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Page added on October 7, 2016
New Mega Oil Discovery In Alaska Could Reverse 3 Decades Of Decline
A small company just announced that it has made a “world-class” oil discovery in Alaska, which could be the largest find in the state in years.
Caelus Energy LLC, a small company backed by private equity, says that it has discovered oil on Alaska’s northern coast. The field could hold as much as 6 billion barrels of oil, with about 1.8 to 2.4 billion barrels considered to be recoverable. If that is the case, the discovery would instantly raise Alaska’s statewide recoverable oil reserve base by about 80 percent.
But producing the oil will not be easy. Drilling must take place in the winter. To drill the field, the tentative plan would be to build manmade islands to drill through. Oil produced in the shallow water of Smith Bay will need to be moved somehow. Caelus will have to build an $800 million pipeline that travels 125 miles, connecting to an existing pipeline system in Prudhoe Bay.
“It’s a really exciting discovery for us, and we think it’s really exciting for the state of Alaska,” Caelus CEO Jim Musselman said in a phone interview with Bloomberg. “They need a shot in the arm now.”
“It is not going to be easy, but we’ve had projects like this around the world,” Musselman told The Wall Street Journal. He formerly led Kosmos Energy when it recorded a massive oil discovery of the coast of Ghana about a decade ago.
The one thing that Caelus has in its favor is strong support from the state of Alaska. Desperate to halt declining output and cratering state revenues, the Alaskan government has been frantically searching for ways to increase oil production. Output has been falling from Alaska’s aging North Slope, with production down below 500,000 barrels per day from a peak in the late 1980s at over 2 million barrels per day.
Shrinking output has been squeezing the state for some time, but it could soon become a much more acute problem for state finances if the declines are not reversed. That is because the Trans-Alaskan Pipeline System (TAPS), which runs from the North Slope across the state to the south, is threatened by low oil flows. When the system sees oil flows drop below 500,000 bpd, risks to pipeline integrity grow. Water can separate from the oil and freeze, corroding the pipeline. Also, lower flows can lead to lower oil temperatures, again leading to water freezing and corrosion. Lower oil temperatures can also lead to soils surrounding the pipeline to freeze – frost heaves can cause movement in the pipeline itself, leading to damage.
At some point, as these problems grow worse, the pipeline could be forced to shut down, putting North Slope oil production into jeopardy altogether.
As a result, the Alaskan government is keen to see more oil fields come online. “In this day and age of technology and regulatory requirements, I am sure it will be done safely,” Alaskan Governor Bill Walker said after the Caelus Energy discovery was announced. “We look forward to the discovery being turned into oil in the pipeline.” Caelus estimates that the field could eventually produce 200,000 barrels per day, which would substantially extend the life of the Trans-Alaskan Pipeline.
State support does not mean the oil field will necessarily move forward. Caelus has drilled two wells, and needs to drill another in order to learn more about the field. But drilling can only be conducted in winter months when the ground is frozen. The company is not prepared to drill this winter, so it can’t proceed with another well until early 2018. Development costs, not to mention the cost to construct the pipeline, will be steep – on the order of $8 to $10 billion. Higher oil prices are probably needed for full-scale development to make sense – as high as $65 per barrel plus “certainty on state tax policy and incentives,” Musselman told Bloomberg. “A lot of the investment decision is going to revolve around what happens within the state from a regulatory standpoint,” he said. But if things go according to plan, production could begin in 2022.
“It is a massively complex, massively expensive undertaking to get that (oil) to market,” Cody Rice, a principal analyst at Wood Mackenzie, told The Wall Street Journal in an interview. But with Royal Dutch Shell and other oil majors abandoning offshore drilling in the Arctic, Caelus’ shallow-water discovery could be one of Alaska’s last best hopes to keep its oil industry alive.
18 Comments on "New Mega Oil Discovery In Alaska Could Reverse 3 Decades Of Decline"
rockman on Fri, 7th Oct 2016 4:32 pm
Not that it gives credibility to their reserve estimate these boys have a pretty good pedigree. And not being a public company there’s no stock for them to hype:
Formed in 2011 by President and CEO Jim Musselman, Caelus Energy has deep roots in the oil and gas industry. Collectively, the team boasts an extensive resume of world-class exploration ventures and award-winning developments – both publicly and privately financed. The team’s past successes include the turnaround and sale of Triton Energy, the formation and IPO of Kosmos Energy, and the development of the Oooguruk field.
Kosmos Energy is an American international oil company founded and based in Dallas, Texas. It also maintains offices in the Bermudas, Morocco, Suriname and Ghana. It has been involved in the discovery and development of the Jubilee oil field off the coast of Ghana.On April 28, 2015 Kosmos Energy has made a significant gas discovery at its Tortue-1 development well in Block C-8, offshore Mauritania. The well was drilled to test the Tortue West prospect, which forms part of the Greater Tortue complex. It was drilled to a 4,630m depth, where it encountered 107m of net hydrocarbon pay and a single gas pool in the primary Lower Cenomanian objective.
DMyers on Fri, 7th Oct 2016 11:15 pm
Sounds like a gravy train of dreams come true. Alaska is rich again, America remains SUV Heaven, and we save the pipeline while we’re at it.
How do we know this discovery is good as gold? Because Musselman, CEO of Caelus, “formerly led Kosmos Energy when it recorded a massive oil discovery off the coast of Ghana about a decade ago.” Who can argue with that? Anyone who has ever led a company when it recorded a massive oil discovery, will never be anything but a discoverer of massive oil thereafter.
This thing’s gonna be pushing 200,000 barrels a day. That sounds like at least a hundred years of oil to me.
Interesting that while all these idiots were out there drilling for oil in deep waters, all they would have had to do is pay attention to the shallow water instead. I’ll admit, I’m impressed that someone figured that out.
Apneaman on Fri, 7th Oct 2016 11:32 pm
Could Could Could Could
makati1 on Sat, 8th Oct 2016 12:18 am
Ap, that is the key word. Along with maybe and if only.
makati1 on Sat, 8th Oct 2016 12:19 am
Is it me or is this web site fucked up?
Davy on Sat, 8th Oct 2016 6:15 am
If you read the article you see the price of oil is going to need to go up $20 for this to pencil out. Sustained healthy price growth may not be in the cards if the economy sputters out. This find may likely sputter out in the cold waste of northern Alaska. If it does find a profitable oil price and begin production it may again face low prices at a later date. The world over it is going to be very hard for marginally high cost sources to be profitable with prices stuck bellow $100 and average prices around $60. Maybe oil does recover but in the scenario I painted above the future looks bleak for a significant increase in supply from such sources as this Alaskan find.
Dredd on Sat, 8th Oct 2016 6:40 am
More likely, it will accelerate decline (Doomer Tuesday).
rockman on Sat, 8th Oct 2016 7:44 am
“How do we know this discovery is good as gold?” We don’t. Not enough drilling and, in particular, production testing. They did find a good bit of hydrocarbons but whether it will recover 6 billion bbls or 600 million bbls might not be known for certain until 2 or 3 years from now…maybe longer. The trap is one of the more difficult stragraphies to make recovery estimates. Described as a “submarine fan” it may have a morphology that looks like a shallow water delta but may have been deposited at water depths of thousands of feet. Which is similar to their offshore Africa fields.
And even though they don’t have stock to hype Caelus is primarially an oil EXPLORATION company…not an oil production company. In the past some rather small independent companies will go after large prospects that will take a lot of time and CAPEX to fully develop with no plans to invest either. They’ll sell off to a much bigger company. It will sound odd but their ROR will be much higher going that route. While the company that develops such a field might make a very acceptable ROR of 10% Caelus might see a ROR of SEVERAL THOUSAND %: they’ve invested a very small amount compared to the reserves they MIGHT have found. Let’s say they can only prove to the buyer the field only contains 2 billion bbls recoverable. And let’s say because of the tough logistics they only get $10 per bbl. That’s a $20 BILLION CHECK ExxonMobil or BP might write them. And for a field that might cost $10+ billion to fully develop.
And assume Caelus has $400 million invested (no idea how much exactly) and they’ll make 50 to 1 on their gamble. This has been the history of what we call “wild ass independents”: risk a small bit of capex (which often fails) to make a sh*tload of money when it does work. Geologists usually find it nearly impossible to sell their management in conservative Big Oil such ideas. But any Big Oil pubco would pee their pants over the possibility of adding BILLIONS of bbls of proved reserves to their books today even if they wouldn’t be selling the first bbl for 5+ years.
rockman on Sat, 8th Oct 2016 7:47 am
“Is it me or is this web site fucked up?”
OK, an informal poll: everyone who thinks makati is “fucked up” raise your hand.
LOL. Just teasing you, buddy. But you really did set yourself up for that one.
Davy on Sat, 8th Oct 2016 7:59 am
_| (raised hand)
shortonoil on Sat, 8th Oct 2016 12:20 pm
If anyone has picked northern Alaska as a new source of oil for the US, they are beating a dead horse. Most of that oil is in the North Sack region, and with an API of 10 to 20.3 that is exactly where it is going to stay. Its estimated 9 Gb of oil, has never been economically feasible to extract and never will be; it is even farther out of reach with oil at $50/ barrel.
Here is a the study on Sack Alaska heavy oil;
http://repository.icse.utah.edu/dspace/bitstream/123456789/11235/1/ms_thesis_jonathan_wilkey-evaluation_of_the_economic_feasibility_of_heavy_oil_production_processes_for_west_sak_field.pdf
The industry has been spinning a lot of tall, tall tales lately; even more so than usual.
We have been around this whole scenario long enough to know that if it sounds too good to be true – it probably isn’t!
This one probably isn’t!
Until they provide more detail on this “new” find, like API, etc. it is probably just another marketing ploy to collect someone else’s money.
http://www.thehillsgroup.org/
rockman on Sat, 8th Oct 2016 12:50 pm
but extensive sidewall coring and subsequent lab analyses confirm the presence of reservoir-quality sandstones containing light oil ranging from 40-45 degree API gravity.
rockman on Sat, 8th Oct 2016 2:26 pm
And from the limited report it sounds more like a NG/condensate then an oil reservoir. And from the typically overly optimistic Forbes: “Though Alaska’s regulations are considerably more friendly, it could still take 5-10 years before any oil is produced.”
Which is actually a plus given the statement from Caelus itself: “The development will cost between $8 billion and $10 billion over the life of the project, which could be brought into operation by the fall of 2022, Musselman said. Located about 125 miles from any other facilities, the company will need to build pipelines and roads. An oil price of about $65 a barrel and greater certainty on state tax policy and incentives is needed to develop the field, he said.”
BTW Caelus estimates about 2 billion bbls recoverable so the “6 billion bbl discovery” is rather misleading.
rockman on Sat, 8th Oct 2016 2:29 pm
And if you missed my point about the timing being a positive: the current price of oil has no bearing on the economics of the project. The price projection many years from now will.
Good luck with that GUESS. LOL.
Roger on Sun, 9th Oct 2016 8:04 am
These guys paid Pioneer $300 MM for the project . Pioneer made the discovery, but didn’t drill an appraisal well…to busy selling assets to fund the Permian.
They drilled one appraisal well and announced the discovery.
One of these two companies will ultimately look very foolish…my guess is PDX.
Apneaman on Sun, 9th Oct 2016 11:39 am
Oil Clout Ebbs in Alaska as Billions in Tax Credits Are Cut
“Facing a $3.5 billion budget gap, state lawmakers narrowly voted in June to trim tax subsidies that have saved oil and gas explorers almost $1 billion a year since 2007. Governor Bill Walker followed that by freezing $430 million in rebates, and proposing more stringent cutbacks that could be approved as early as next year.”
http://www.bloomberg.com/news/articles/2016-10-06/oil-s-clout-ebbs-in-alaska-as-state-cuts-billions-in-tax-credits
Robert on Sun, 9th Oct 2016 4:42 pm
If it produces ever… good. It probably won’t but you got to figure oil is going to become scarce someday. Going to need this little crap to keep grandma’s Buick running.
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