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Outlook 2019: Upstream oil exploration, development set to surge in Alaska

Anchorage, Alaska — Alaska's upstream oil industry is expecting to see a surge in exploration and development in 2019 as companies drill to delineate new North Slope and National Petroleum Reserve-Alaska discoveries.

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But some are concerned that high-profile federal initiatives, like exploration in the Arctic National Wildlife Refuge and the opening of prospective parts of NPR-A, could get bogged down by increased opposition as Democrats gain a majority in the US House of Representatives, slowing production growth down the road.

Alaska oil production is expected to increase in 2019 and 2020 thanks to new North Slope oil discoveries being brought online.

North Slope production is projected to average 529,800 b/d in 2019 and 533,000 b/d in 2020, up from 505,184 b/d from January through October 2018, according to the most recent state Department of Revenue production and revenue forecast.

The forecast included two new approved projects -- ConocoPhillips' GMT-1 and GMT-2 in the NPR-A, although GMT-2 is not expected to begin producing until 2021.

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Two other larger developments in the planning stages -- ConocoPhillips' Willow project, also in the NPR-A, and the Pikka project, on state lands--have yet to be approved. Both are located in the Nanushuk, a promising newly defined geologic formation which extends across the NPR-A to the Chukchi Sea coast. Pikka is being developed by Oil Search and Repsol.

Companies have found deposits of hundreds of millions of barrels in the Nanushuk that were not detected by numerous test wells drilled in past years.

Combined production from Willow and Pikka alone is expected to peak at 220,000 b/d, which would help to displace declining legacy output. Without Willow and Pikka, Alaska's revenue department expects production to fall to 493,400 b/d by 2027.

OPENING ANWR, NPR-A

The administration of President Donald Trump is keen on opening up ANWR and NPR-A acreage to exploration to boost production down the road.

Acting Interior Secretary David Bernhardt is a strong supporter of aggressive development in Alaska, but that development will face opposition in 2019.

A draft Environmental Impact Statement released by Interior recently showed ANWR's Coastal Plain has nearly 428,000 acres with a high potential for petroleum resources. Interior said an ANWR sale would be held after the final impact statement is completed, which could occur in 2019.

Interior may be hard pressed to publish the final version, fend off lawsuits and hold a lease sale in 2019 or 2020.

Industry officials in Alaska worry that if ANWR gets sidetracked, the lifting of NPR-A restrictions may also get bogged down. Some think Interior should have focused on the relatively less-controversial NPR-A, which has high potential in its coastal areas, rather than spend political capital and risk failure on the highly radioactive ANWR, where prospects for major discoveries are less certain.

"I was hoping they would focus on NPR-A and get that area open rather than get bogged down in the (coastal plain) area of ANWR. If that were to fail, we could also lose momentum in the petroleum reserve," said Richard Garrard, an exploration geologist with NordAq Energy, an Alaskan independent.

Some geologists, including Garrard, also harbor doubts about ANWR's prospective resources.

"I don't see (in the refuge's geology) what I hear in the political talk," about the refuge's potential, he said.

Geologically, the region is an extension of the Brooks Range, which is to the south.

"How many oil fields have been discovered in the Brooks Range? None," Garrard said.

In contrast, NPR-A's coastal area is along the oil-charged Barrow Arch, the geologic formation that extends east-west along Alaska's northern coast that also includes several large oilfields discovered around Prudhoe Bay.

The results of one exploration well drilled in ANWR in the early 1980s are confidential, but Gerrard said he is unimpressed by data available from wells drilled offshore on state submerged lands just north of the refuge.

"There's no reason why the geology is any different a few miles to the south, in the coastal plain," he said.

The lack of enthusiasm over the years from major oil companies is also telling, Gerrard said, adding that the push for ANWR exploration is mainly coming from Alaska's politicians and an influential Alaska Native corporation that owns an inholding in the refuge, Arctic Slope Regional Corporation.

Roger Herrera, a retired BP geologist who has worked extensively on ANWR and promoting its opening after he retired, also noted an apparent lack of enthusiasm from major companies with knowledge of the area, although BP and Chevron did negotiate drilling rights with ASRC in the 1980s.

Herrera lobbied Congress over several years for Arctic Power, an Alaskan advocacy group, and he noted that while the state and ASRC financially supported the effort, major oil companies including BP appeared uninterested.

BP and Chevron would not comment.

TESHUKPUK LAKE

The most prospective acreage in the NPR-A, including the Nanushuk, is in areas former Interior Secretary Sally Jewell closed in 2013, Garrard said.

Ecologically sensitive wetlands near Teshukpuk Lake, near the coast, have always been protected, but Jewell expanded the protected zone to the south into areas that have no particular sensitivity, he said.

"This area [Jewell closed] has actually been leased by Interior before and wells have been drilled," although that was before the potential of the Nanushuck was known and the new exploration tools were available, he said.

The area could be opened, in theory, in the review of the NPR-A management plan now underway. The lake is a major migratory waterfowl nesting area and an attempt to open it to exploration would provoke new protests from conservation groups.

It's considered likely that Interior would simply roll back Jewel's 2013 extensions of the protected areas and to reoffer the lands previously leased.

If the management plan revisions are done in time next year, it's possible these areas can be offered in BLM's 2019 and 2020 annual NRA-A lease sales.

-- Tim Bradner, newsdesk@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com