A renewed oil interest on Alaska’s North Slope

Alaska's North Slope receives little attention give the focus on North America unconventionals. In recent months, the North Slope has quietly been attracting investment and activity. Kareemah Mohamed, an expert in basin strategies and resource evaluation, provides an overview of the North Slope, including key players and opportunities for operators in our Upstream in Perspective podcast series. Here's an excerpt of the conversation:

Jessica Nelson:

There seems to be so much E&P opportunity in North America unconventionals. Why is there renewed interest in Alaska's North Slope?

Kareemah Mohamed:

It comes down to a couple key factors. Obviously, as you mentioned, the unconventionals have stolen the spotlight and stolen Wall Street for the past couple of years. But, the Alaska North Slope is kind of back into fashion now because there's lots of running room in this basin.

Previously, Alaska was thought of as a mature basin, but there is still so much yet to be discovered. We've identified about 30 billion barrels of oil in place left in the North Slope to be recovered-with average discovery sizes being million to billion barrels discoveries.

The evidence for this really is four main discoveries that have been made in the past couple years that have really brought this basin back into focus. It's not mature at all. There's still tons of reserves that are technically recoverable left on the North Slope.

Another factor is the fact that barriers to entry are really dropping in this basin-both at a federal and at a state level. From a federal point of view, the investment climate , especially given the corporate tax rate that's been dropping, and its very pro-oil and -gas type climate out of Washington. In addition, two key areas in the North Slope that have been closed off to any type of oil and gas activity for a very long time have opened. So, you have large swaths of land that haven't had any kind of exploration activity applied to it.

Another point to "why Alaska now" is cost reductions. We've seen operators such as ConocoPhillips really leverage the expertise that they've built up in the lower 48 and apply that to the North Slope to see cost reductions by about 25%. In addition, acreage prices are reasonable on the North Slope. If you compare it to anywhere in the unconventional realm in the lower 48, you've got a magnitude of difference looking at acreage prices. In Alaska on the North Slope, you can pick up acreage for about $100-200 an acre. Whereas, in the Powder River Basin, you're looking at tens of thousands of dollars an acre. What this means is you as an operator or a new entrant can really get the first mover advantage in this basin by really coming in at a time where it's not trendy like the unconventionals and the lower 48 is right now.

One final point as to why even consider the North Slope when you've got the unconventionals is that really the success in the unconventionals is totally operator-dependent. So not every player is going to have the same level of success. If you're not a specialist company like Oxy, Permian, or EOG for example, you're not going to be able to see that same low-cost type of development. The opportunity set on the North Slope is one that operators have to evaluate against core competencies to see if this is a good fit.

Jessica Nelson:

You've described the North Slope as an "emerging arrested basin". What does this mean and why does it matter?

Kareemah Mohamed:

That's a good question. So, we do have our own way of classifying basins in our Plays and Basins group at IHS Markit. We call the North Slope an emerging basin, which is sort of contrary to the popular opinion of the North Slope. When you look at the discoveries that have been made throughout the timeline of this basin compared to the number of new-field wildcat wells that have been drilled, you see that this basin is still in its late emerging phase. This is because it has not really had the full level of exploration applied to it compared to other maturing basins such as the Niger Delta in Nigeria, for example.

When we say "emerging basin", we mean that it has not been fully explored to both the vertical and horizontal extents of the basin. These new discoveries that have been made within the past two to three years are at the magnitude of the hundred-million- to billion-barrel type discoveries. And these were made in formations that are not new at all to the North Slope. They've been penetrated by every well that's been drilled in the North Slope. However, the difference is that it's now economic. It's now being seen as a viable target for development. This discovery was made decades ago, but it wasn't economic until recently.

Emerging basins tend to be stuck in the emerging phase where they've been under arrested development due to a number of above-ground concerns. We are looking at things like if a basin is in a war-torn area such as the Niger Delta. Or, if fiscal regimes have not really been much of an incentive for operators. Things like this really contribute to a basin being arrested. Now, in the case of the Alaska North Slope Basin, we've got environmental concerns and permitting timelines, which have typically stretched out one to two years, and contributed to a stymied level of general oil and gas activity on the North Slope. This is what leads to these hidden opportunities that are only discovered once a basin turns over. When conditions become favorable for operators to start exploring again, and to see new entrants, this can tip a basin out of its arrested stage into a more accelerated level of activity.

Hear more about what's driving a renewed interest in the North Slope as well as an overview of the current competitive landscape. See more about what's included in our plays and basins service.
Posted 14 June 2018

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.