ANWR and NPR-A: what does the future hold for these two areas?

In its 29th year of full-scale oil production, Alaska's maturing North Slope fields continue to pump a steady but declining supply of crude oil, which flows southward to in-state and Outside refineries through the trans-Alaska oil pipeline.

State production and revenue forecasters closely monitor that ever-dwindling North Slope resource, as Alaska's governmental finances are largely dependent on the oil flow. The best opportunities to supplement the existing North Slope resources, which include the gigantic Prudhoe Bay field and its neighboring Kuparuk field, can be found in two outlying areas, many miles from the well-developed North Slope oil and gas infrastructure.

To the west lies the 23-million-acre National Petroleum Reserve-Alaska, a well-known oil and gas resource that industry is currently probing, albeit at a slow pace. A handful of exploration wells have been drilled in NPR-A in recent years, and federal land managers continue the process of opening up additional acreage for leasing.

To the east of Prudhoe Bay and its infrastructure lies the fiercely debated 18-million-acre Arctic National Wildlife Refuge, also believed to contain vast supplies of oil and gas in its coastal region. Drilling in ANWR has become a political football on a national level, evidenced by the late 2005 showdown in the U.S. Senate, which again rejected a measure that would allow development on the Alaska coastal plain.

Whether either of these outlining areas will eventually offer oil and gas production to help fill some of the spare capacity in Alaska's North Slope energy infrastructure remains to be seen. One thing is for sure-production from existing North Slope fields continues to decline, even as industry targets small pockets of oil near infrastructure; continues to branch out toward the west and NPR-A; and works to develop larger, more technically challenging accumulations of heavy oil.

Gov. Frank Murkowski, who also unsuccessfully fought for approval to drill in ANWR during his tenure as a U.S. Senator, described the area's potential impact to the state of Alaska in a November press statement. "While our nation will enjoy greater energy independence by oil exploration in a small portion of ANWR, Alaskans will benefit from the jobs and revenue that will funnel to quality schools and vital infrastructure improvements," Murkowski said. "We've got good reason to believe that the small 1002 area holds the greatest prospects for the next Prudhoe Bay-sized discovery."

ANWR BACKGROUND, NEW ESTIMATES

Set aside as a wildlife refuge in 1980 by the Alaska National Interest Lands Conservation Act, ANWR requires specific congressional authority to develop, turning the remote region of Alaska into a hot volleyball court for a spirited and often contentious national public debate.

Even at the time of the land withdrawal, the coastal region of the 18-million-acre remote area was identified as a special section with potentially enormous oil and gas resources, as well as important wildlife habitat. That 1.5-million-acre coastal area, designated the 1002 area, was extensively studied by the Department of Interior through the 1980s, concluding with a report to Congress in 1987. That report recommended that the limited 1002 area should be open to oil and gas development, according to Roger Herrera, a petroleum geologist and long-time lobbyist for ANWR drilling.

He noted that the first Gulf war helped focus national attention on ANWR and its potential for reducing reliance on foreign oil sources. "Up to that point, the oil companies were vigorous participants in the fight to open up the coastal plain. They were chomping at the bit to get a part of the action," he recalled. "But after the 'no' vote, the oil companies decided not to stick around for this ... they walked away from the issue."

As a result, Arctic Power was formed to fill the void as an ANWR development advocate in the national debate, Herrera said. The organization remains as a leader in the ANWR debate, offering information complied by governmental geologists and economic analysis about the region's potential.

Putting a number on how much oil is contained in ANWR is a scientific guessing game at best. Industry has drilled near the proposed development area, both onshore and offshore, although most of those exploration test results have been kept private.

Based on the limited geological information available, the United States Geological Survey calculated its best guess estimates as to the amount of oil and gas contained in ANWR, back in 1987 and again in 1998.

That 1998 updated resource calculation estimates that ANWR could contain between 5.7 billion barrels to 16 billion barrels of technically recoverable oil. The mean value of that range, 10.4 billion barrels, is one of the more frequently used estimates for ANWR resources cited in public debate by both anti-drilling and pro-development groups.

The estimate drops to a range of 4.3 billion to 11.8 billion barrels of oil when limiting the geological evaluation to the 1002 coastal area. All of these estimates exclude potential accumulations of less than 50 million barrels, "... so that the assessment would not be influenced by smaller accumulations that are non-economic in most cases on the North Slope," the USGS report said.

"Most of the oil is estimated to occur in accumulations that exceed 100 million barrels, the size of recently developed north Alaskan stand-alone accumulations," the USGS report added. "Moreover, at the mean, nearly 80 percent of the oil is thought to occur in the western part of the ANWR 1002 area, which is closest to existing infrastructure."

ANWR's coastal region captured the interest of Alaska's early North Slope prospectors, Herrera said, although not much activity was focused on the area. "No one seriously pursued the coastal plain, not because of the geology, but because they had their hands full with Prudhoe Bay."

But Prudhoe, the nation's largest oil field, continues to decline, even after producing well more than the 9.6 billion barrels originally estimated as recoverable, Herrera said. "Today, we've taken 13 billion barrels out of that field," he said. "The technological advances through the life of a field allow production more than originally thought."

The same factor would probably be applied to ANWR, Herrera said. USGS estimates completed in 1998 are probably "on the low side, rather than the high side," he said. "Geologists generally tend to believe there is significant oil out there."

And the economics of developing that remote region are improving, as crude oil prices increase. USGS released in October 2005 an updated economic analysis for ANWR, stating that at least 70 percent of the undiscovered, technically recoverable oil resources in the 1002 area and lands beneath adjacent Alaska state waters "can be found, produced and transported to market, assuming a market floor price of $30 per barrel in 2003 dollars."

The report was based on 2003 technology and market data, the most recent available, according to the government agency. The previous analysis used 1996 as the base economic year.

The update includes "new technologies that have become standard operating procedures on the North Slope, such as horizontal development wells and satellite/cluster field development," the release said.

Higher crude oil prices have resulted in another upward adjustment in estimated lease revenue that could result from opening ANWR. In a Dec. 7, 2005, letter to Alaska Sen. Ted Stevens, the Congressional Budget Office revised earlier estimates for lease revenue that could be generated by ANWR, assuming long-term oil prices would be roughly $50 per barrel in 2010.

"Under your assumptions, potential bonus bids might total at least $10 billion-roughly double CBO's official estimate. (Federal receipts net of payments to Alaska would be one-half of the bonus bids)," the agency wrote.

The agency's earlier estimate of bonus bid receipts totaled $,5 billion over the 2008 to 2010 period, based on the assumption that oil prices would range from $25 to $35 per barrel over the next several decades.

ANWR VOTE: SURPRISE DEFEAT

Based on such economic impact, hopes that ANWR development would finally be approved increased in 2005. Alaska's congressional coalition focused on the development issue, with assistance and frequent verbal support from the Bush administration.

The issue came to a head during the last hours of the 2005 congressional session, as legislators debated and finally voted on a long-sought after measure to allow drilling in a portion of ANWR.

Unfortunately for drilling advocates, the vote did not go as anticipated. Moved in mid-December from a budget bill into a measure that carried money for the military and hurricane relief, the ANWR drilling provision squeaked through the House of Representatives in late December, during last-minute budget wrangling.

But only a slim majority of U.S. senators voted on Dec. 21 to break a filibuster on the ANWR provision, just a few votes short of the 60 needed to override the procedural block.

The late-session vote made for a blue Christmas for ANWR development advocates, including Alaska's senior U.S. Senator Ted Stevens, whose bitter closing comments following the ANWR debate made national news during a number of post-congressional session broadcasts.

Stevens vowed to visit each of the states represented by senators who voted against allowing drilling in ANWR, to "tell the people there what you've done," he said.

The battle and public debate about ANWR remains unresolved, despite the late-December vote, according to Alaska Sen. Lisa Murkowski, who said in a Dec. 21 press release that the "fight to open ANWR is not over. We have a commitment from congressional leaders that we will consider ANWR again next year. Hopefully, then we will finally get the fair vote where this issue will be decided by a simple majority of the U.S. Senate," Murkowski said.

NPR-A DEVELOPMENT PROGRESSES

While the battle for ANWR development continues, industry has remained focused on the western oil and gas accumulation in National Petroleum

Reserve-Alaska. A new USGS assessment released in 2002 concludes that NPR-A "holds significantly greater petroleum resources than previously estimated," the report said.

Technically recoverable, undiscovered oil beneath the federal portion of the 23-million-acre petroleum reserve is believed to range between 5.9 billion to 13.2 billion barrels, with a mean or expected value of 9.3 billion barrels.

An estimated 1.3 billion to 5.6 billion barrels are estimated to be economically recoverable at market prices of $22 to $30 per barrel, the USGS said.

NPR-A could also provide substantial amounts of natural gas, should a gas pipeline project be built, according to the government agency. According to the 2002 USGS report, technically recoverable, undiscovered non-associated natural gas for the same area "likely ranges between 39.1 trillion and 83.2 trillion cubic feet, with a mean (expected value of 59.7 trillion cubic feet."

Since the petroleum reserve was established in 1923, the U.S. government conducted two petroleum exploration programs, finding only a handful of oil and gas fields of which none were economic, according to Department of Interior information.

The area became a focus of interest in the late 1990s, following the 1996 announcement by then Arco Alaska and its partners in the Alpine oil field, located just east and outside NPR-A boundaries. The first federal lease sale in NPR-A was held in 1999, sparking a number of exploration wells drilled in following years.

But development progress remains slow. ConocoPhillips, which acquired some assets of Arco Alaska in a late 1990s buyout, has led the exploration effort in NPR-A. Of the total 50 exploration wells drilled on the North Slope in the last five years, ConocoPhillips participated in 38, according to Jim Bowles, president of ConocoPhillips Alaska.

Not all of those exploration wells were drilled in NPR-A, he noted, during his late September presentation in Fairbanks. Several wells were targeting satellite-type fields near existing infrastructure. "In NPR-A, we're looking for bigger reservoirs, not only oil, but gas resources," he said.

During this winter exploration season, ConocoPhillips will likely not drill any exploration wells in NPR-A, instead focusing its capital budget on expanding Alpine, according to recent press reports.

"We like to explore in the Arctic ... with the Alpine development, we truly believe we can develop North Slope resources in a very safe and environmentally sound fashion," Bowles said. "Whether it's ANWR or NPR-A, we can develop them very well. We've got the skills and tools to develop it right."

Editor's Note: More of NPR-A Open for Exploration

The following information was released at press time: Deputy Assistant Secretary of the Interior, Chad Calvert, approved (Jan. 11, 2006) a plan amendment for the northeast corner of the National Petroleum Reserve-Alaska. The amendment, developed by the Bureau of Land Management, will guide leasing, exploration and development in the Petroleum Reserve for the next 10 to 20 years using lease stipulations and required operating procedures similar to those adopted for the adjacent northwest area of the Petroleum Reserve in 2004.