate new Alaskans about the reason they don’t pay personal taxes for the services they receive and actually get a check each year from their government, she said. The state income tax was repealed in 1980 as the oil boom began. Crockett is particularly proud of the economic impact studies AOGA has led that illustrate the importance of an industry that is often out-ofsight and out-of-mind to the economic health of the state. She said the association has done a “stellar job” educating people about the role the industry that


Photo/Michael Dinneen /For the Journal

Drilling pipe is stacked outside Parker Drilling Rig 272 on the Arctic plain of Prudhoe Bay. Production on the North Slope has increased for two years in a row, the first time that has happened since production hit its peak in the late 1980s.

even in today’s tough times supports more than 12,000 well-paying jobs and has historically accounted for nearly 90 percent of state revenue. Hopkins, who retired from AOGA in 1993, said he still gets a pleasant reminder of his time in Alaska now and then even though he has since moved to Idaho. “Every time I go into my walk-in closet I’ve got a helmet up there — a white helmet with my name on it for the 10th anniversary of the operation of the trans-Alaska Pipeline — and every time I see that I think it kind of gives me a warm feeling that I was just lucky to be a witness, if not a great mover and shaker, of the whole thing,” he said. “I was quite peripheral but I was right there watching the people that were really doing it.” Crockett referred to the current debate over industry tax credits that has dominated the Legislature for the past few years as “déjà vu all over again.” Despite the challenges today, she said she still has high hopes for the industry and the state, citing the doubling of Cook Inlet oil production in recent years as an example of what can still happen in Alaska when policy matches market. “I think, largely thanks to the Legislature providing incentives for those Cook Inlet compa-

Jobs and wages by borough: Anchorage: 28,340 and $1.9 billion Kenai Peninsula: 5,045 and $400 million Fairbanks North Star: 2,960 and $208 million Mat-Su: 3,270 and $287 million North Slope: 1,845 and $105 million

Source: McDowell Group 2017 Economic Impact Report

nies, we now have production back up, which I think a lot of folks thought would never happen again,” she said. Current AOGA head Moriarty concurred. “The good news is the rocks aren’t going anywhere,” she said. “But will there be policies in place from a local, state and federal level to allow companies to utilize their expertise to develop those resources?”

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40 YEARS at PRUDHOE BAY


FOR ALYESKA TEAM, IT’S 40 YEARS DOWN AND 40 TO GO By Elwood Brehmer

seeable future. “We’re pretty confident — very confident — There are a lot of people in Alaska banking we’ll get it to last another 40 years,” Nuttall said. on the hope that throughput decline is just the And there’s one thing alone that will make Trans-Alaska Pipeline System going through a that job much easier. minor midlife crisis. More oil. Because if that’s the case, many billions more Barrett made that point repeatedly during an barrels of oil are likely to flow through it. hour-long interview with Alyeska leaders. Having pumped oil for 40 years, nearly 17.5 “The reserves are there and just getting the billion barrels of North Slope crude have coursed obstacles out of the way to get them in the pipe is Alaska’s 800-mile economic artery. the simplest solution to a lot of our challenges,” TAPS, or even more simply, “the pipeline,” to he said. most Alaskans, is already living beyond its years, TAPS likely wasn’t designed to last as long as according to the folks responsible for it. it has and it surely wasn’t meant to carry the volAlyeska Pipeline Service Co. Senior Vice Presi- umes of oil it does today. dent of Risk and Technical Support Curtis Nuttall The 48-inch steel pipe does its job best when it said the pipeline’s anodes and other systems in- is full; that means moving 2 million barrels of oil dicate it was likely built for about a 30-year life. per day, as it did in the late 1980s and early 90s. “The original designers I don’t think ever enviAverage throughput these days is about sioned TAPS to last as long as it has,” Nuttall said. 525,000 barrels per day, with the very best days Correspondingly, the lone oil field the pipeline approaching 570,000 barrels. was built to support has outlived expectations. Running the pipeline at a quarter of its capacPrudhoe Bay has produced well beyond the 9 ity presents operational challenges that will just billion barrels it was supposed to yield in the be exacerbated if the oil volume shrinks further. mid-1970s. Alyeska President Tom Barrett said keeping Full, but slow Father Time at bay is a task that drives a lot of It’s often said that the pipeline is “three-quarthe company’s spending. ters empty,” which is a subtle but significant inNorth Slope producers BP, ConocoPhillips accuracy. TAPS is actually always full; the rate at and ExxonMobil jointly own Alyeska Pipeline which it pumps oil is what changes along with Service Co. North Slope production. It’s much more than just the pipe itself that AlyIt once took four days for a barrel of oil to eska engineers must concern themselves with. travel the 800 miles from Prudhoe to Valdez. The Barrett described the Valdez marine terminal same trip now takes about 15 days. as a “mini-refinery” that also was not meant to The slower moving oil starts to negate one work around the clock as long as it has and re- of the simple engineering tricks in the system quires constant attention. meant to harness everyday physics. It lessens However, the core infrastructure is still in the heat generated by the friction of the oil movgood shape and should be viable into the fore- ing against the pipe wall. Photo/Michael Dinneen /For the Journal

Alyeska Pipeline Service Co. Senior Director of Engineering Betsy Haines, President Tom Barrett and Senior Vice President of Risk and Technical Support Curtis Nuttall are keeping the engineering marvel of the Trans-Alaska Pipeline System running, and with the right level of production they believe it can go for another 40 years.

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Oil entering the system at Pump Station 1 used to be 140 degrees Fahrenheit. It’s now often less than 110 degrees. Traversing a route that occasionally sees winter temperatures of -50 degrees Fahrenheit or colder in a pipeline that is half above ground means the oil in it has plenty of time to cool. The slower, cooler oil allows the waxes and water that are trapped in the unrefined crude to separate, Nuttall said. If it is allowed to get cold enough the water freezes right inside the system. “The oil’s moving so slowly, it’s losing so much heat that the small amount of water just freezes solid and the wax — literally it’s just like snowing in the pipe,” Nuttall described. “It just snows in the pipe and starts building out like a glacier faster than it can be flushed down.” Alyeska now adds heat to the system to prevent a TAPS snowstorm. The oil is circulated through loops of pipe at several pump stations — again harnessing good old friction — at volumes up to 25,000 barrels per hour. Last year a fired heater was installed at remote gate valve 65 to add slip-stream heat and methanol injection ports were installed as further protections against the cold, according to Barrett. The methanol would be used as an anti-freeze system to prevent total freeze up should something cause TAPS to be stopped in the dead of winter. That exact scenario played out in 2011 when a leak at Pump Station 1 forced a shutdown and Alyeska officials were unsure if it restarted smoothly. That’s when the idea to recirculate the oil was born. Every pipeline also needs to be periodically cleaned and TAPS is no exception. So Alyeska employs a technique once reserved for gas pipelines. It “pigs” the pipe. A special mechanical pipeline inspection gauge, or pig, is inserted into the system while oil is flowing and literally scrubs the wax from the pipe wall. Instrument pigs are also used to inspect the pipe from the inside for corrosion and other potential integrity issues. The cleaning pigs used to be employed once a month, but now they are used weekly. At any

40 YEARS at PRUDHOE BAY

Trans-Alaska Pipeline System Facts

Length: 800 miles Miles of buried pipeline: 380 Vertical support members: 78,000 High point of the pipeline: 4,739 feet at Atigun Pass Air temperature along pipeline: -80 degrees to 95 degrees Fahrenheit Maximum daily throughput: 2,145,297 barrels on January 14, 1988 Current daily throughput as of June 1, 2017: 529,697 barrels Tankers escorted through Prince William Sound: More than 12,000 Barrels moved through TAPS: 17 billion

Source: Alyeska Pipeline Service Co.

given time there can be up to three pigs in the pipe, according to Alyeska. Operationally, the current system should work until throughput reaches about 300,000 barrels per day, company officials said. But that doesn’t mean there is time to relax now.

Staying ahead of the decline curve

Alyeska Senior Director of Engineering Betsy Haines said the company is perpetually trying to “stay ahead of the curve” to prevent potential issues from ever becoming actual problems. “We’re in (research and development). We’re in a regime that we’ve never operated before,” Haines said. “We’re now instrumenting the actual pipeline better, and in creative ways, to better understand how it actually behaves.” For instance, when the generally slower moving oil hits a downhill section of pipe the cascading oil can hamper leak detection, she said. And while half of the pipeline is above ground to protect it from thawing the permafrost, which would create a host of challenges, cooler oil leading to a cooler pipe could have the opposite effect on the buried sections. “For the pipe that is buried and has had this warmer crude oil in it, the frozen ground can


Photo/Michael Dinneen /For the Journal

Alyeska Pipeline Service Co. Pump One Operations and Maintenance Supervisor Janna Miller chats with BP Operations Advisor Shirl Shannon on May 24, 2017, at Prudhoe Bay.

actually start to come in on the pipe. What does that mean from a geotechnical perspective?” Haines questioned. Another prospective idea for operating at ultra-low flow when pig cleaning can’t keep up is running the system only half time, according to Nuttall. Alyeska is in the process of learning about intermittent flow options, he said. “You actually don’t run the pipeline for a while. You shut it down and store the oil up and flush the wax and water down,” Nuttall said. The current theory would have the system running on a week on-week off schedule so that when it is running it’s pumping 600,000 barrels per day. At that volume it is believed the oil would have enough velocity to self-clean the pipe, according to Nuttall. The problem with a part-time pipe is oil wells pump full-time, and therefore large storage tanks would be needed on the Slope, at a very

large cost. In addition to fighting wax and water, very low flow could allow tiny microbes found in the crude to hang around too long. “If you don’t have enough flow (the oil) won’t flush or scour those microbes off the pipe and those microbes actually eat steel and that’s another concern, another challenge that we’re looking at how to address,” Nuttall said. The simplest engineering solution to all the problems would be to build a smaller pipe, Nuttall noted, but that is far from the most economical one. To that end, Alyeska’s army of engineers not only must find ways to keep TAPS open, but the solutions cannot be cost-prohibitive. So far, they’re doing pretty well. The TAPS tariff — the cost-recovery charge for sending oil through the system — is virtually the same as it was in 2012 when throughput was about 580,000 barrels per day, at less than $6 per barrel.

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Other operational challenges

Beyond the operational challenges, Barrett said Alyeska is dealing with a modern-day threat that faces any large business, and that’s the risk of cyber attacks. Most of Alyeska’s conventional problems, such as leaks and mechanical failures are point source problems, Barrett noted, which are usually easily isolated and handled. However, cyber threats can come from anywhere. The primary concern is with TAPS’ control systems. Barrett described the possibility of a replacement pump, ordered from overseas, potentially having mischievous code embedded in it. “It’s a multi-location risk factor,” he said. “People underestimate — closing our valves in the wrong sequence could breach our line; overpressure the line. We just can’t have it. We’re making sure that we’ve got robust layers of defense against things like that. I’d like to tell you that people didn’t think of doing things like that but unfortunately in today’s world some people do.” Barrett said Alyeska partners work closely with the Federal Bureau of Investigation to monitor for cyber threats and share information regularly with the Alaska State Troopers and Homeland Security as well. “TAPS is externally visible and iconic. You can go on the web and find us and that gives people ideas; and it goes all they way from state actors to any number of people,” he said.

The prospect of production

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For those who haven’t heard, oil prices are down. From a pure economics standpoint, the current $50-ish price regime wouldn’t seem to bode well for TAPS, given on average it costs about $41 just to get a barrel of North Slope oil to market, according to the state Department of Revenue. At the same time, oil, particularly North Slope oil, is a long game. Announcements from Armstrong Energy and Caelus Energy last year that their Nanushuk and Smith Bay discoveries could combine to provide 320,000 barrels per day in the early 2020s were huge positives.

40 YEARS at PRUDHOE BAY

Trans-Alaska Pipeline System Facts

Number of workers during construction: 70,000 from 1969 through 1977 Crossings: Three mountain ranges and more than 30 major rivers and streams Construction began: March 27, 1975 Construction finished: May 31, 1977 Construction Time: 3 years, 2 months Cost to build: $8 billion in 1977, largest privately funded construction project at that time. Cost is $32.8 billion in 2017 dollars Diameter: 48 inches First oil moved: June 20, 1977 First tanker to carry crude oil from Valdez: ARCO Juneau, August 1, 1977

Source: Alyeska Pipeline Service Co.

In January, ConocoPhillips also announced a discovery in the National Petroleum ReserveAlaska that it is calling Willow, which, depending on whether the company decides to build additional processing capacity, could add another 40,000 to 100,000 barrels per day of production sometime in the early- to mid-2020s. Not to be forgotten is Hilcorp Energy’s inpermitting offshore Liberty project, which could add another 70,000 barrels per day at its peak. In the nearer term, ConocoPhillips is now working on Greater Mooses Tooth-1, which is projected to add 30,000 barrels per day. Its nearby CD-5 project started producing in fall 2015 and is 25 percent better than expected at 20,000 barrels per day now. Achieving the production goals laid out by Armstrong and Caelus on that timeline would buck the Alaska’s development trend in a big way, however. Historically, it has taken more than a decade for companies to go from discovery to production on the North Slope. And in the interim, production is expected to keep declining.


Photo/MichaelDinneen /For the Journal

The cleaning pigs used to be employed once a month, but now they are used weekly. At any given time there can be up to three pigs in the pipe, according to Alyeska.

Despite two years of increased North Slope production, from 501,000 barrels per day in 2015 to 514,000 last year and an average of 529,100 barrels per day with (at the time of this writing) about six weeks left in fiscal year 2017, state officials expect the decline to resume soon and continue at least until one or more of the large prospects are brought online. The past two years, 2016 and 2017, are the first consecutive years of increased North Slope extraction since it peaked at more than 2 million barrels per day in 1988. State Department of Natural Resources officials attribute this year’s production boost largely to the CD-5 development and top-notch reservoir management by BP and Conoco at the large mature Slope fields, which, in spite of reduced drilling activity, have even out-produced company expectations. Throughput in 2018 was forecasted to drop precipitously to 460,000 barrels per day with a steady decline to 345,000 barrels by 2025 —

perilously close to Alyeska’s 300,000-barrel operational threshold. It is worth noting that DNR began conducting its own production forecasts last fall in an effort to save limited state funds by utilizing in-house expertise and produce more conservative, accurate forecasts. The unofficial official position is that a 12 percent decline will not happen and will likely be forecast in the 5 percent range in the 2017 Fall Revenue book. Historically, the annual fall production forecasts were contracted out and consistently higher than what ultimately occurred. The new forecasting method also does not include prospects expected to be more than five years out because of the likelihood of changes to project timelines or production levels, meaning some of the recent discoveries are not accounted for in the long-term production figures.

Price points

Revenue officials are also conservative on oil

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price despite OPEC’s November commitment to cut production by 1.4 million barrels per day in hopes of returning to a price regime of $60 per barrel or more in 2017. Independent Alaska energy economist Roger Marks said in December he sees OPEC’s cuts bumping the price by $5 to $7 per barrel if they materialize. While reports are the world’s traditional oil giants have been able to curb production somewhat this year, OPEC leaders are now discussing continuing the cuts into 2018, as Lower 48 production is persistently filling the market gap, keeping world oil stockpiles high and prices very close to $50 per barrel. Alaska officials don’t see oil markets sustaining $60 per barrel until 2019, with prices staying sub-$80 per barrel through 2024, according to the state’s Fall 2016 Revenue Sources Book. State economist Neil Fried has also noted that oil prices, adjusted for inflation, have historically been about $50 per barrel since the early 1960s. Additionally, the Lower 48 shale oil producers that led to the U.S. becoming the world leader in barrels of oil equivalent, but whose success also played a part in the 2014 price collapse, are finding ways to be more efficient and more profitable at lower costs. According to Paul Carpenter of the international financial firm The Brattle Group, the breakeven price for shale oil from the major basins has fallen by 50 percent or more since early 2013. The cost to produce that was nearly $70 per barrel in North Dakota’s Bakken fields just a few years ago is now in the $30 per barrel range and in Texas’ Permian Basin it has fallen from nearly $100 per barrel to less than $50. On top of that, the U.S. Geological Survey announced in November that it believes there are upwards of 20 billion barrels of unconventional recoverable oil in the Permian Basin and Apache Corp. revealed last September that it could be sitting on 3 billion barrels of oil again in the Permian region. The shale reserves revelations come while U.S. crude inventories are still in excess of 500 million barrels.

Prudhoe Bay camp facts:

23 tons of laundry per week 50,400 meals per week 15,229 passengers transported per month 45 Tons of food/supplies/freight per week distributed to six camps 7,000 cups of coffee per day 500 assorted pizzas on pizza night one time per week 3,000 apples per week 1,700+ beds at the 6 Prudhoe Bay camps

Source: BP (Exploration) Alaska

But if Lower 48 shale costs are going down, the cost of unconventional oil in Alaska could get cheaper as well. Unconventional explorer partners 88 Energy and Burgundy Xploration snatched up more than 420,000 acres in the state’s Fall 2016 North Slope oil and gas lease sale to add to the 250,000-plus acres the companies already held on plays they see as highly prospective. Bucking convention, given the current price situation, explorers bought more than 630,000 acres of state leases in December, which contributed to one of the largest North Slope lease sales in the last 20 years. Armstrong CEO Bill Armstrong, a geologist by trade, has said the North Slope is still “target rich” and other geologists have said it remains “one of the oiliest places on Earth.” 170602 Hawk Journal Ad 3.389x2.174 vF PRESS.pdf 1 6/2/17 For TAPS’ future, let’s hope so.

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Inside Information

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40 YEARS at PRUDHOE BAY


Pipeline planners didn’t know about Atigun Pass, but Fairbanks wolf hunters did

Ph oto /Rolan d He mm i /Alas ka Stock

Traffic kicks up dust on the Dalton Highway at the base of Atigun Pass, where the Trans-Alaska Pipeline System reaches its highest elevation of 4,739 feet. Atigun Pass wasn’t identified on maps at the time, but Fairbanks locals knew where it was and it eventually was chosen as the path through the Brooks Range for TAPS.

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Ph oto /Ran d y Bran d on /Alas ka Stock

Workers align sections of the Trans-Alaska Pipeline System at Atigun Pass. Crossing the Brooks Range at an elevation of 4,739 feet was far from the only engineering challenge facing TAPS. Other obstacles included elevating the pipeline above permafrost and engineering the pipeline to survive a jolt from the Denali Fault, which it did flawlessly during a 7.9-magnitude quake in 2002.

Alaskans’ local knowledge helped make pipeline safer By Tim Bradner

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It was thanks to the wolf hunters of Fairbanks that early planners for the Trans-Alaska Pipeline System found Atigun Pass in the Brooks Range. When the first pipeline team arrived in Fairbanks in 1969 they didn’t know about Atigun. They were focused on Anaktuvuk Pass as a route for the pipeline. “People in Fairbanks knew there was a pass farther east than Anaktuvuk, but the wolf hunters, who flew up there all the time, knew where it was,” recalls Terry Brady, a Fairbanks resident then working with the University of Alaska.

40 YEARS at PRUDHOE BAY

Maps at the time were poorly marked and Atigun wasn’t identified. Brady recalled talking about the eastern pass while accompanying the team to Barrow to discuss permafrost with Max Brewer, then-director of the Naval Arctic Research Laboratory. Brewer reaffirmed the existence of Atigun and showed the team where it was on maps. With Brady along, the group flew east and then south along the Sagavanirktok and Atigun Rivers. At 4,739 feet elevation, Atigun is higher, and steeper, than Anaktuvik. “As we circled, the pipeline people looked down and wondered how anything could be


1993

1987 First Arctic offshore production in the world at Endicott field, BP operator

Point McIntyre and Niakuk fields begin production, ARCO operator

built through there,” Brady remembers. “They thought a tunnel would be the only way.” But build they did. Atigun was selected mainly because the route would be shorter, although more difficult, than a route via Anaktuvuk. TAPS had to cross three mountain ranges along its 800-mile route, and building through Atigun and Thompson Pass, north of Valdez, presented formidable challenges. Walt Phillips, who worked as a geotechnical consultant during the construction, recalls drilling equipment, and people, being lowered down steep slopes at Thompson Pass on cables, anchored by a large bulldozer at the top. It wasn’t work for the faint-hearted. It was really with permafrost, however, that Alaskans made their largest contribution to the pipeline. The early TAPS planners knew little about the frozen soils that dominate north and much of Interior Alaska. The University of Alaska, where Phillips trained with permafrost scientists, had developed expertise helping gold miners and early road builders deal with frozen soils. State highway engineers also had experience and were experimenting with insulation in the early 1960s, Phillips said. “We learned to work with the permafrost, not try and fight it,” he said. All this was new to the pipeline planners, but they were fast learners. At first it was thought the pipeline could be buried, like pipelines in the Lower 48. University scientists, including Dr. Hal Peyton, head of the School of Engineering, and research geologist Ralph Migliaccio, dissuaded them, explaining that a hot oil pipeline in permafrost would create massive melting. Peyton, Migliaccio and other university scientists, and state highway engineers and geologists who knew about permafrost, were hired to help

1997 Badami field startup, BP operator; West Sak, Tarn and Tobasco field production startup, ARCO operator

Alyeska Pipeline Service Co. design and then build TAPS. Peyton became engineering manager for the project. As more was learned about ice-rich soils, it was decided that about half of the pipeline’s 800-mile length would be built above-ground, on steel support structures with special devices to chill soils at critical spots. A pipeline built above ground, at that scale, had never been done before. One bit of innovative engineering turned out to be critical. Tom Krzewinski a geotechnical engineering consultant, now with Golder & Associates in Anchorage, helped with field investigations in support of TAPS design teams. They developed a special design for the Denali Fault in the Alaska Range. “People still remembered the 1964 Alaska earthquake and the pipeline engineers were very conservative with their design, particularly at a 300-foot section where the Denali fault is crossed,” Krzewinski recalls. The above ground design allowed the pipe to move vertically as well as laterally on horizontal Teflon coated beams. Initially the design for the Denali fault allowed 20 feet of horizontal movement and three feet of vertical movement, but as an added precaution this was changed to 5 feet vertical and wider allowance for horizontal movement, Krzewinski said. When a magnitude 7.9 earthquake hit along the Denali Fault on Nov. 2, 2002, the pipeline was severely jolted, but it never fell off its supports or ruptured. “The design was spot-on. The fault itself moved approximately 18 feet horizontally with 2.5 feet of movement vertically,” Krzewinski said It was a strong testimonial to the engineers who developed the design, which passed a severe test. Nothing like it had been done before. Just like TAPS itself.

40 YEARS at PRUDHOE BAY

39


Game Changers Slope drilling techniques revolutionized industry

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40 YEARS at PRUDHOE BAY


Photo/MichaelDinneen /For the Journal

At left is retired BP drill superintendent Ted Stagg, who supervised the first horizontal well drilled at Prudhoe Bay in 1985, alongside current BP drill superintendent Greg Sarber, who is tasked with squeezing the remaining bypassed oil out of what is still the largest oil field in North America.

40 YEARS at PRUDHOE BAY

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1998

1999

2000

Prudhoe Bay satellites Midnight Prudhoe Bay field ARCO merger with Alignment of equity Sun, Polaris, Aurora, Borealis and produces 10-billionth BP and sale of ARCO interest among Prudhoe Orion fields start up, 1998-2002 barrel of oil Alaska assets to Phillips Bay producers; BP as Petroleum, Inc. the operator

Alpine startup, Phillips as operator

Photo/MichaelDinneen /For the Journal

Driller Russell Woods mans the chair inside Parker Rig 272 at Prudhoe Bay in May 2017. Revolutionary drilling techniques at Prudhoe Bay have enabled recovery of 12.5 billion barrels of oil, an estimated 60 percent of the reservoir, far more than the 9.6 billion estimated when the field was discovered in 1968.

Horizontal, coiled tubing and multilateral wells were perfected on the North Slope

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40 YEARS at PRUDHOE BAY

By Tim Bradner When North Slope drillers learned to drill oil wells sideways, they revolutionized the world’s petroleum industry. Horizontal wells — as compared with traditional vertical drilling — are now common in the industry, and they are a key technology behind the shale oil production that has now made the U.S. the world’s top oil producer. Horizontal drilling was tried first in France and Spain but it was at Prudhoe Bay, on the North Slope, that drillers first showed it could really work, recalls Ted Stagg, a retired BP drilling engineer. Stagg supervised the first horizontal well at Prudhoe Bay in 1985. Another revolutionary oil technology — coiled tubing


2001

2003

Northstar field production startup, BP operator; Meltwater production startup, Phillips operator

TAPS right-ofway renewed for 30 years

drilling — was also developed on the Slope by BP and ARCO Alaska (now ConocoPhillips) and is now widely used. Coiled tubing drilling uses big spools of flexible metal tubing that can be truck-mounted, and it allows new wells, or “sidetracks,” to be economically drilled off the bores of old wells to a new pocket of oil that was previously bypassed. This reinvigorates the old well. “It’s basically recycling the old wellbores,” said Greg Sarber, a veteran drilling manager for BP. Sidetrack wells are drilled horizontally off the older well, thus taking advantage of the earlier horizontal drilling innovation. Stagg said coiled-tubing units had been used for years to do well repair jobs in lieu of a big “rotary” drill rig, which costs a lot to operate. It was a stroke of genius to attach a drilling motor and drill bit at the bottom of the coil so that a new producing well could be drilled. One more technology, also done first on the Slope, are “multilateral” wells, where several sidetracks — as many as five and six these days — are drilled horizontal off the older, vertical well bore. This reuses the older bore as well as the production facilities built at the surface. The savings have sharply lowered costs of finding new oil in the aging Prudhoe Bay field and pushed oil recovery there from 9.6 billion barrels estimated in 1969 to about 13 billion barrels today, or about 60 percent of the oil physically locked in the reservoir rock. Oil producers can never get all the oil. Recovery of 40 percent, what was originally estimated for Prudhoe, is more common. What made these inventions possible, Sarber said, was another innovation in the industry developed elsewhere but quickly brought to the North Slope. This was “measurement-while-drilling,” or MWD, which involves high-tech instruments placed on the drill pipe that allow drillers at the

2004 First double-hull, BP, ConocoPhillips Alaska class oil sanction West Sak, tankers begin largest heavy oil service program on North Slope

surface to put the drill bit with precision where it is to go, thousands of feet underground and sometimes several miles laterally. In fact, before MWD, drillers could never be sure, in real time, where the drill bit was or even if it was pointed in the right direction, Sarber explained. Precision control of the drilling is critical to horizontal drilling because those wells are drilled through very thin layers of rock, and an off-course drill bit can easily take the well out of the oil zone, adding hundreds of thousands of dollars in costs if the well has to be redrilled. It is the exposure of the horizontal well to long, lateral stretches of oil-saturated rock, which can be as thin as 10 feet, that makes a horizontal well so productive. In contrast, a conventional vertical well only intersects a few feet of a thin oilsaturated section of rock. In the early days of Prudhoe Bay vertical wells worked fine because reservoir segments being tapped were hundreds of feet thick. Those are now less productive. Much of the remaining oil in Prudhoe, which is substantial, is locked in small, thinner oil traps, which must be targeted with precision. Today most new wells drilled in Prudhoe Bay are horizontal sidetracks and multi-laterals, many drilled with coiled-tubing. Without these the field would be producing much less. “These have been a life-saver for the field, particularly at low oil prices,” said Dick Maskell, another retired BP drilling engineer. All this is important because Prudhoe Bay is still the anchor of North Slope oil production, providing more than half the oil flowing through the Trans-Alaska Pipeline System. “Prudhoe Bay was the largest field in North America when it was discovered, and it still is today,” said BP’s Sarber. “Each 1 percent improvement in the oil recovery is like making a huge new discovery.”

40 YEARS at PRUDHOE BAY

43


Following the Money Alaska has netted $141 billion from North Slope oil. Where did it all go? By Tim Bradner

44

Forty years ago this summer, North Slope oil began flowing into the newly-completed TransAlaska Pipeline System, beginning an 800-mile journey to a marine loading terminal, also new, in Valdez. Since then the state of Alaska has grown and prospered, and has also collected $141 billion in petroleum royalties and taxes, according to figures compiled by the state Department of Revenue. The highest year for oil revenue collections was 2008, which totaled $11.3 billion. It’s a lot of money. Where did it all go? Here’s a hint: Look out your window. If it weren’t for North Slope oil, about half of what you’re looking at — buildings, roads, bridges, homes, even people — wouldn’t be there. That’s according to University of Alaska Anchorage economist Scott Goldsmith, who has studied Alaska’s economy for years. “One way or another about half of Alaska’s present-day economy has resulted from the presence of the industry in the state and the spending of the state’s oil wealth,” Goldsmith said. A good part of the state’s growth was from the direct spending by the state in infrastructure and public services, he said, which stimulated the private economy and population growth. The remainder is a result of private sector investment and growth that occurred because of the state’s light tax burden, thanks to oil. Not having to pay the tax burden that firms pay in most other states, businesses not related to the oil industry were able to invest and grow faster. Alaska’s economy became more diversified as a result. By not having to pay state income, sales or

40 YEARS at PRUDHOE BAY

Ph oto /An d re w Je n s e n /Alas ka Jou rn al of Comm

e rce

The Anchorage Performing Arts Center at left and the Egan Center at right bordering the Town Square were among some of the amenities built with Alaska’s initial oil revenue.

property taxes, Alaska citizens were able to spend more, which also stimulated the economy. “Without the oil industry, we’d have an economy that would look a lot like Maine – poor and old,” Goldsmith said. “Maine’s a nice place to live, although it might not be a nice place to make a living.” Of total dollars received from oil since 1977 about three-fourths was spent in various ways, including for the Permanent Fund dividends paid to citizens, but about a fourth of it has been saved, according to Goldsmith. The savings accumulated over time in Alaska’s Permanent Fund to total about $53 billion at present, although a good part of this is from earnings from the money saved, an indirect result of the oil income. In addition, the state set aside about $18 billion in two “rainy day” savings accounts, the Constitutional Budget Reserve and the Statutory Budget Reserve, as a hedge to shield the state against falling oil production or an oil price collapse, or both. Unfortunately, both of these happened. The state has drawn from those rainy day accounts to cover deficits dating to the end of the 2013 fiscal year and is now down to about $5 billion in ready cash in savings accounts, enough for less than two more years of budget deficits. The Permanent Fund principal can’t be spent, although its earnings can and that account was


2005

North Slope cumulative production exceeds 15 billion barrels of oil

2006

Fiord, Nanuq and Qannik fields start up, ConocoPhillips operator

2007

Prudhoe Bay and TAPS mark 30th anniversary

worth just less than $12 billion as of March 31, 2017. If three-quarters of $141 billion received since 1977 was spent, it totals about $106 billion. Where did that money go? About $21 billion was paid directly to citizens through the Permanent Fund dividends. Economists have estimated that Alaskans do save a good portion of this, perhaps as much as 20 percent, for retirement and education expenses. As for the rest, the annual burst of dividend sales and marketing by retailers in the fall, when the payments are paid, provides an answer. It’s no coincidence that dividends are paid at about the start of the holiday shopping season. The roughly $90 billion left over went for a host of state services and state-funded projects. Schools were built, the university system expanded, public health and social service programs were broadened. Hydro dams and wind power projects were built, helping shield Alaskans from the effects of energy cost increases. Substantial sums were invested to seed state development agencies like Alaska Housing Finance Corp. and the Alaska Industrial Development and Export Authority, the former helping Alaskans secure more affordable housing, the latter helping develop the state’s private economy. Some investments flopped, like a large statesponsored agricultural project near Delta in the 1980s and a state-funded major fish processing plant in Anchorage in the 1990s. The agricultural project did lay the groundwork for a small but prosperous farming community around Delta, however. The state, meanwhile, got about half of its money out of the fish plant (it is now used as a church). There were very successful development projects like the Red Dog Mine in northwest Alaska, which uses infrastructure built by the state. Red Dog is now the world’s largest lead-zinc mine. There were substantial investments in port facilities to help coastal communities and many

2008 Oooguruk field begins production, Pioneer (now Caelus) operator

2009

Nikaitchuq startup, ENI operator

improvements to roads and highways, but it’s interesting that no major state-funded highways have been built since oil began flowing. The last new state highway was the Parks Highway connecting Anchorage with Fairbanks, built in the 1960s before the era of North Slope oil. The Dalton Highway, built in the 1970s to aid construction of the oil pipeline, was paid for by the oil and gas industry. The Klondike Highway, built in the 1980s to connect Skagway with Canada’s Yukon Territory, was largely paid for by Canadian government and Canadian mining companies that used the road. A lot of money was spent to improve Alaskans’ quality of life, such as Anchorage’s Performing Arts Center, Egan Convention Center, Sullivan Arena and University of Alaska Anchorage’s Wells Fargo sports complex. Fairbanks got its Carlson Center and Juneau its Centennial Hall, and many other communities got new community centers, public safety and health facilities. Nonprofit arts, youth and community groups received direct grants from the state that have totaled hundreds of millions of dollars over the years. With state funds now tight, however, these grants have ended and communities are facing maintenance costs of all the facilities built over the years. Despite that, the basic infrastructure and investments in human resources, through skills, will help Alaskans weather what they hope are temporary hard times in the state’s major resource industry, oil and gas. Meanwhile, over the years, what overall share of the oil revenue has Alaska received, in royalty and tax? It has varied year-to-year depending on oil prices and changes in state taxes, but according to the Department of Revenue, total revenue from oil production, after deduction of transportation costs, was $403 billion between 1978 and 2016, with the state’s share totaling $141 billion, or about 35 percent.

40 YEARS at PRUDHOE BAY

45


How Much Slope Oil is Left? Major discoveries give hope to boost legacy fields By Tim Bradner

46

For 40 years Alaskans have enjoyed their rich endowment of oil from the North Slope. Billions of dollars in oil revenues have flowed to the state treasury, creating tens of thousands of jobs directly and indirectly. Oil has allowed Alaskans to enjoy public services without heavy taxes. Alaskans even receive an annual Permanent Fund dividend. Without the North Slope Alaska’s economy would be about half its present size, University of Alaska economists have said. How much longer can this be sustained? How much oil is left? A lot, state geologists say. The question is how much of it can be economically produced, and whether it will be enough to keep the TransAlaska Pipeline System, or TAPS, operating. “Everything is conditioned on how long TAPS can be economically operated. That’s the wild card,” says Paul Decker, chief of the resource evaluation section in the state Division of Oil and Gas. The economic limit for the pipeline is now reckoned at 300,000 barrels per day of throughput. Oil production is down now to about 520,000 barrels per day, about a fourth of what it was in the late 1980s when the Prudhoe Bay production peaked. The pipeline was designed to move 2 million barrels a day, which it did until 1989. That year a gradual decline of the big Prudhoe field, long expected, set in. Prudhoe was, and still is, the anchor of North Slope production, after 40 years providing more than half the oil moving through the pipeline. When TAPS started operating in mid-1977 many Alaskans believed it would be shut down by 1999, with the oil fields depleted.

40 YEARS at PRUDHOE BAY

Yet, 1999 came and went, as did 2009 and 2015. Oil prices have gone up and down but Prudhoe Bay, the other oilfields and TAPS are still going. Production from the Slope has declined about 5 percent yearly, but it would have been twice that had the producing companies not kept up investments, mainly in new drilling. Can TAPS operate at lower volumes? Technically it could. The question is economics, and that hinges on whether there’s enough oil flowing.


2014

Hilcorp becomes a North Slope operator with the purchase of BP’s interest in Endicott and Northstar oilfields, and a 50 percent interest in each of the Liberty and the Milne Point fields

2015

CD5 Alpine West startup, ConocoPhillips operator

2016

Point Thomson field startup, ExxonMobil operator

2017

Production increases from North Slope for second consecutive year; first time since 1988 peak

Photo/MichaelDinneen /For the Journal

The Trans-Alaska Pipeline System, seen near Pump Station 1 on the North Slope, is operating at about 25 percent of its capacity. Two years of production increases and several large discoveries have raised hopes that the state’s economic lifeline isn’t done pumping just yet.

Some good news is that production evened out in 2014 and even increased in 2016 and 2017, thanks to a surge of new investment after the Legislature changed the state’s oil production tax in 2013. In 2016, BP was also able to keep Prudhoe Bay’s production decline to less than 1 percent compared with the usual 5 percent to 6 percent drop, a real accomplishment given the sharp

drop in oil prices. ConocoPhillips was likewise able to keep the Kuparuk River field production generally stable, and the new CD-5 project in the National Petroleum Reserve-Alaska produced at 25 percent higher than expected levels with about 20,000 barrels per day. Whether the major producers can sustain this in the future is still uncertain, given continued uncer-

40 YEARS at PRUDHOE BAY

47


Photo/MichaelDinneen /For the Journal

BP Prudhoe Bay Reservior Development Manager Scott Digert at TransAlaska Pipeline System Pump Station One on the North Slope.

48

tainty in oil prices and, more recently, the prospect of higher taxes levied by state government. Scott Digert, BP’s Prudhoe Bay reservoir manager, says there are several billions barrels of undeveloped resources in the field, but much of it is technically challenged, such as heavy oil, or in pockets of oil that have been bypassed. Prudhoe will soon pass 13 billion barrels in production but that’s only half of the “oil in place,” or those fluids physically in the rocks. If the economics are right a lot more of the oil can be squeezed out. Tapping bypassed oil was very successful in helping BP stem the Prudhoe decline in 2016 and a seismic program done last year over the northern part of the field will point to more prospects. “There are lots of opportunities, but how much more we get will depend on the level of investment we can make along with the operating costs of production facilities, which are aging,” Digert says. While BP focused on finding new oil in the existing fields, new exploration by other com-

40 YEARS at PRUDHOE BAY

panies has laid to rest any notion that no more large new discoveries will be made on the Slope. Armstrong Oil and Gas, an independent company, and Repsol, a major company, have made significant new discoveries in areas near existing fields and where other companies have explored but missed what Armstrong and Repsol found using new technologies. Potential production from the Armstrong-Repsol prospect now in the permitting process at the Pikka Unit has been estimated at 120,000 barrels per day. Caelus Energy, another independent, has made what could be a major discovery at Smith Bay, in shallow waters offshore the National Petroleum Reserve–Alaska, although this needs further tests. ConocoPhillips and its partner, Anadarko Petroleum, are developing new prospects in the NPR-A and announced yet another discovery, called Willow, in the reserve that the company believes could produce 100,000 barrels per day. Hilcorp Energy, operator at the Milne Point field, is also developing its “Moose Pad”, which could add more oil, as well as the Liberty offshore project that could add up to 70,000 barrels per day. Collectively, these could add large volumes of new production to help sustain the pipeline, although the timing is uncertain because some of these developments may require higher oil prices. It is likely they would be developed at different times in any case, and some may not be developed at all. Janet Weiss, BP’s Alaska president, is optimistic about the industry’s ability to innovate and become more efficient. “Developments that used to take an $80 per barrel oil price may be possible at $50 per barrel. That is a really big deal,” Weiss said in a recent interview. With more companies operating on the Slope, the cost structure changes for the better, Weiss said. “This means more development opportunities become competitive sooner,” she said, “which leads to more oil down TAPS.”


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40 YEARS at PRUDHOE BAY


40 years invested in Alaska

C

M

Y

CM

MY

CY

CMY

K

Trans-Alaska Pipeline System (TAPS)

BP began production in Prudhoe Bay 40 years ago. Today, as a result of continued investment, we’re exceeding initial output projections and are producing 55% of Alaska’s oil. Learn more about BP’s investments in Alaska for today and tomorrow at bp.com/Alaska


PHOTO COURTESY OF THE ALASKA LNG PROJECT.

Developing the North Slope JOBS | SAFETY | RESPONSIBILITY | ENERGY

ExxonMobil’s presence in Alaska began 90 years ago. Today, with more than 100 Alaska companies, thousands of Alaskans, and 9 million work hours with 0 lost-time incidents, we are producing natural gas condensate from the Point Thomson field with plans to produce up to 10,000 barrels a day through a 22-mile pipeline. That’s a $4 billion investment in Alaska.

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