Alaska’s 10-year Oil

Production Outlook And

Potential Future

Developments Report

Pascal Umekwe

Division of Oil and Gas, DNR

05/19/2017

Overview

Introduction and Background

Fall 2016 Forecast

Past and Current Forecast Methods

Review of Production Tranches

Potential Future Production

Projects within the DOG’s Public Report

New Discovery Announcements

Summary

2

The Place of Oil and Gas in Alaska’s Economy3

Revenue Sources Book, 2016

DOR Fall 2016 Forecast4

Source: Fall 2016 Revenue Sources Book

Motivation for Change in Forecast

Methodology5

Forecast Uncertainty

Variance in Forecasted Production vs Actual Production

6

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tho

usa

nd

BO

PD

Actual Production vs Forecasted Production

2001 2003 2005 2006 Actual

Forecast-vs-actual variance increases into the

future7

1.2%

5.8%

12.2%

19.2%

26.8%

37.8%

46.8%

54.3%

60.9%65.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

1 Year 2 Years 3 Years 4 Years 5 Years 6 Years 7 Years 8 Years 9 Years 10 Years

Average ANS variance by years out (2001-2014)

Expected Production from Future Projects Has

Driven Over-estimation in the Past.8

▪ Forecast will be too conservative if no expected production is considered.

▪ Forecast will be overly optimistic if all anticipated production is included.

▪ Expected Production must discount estimated year-on-year historical base production activity.

(150,000)

(100,000)

(50,000)

-

50,000

100,000

OIL

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CurrentProductionvsANS Expected Production vs ANS

Reasons For Differences in Forecast vs Actual

Production

Previously, a ten-year window was used for projects in the under development

(UD) and under evaluation (UE) portions of the forecast.

Leading to more uncertainty in the forecast

This resulted in more projects (expected production) being included that didn’t go

into production within the expected time frame.

For example: Mustang, Liberty, OCS production

All expected production was added to the forecast as UD and UE.

No price dependency, or risk of occurrence applied until recently

Historical drilling activity was not properly accounted for.

9

Reducing Outlook Time to Improve

Accuracy of the Forecast.

It is more challenging looking far

out.

Typically operators wouldn’t

have a set plan and will be

open to changes in market

conditions that do affect their

plans.

Including projects with first oil

farther out reduces the

accuracy of the forecast.

10

0%

10%

20%

30%

40%

50%

60%

70%

80%

2001 2002 2003 2004 2005

Va

ria

nc

e f

or

diffe

ren

t o

utlo

ok

tim

es

Forecast year

Forecast Errors in Years 1-10

1 Year

3 Years

5 Years

7 Years

10 Years

* 2001 to 2005 allows for analysis of 10yr prediction vs actual

Differences Between Forecast Methods

Previously (1990-2015) 2016 - Present

Forecast Level Pool Level, Well – by–Well

Forecast

Pool Level forecast

Uncertainty Handling Deterministic Probabilistic

Risking Unrisked CP not risked.

First UD/UE risking in 2013 Fall

forecast

Probabilistic technical and

Non-technical risk

Oil Price dependency None Dependence on oil price

UD Production 10 year outlook 1 year outlook

UE Production 10 year outlook 5 year outlook

11

Current Production Forecasting

Method12

Production Categories

Official Production

Forecast

Currently Producing

Under Development

(1yr)

Under Evaluation (2-

5yrs)

Excluded Projects (5+yrs)

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Potential

Future

Development

Category

Production Category:

Currently Producing (CP) Tranche.

Characteristics:

All currently producing pools in ANS and Cook Inlet

Examples: Legacy fields and other fields in production

Decline Curve Analysis forecast at pool level acknowledges some level of ‘background’

or ongoing development activity, facility maintenance, well intervention and turn-around

events.

14

Production Category:

Future Production (UD/UE): 5-Year Outlook Window

Under Development

+New fields 1yr out.

+Wells in fields undergoing development.

+Projects considered above inherent development activity included in CP.

Under Evaluation

+Facilities (access) in Place

+Significant Sunk Cost.

+Funding secured.

+Permitting completed/in progress.

Excluded Projects

+Unknown first-oil date/estimated greater than 5 years

+Discovery (contingent resource) or just prospects (prospective resource)

+Uncertain finances

+Facilities incomplete or nonexistent

15

Year 1 Year 5Present

First Oil Estimated in 2018-2021

- Projects in Blue Have Been Postponed -

Project Reservoir Formation Peak Rate Est, BOPD

(From Public Sources)

Add’l CD5 wells, Colville River Unit Alpine sands, Kuparuk Fm n/a

Greater Mooses Tooth 1 Alpine sands (Lookout) 30,000

Greater Mooses Tooth 2 Alpine sands (Spark-Rendezvous) 25,000 – 30,000

Nuna Project, Oooguruk Unit

(postponed)

Torok Fm (same horizon as Moraine) 20,000 – 25,000

Nuiqsut Expansion, Oooguruk Unit

(postponed)

Nuiqsut sand n/a

Mustang Project, S Miluveach Unit

(postponed)

Kuparuk Fm 12,000 – 15,000

Add’l wells, Nikaitchuq Unit (postponed) Schrader Bluff Fm n/a

Moose Pad, Milne Point Unit Schrader Bluff Fm 10,000

Moraine Project, Kuparuk Unit Torok Fm (same horizon as Nuna) n/a

1H NEWS, Kuparuk Unit (potentially

postponed)

Schrader Bluff Fm (West Sak sands) 8,000

Decker, P., (2017b)

16

How Probabilistic DCA Works

▪ Decline Curve Analysis (DCA) develops trends based on historical production data to forecast future production. It incorporates an understanding of reservoir and operational performance of producing fields/wells.

▪ Probabilistic DCA includes uncertainty analysis to produce a range of future production rather than a single deterministic forecast profile.

▪ Software used:

▪ Schlumberger’s Oil Field Manager (OFM) alongside a probabilistic suite.

▪ Uncertainty analysis in excel used @Risk by Palisade

17

Statewide Production Forecast Range18

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

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Ba

rre

ls o

f O

il P

er

Da

y

Oil+NGL_Ave BOPD Forecast P10 Forecast Mean Forecast P90

Mean Future Decline Rate: 4%

Historical Decline Rate: ~5%

Fall 2016 Forecast: Production Tranches 19

-

100,000

200,000

300,000

400,000

500,000

600,000

7/1

/20

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BO

PD

Total AK Production

CP UD UE

The biggest share of production forecast (CP) still requires wellwork and facility

upgrades, optimization from operators and the servicing industry.

Currently Producing Tranche:

Over 90% of Total Production

Longer Term Outlook20

Potential Future Development Projects

Projects discussed in report:

Fiord West Project

Placer Project

Pikka Project

Tofkat Kuparuk C Project

Liberty Project

Point Thomson Major Gas

Sales Project

Smith Bay Project

Ugnu Project

21

Why undertake a task to develop ‘speculative’ profiles?

▪ Not to provide a technical or economic project-by-project assessment.

▪ To contribute to the framing of conversations in the public space while acknowledging the technological and commercial challenges faced by these projects.

How were profiles developed?

▪ Type curves from analogous reservoir rocks and potential well performances.

▪ Using public presentations, reports and statements from project operators.

First Oil Potentially 2022 or Later

- Some Projects May Not Occur -22

Project Reservoir Formation Peak Rate Est, BOPD

(From Public

Sources)

Fiord West Project Kuparuk Fm and Nechelik

sand

n/a

Placer Project Kuparuk Fm n/a

Pikka Nanushuk Project Nanushuk Fm & Alpine sands Up to 120,000

Tofkat Kuparuk C Project Kuparuk Fm n/a

Willow Project Nanushuk Fm 40,000 – 100,000

Liberty Project Kekiktuk Fm 60,000

PTU Major Gas Sales

Project

Thomson sands Up to 70,000

Smith Bay Project Torok Fm Up to 200,000 (?)

Ugnu Prince Creek Fm (Ugnu sands) n/a

Decker, P. (2017b)

Potential Impact on Long term North Slope

Production 23

• North Slope profile showing possible impact of potential future projects.

• Production profiles are unrisked and actual timing remains uncertain.

• Projects could help prolong the operational life of TAPS.

24

4/12/2017

1/22/2017

10/9/2016

Recent Discovery Announcements

North Slope Recent Brookian Discoveries25

• Accumulations in the youngest

major rock sequence on the

North slope (Decker, P., 2017a)

• According to Petroleum News

(2017):

• Pikka: 1.2 BBO Recoverable

• Willow: 0.3 BBO “

• Smith Bay: 1.8-2.4BBO “

(Caelus Energy, 2017)

• Total Contingent Resource: ~3.5

BBO

Decker, P., (2017b) modified after D. Houseknecht, USGS

National Petroleum Reserve – Alaska

(Torok)

(Torok)

(Nanushuk) & Horseshoe (Nanushuk)

(Torok)

Several Nanushuk and Torok Formation discoveries are at different

stages of delineation and development.

Summary

Official state production forecast applies standard accepted engineering

and production risk assessment techniques in determining future production.

Recent new discoveries show that there is still a strong future for oil

production in Alaska.

Maintaining base production and bringing on new production is impossible

without Alaska’s Oil and gas support companies.

Oil prices play a vital role in what resources are ultimately produced.

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References

DOG (2017) Alaska’s 10-year Oil Production Outlook and Potential Future Developments. Retrieved 5/2017 from http://dog.dnr.alaska.gov/ResourceEvaluation/Documents/20170209-ForecastAndScenariosReport.pdf

Caelus Energy (2017) Caelus Activity Update HRC 2/1/2017. Retrieved 4/2017 from http://www.akleg.gov/basis/get_documents.asp?session=30&docid=646

Decker, P. (2017a) Nanushuk Formation Brookian Topset Play, Alaska North Slope. North American Prospect Expo 2017. Feb 2017. Retrieved 4/2017 from http://dog.dnr.alaska.gov/ResourceEvaluation/Documents/NanushukDiscoveries_AAPG.pdf

Decker, P. (2017b) North Slope Development Outlook Presentation to Senate Finance Committee, 4/25/2017. Retrieved from http://www.akleg.gov/basis/get_documents.asp?session=30&docid=17166

Petroleum News Reports

http://www.petroleumnews.com/pnads/688589178.shtml

http://www.petroleumnews.com/pnads/84786909.shtml

http://www.petroleumnews.com/pnads/13033674.shtml

http://www.petroleumnews.com/pnads/245705826.shtml

http://www.petroleumnews.com/pnads/748220773.shtml

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Back Up28

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North Slope Exploration and Development: A snap shot of activity and operator

footprint on the North Slope of Alaska.