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Is OPEC’s No.2 Finally Cutting Production?

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Aramco’s Oil Disruptions Could Last Months: Analyst

Energy Aspects’ chief oil analyst…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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This Super Basin Is About To Make An Epic Comeback

Alaska’s North Slope is a “Super Basin” awaiting a “resurgence” in oil production, according to a new report. Over the next eight years, oil production could rise by 40 percent.

The North Slope has been a significant source of oil and gas production for decades, even though output has been in decline for a long time. Aging fields, such as the Prudhoe Bay field run by BP since the late 1970s, were once prolific sources of production, but have been gradually losing output year after year. Prudhoe Bay can claim to be the most productive oil field in U.S. history, having produced 12.5 billion barrels of oil as of last year. But it also peaked in the 1980s and has been losing output ever since.

(Click to enlarge)

But the decline is not because Alaska is running out of oil. Output fell for a variety of reasons, including high costs of production, lack of infrastructure, federal regulations keeping reserves off limits, boom and bust price cycles, among other factors. More recently, the downturn in prices combined with skyrocketing shale production made risky plays like Alaska not worth the effort.

However, Alaska’s North Slope may still have a lot of life left in it. A new report from IHS Markit concludes that the North Slope is “poised to re-emerge as a major source of U.S. energy production, with crude oil output potentially increasing as much as 40 percent during the next eight years.”

Based on recent discoveries, IHS estimates that the North Slope Basin holds 38 billion barrels of oil equivalent (boe) in remaining recoverable resources. That figure includes 50 trillion cubic feet of natural gas and 28 billion barrels of oil. IHS says that the estimated ultimate recovery (EUR) of the North Slope is 54.8 billion boe – the 38 billion boe yet to be produced, combined with the 16.8 billion boe that has already been extracted. Those numbers are worth emphasizing: IHS is saying that there is twice as much oil yet to be produced than all of the oil produced from the North Slope to date. Related: A Saudi-Iran Oil War Could Break Up OPEC

That means Alaska’s North Slope is not a dying source of oil output. Far from it. IHS calls it an “arrested, late-emerging-phase ‘super basin’ rather than a mature basin.” IHS defines “super basin” as a basin that has multiple reservoirs and source rocks, diverse play types across numerous geologic horizons, infrastructure with access to markets, and established service sector and supply chains. The basin must also have at least 5 billion boe in conventional remaining reserves and have already had produced at least 5 billion boe.

“Previously thought of as a mature basin, recent large discoveries made in the shallow Nanushuk and Torok formations indicate this basin has a lot of room left to grow beyond the Endicott and Ivishak formations, which are the reservoirs from which the giant Prudhoe Bay and Endicott fields produce,” said Kareemah Mohamed, associate director of plays and basins research at IHS Markit, and lead author of the IHS Markit analysis. “This is why we refer to this basin as being in the late-emerging-phase, because it still has such significant resources to offer.”

That doesn’t mean that a surge in output is inevitable. Just because the oil is there doesn’t mean it will be produced. Sure, a lot of formations may have been overlooked until now, but many of the obstacles that plagued the region for a long time still remain. The North Slope is still a remote and expensive place to drill, lacking infrastructure and an adequate oilfield services sector to support large-scale production from new places. Moreover, IHS notes that uncertainty over state tax incentives also adds risk. Related: The Next Major Challenge For Norway’s Oil Industry

Yet, some of the hurdles that bedeviled the oil industry in the past appear to be surmountable. State permitting has been accelerated and drilling technology has improved. “Cost efficiencies from advances in drilling and operational practices will require the right kind of operator expertise,” Mohamed said. “For example, ConocoPhillips has employed learnings from its Lower-48 unconventional assets to lateral drilling in their Alaska North Slope CD-5 development located in the [National Petroleum Reserve-Alaska.”

The oil industry may be able to apply lessons from shale drilling in the Lower-48 to Alaska. Just a few years ago, Royal Dutch Shell was spending billions of dollars to drill offshore in the Chukchi Sea, hoping to use its large-scale engineering prowess to open up new frontiers. But the risks, operational problems, cost overruns, bad press and ultimately low oil prices put an end to that campaign. More recent shallow water discoveries, and the lessons learned from the shale bonanza, have made onshore formations in the North Slope appear more competitive at this point.

“For onshore light-oil opportunities in a stable country with a positive investment outlook, the [North Slope] provides a viable alternative to the competitive Lower-48 unconventional basins, where acreage prices are an order of magnitude greater, and have transportation and raw material constraints, even if they are temporary,” Mohamed said.

By Nick Cunningham of Oilprice.com

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