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Currently, sitting on my portch. In the beginning, spent 16 years with drilling company starting out as a roughneck and rising through the positions of drilling manager, operations manager and finally Executive Vice President and CBW (Chief Bottle Washer). I have worked with a variety of... More
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  • Three Mile island, The Exxon Valdez, and the Deepwater Horizon and Alaska
    As I watch the morning talk shows and hear about the General in Afghanistan, the oil spill in the gulf, and the stated new offshore rules, I would like to ask a question of anyone out there that is reading, how are Three Mile island, The Exxon Valdez, and the Deepwater Horizon, and the future of economy connected? One thing is certain, this crew in Washington is not going to figure it out.
    Back in 1979 we had experienced the oil embargo of 1973 and we were actively working to power our economy with a new discovery, Nuclear power. We were building the next generation of power plant, clean, efficient, and long lasting. Better yet, no imported oil needed to make it work. Then we had an accident at 3 mile Island. The melt down that could have occurred, didn’t. The safety features in place should have sent a message to our federal government. They did, just the wrong one. The legislature passed so many rules and regulations that our nuclear industry all but died. We didn’t see an application for another one until 2007.
    1n 1989 the Exxon Valdez ran aground and spilled a great deal of oil, 11 million gallons or 257,000 barrels to more exact.  That came out of a tanker carrying 53,094,510 gallons or 1,264,155 barrels. We are all aware of the environmental damage that occurred and the resulting regulation of our oil industry in Alaska,  but unless you are in the Oil and Gas business in Alaska you might not be aware of the other effect. 
    Since the peak, Alaskan crude production has been declining at an average rate of 4.9%, and averaged (fiscal) 2009 at 693,000 BOPD. Going forward, the state expects the decline rate to flatten out to 3.6%, after fiscal 2010, of course. Now, fiscal 2010 ends on June 30, 2010, right about now. The state expected 2010 to average 659,000 BOPD. through 2010, we are averaging 656,577.  So, if 2010 were to follow suit, we could see average production fall as low as 650,000 BOPD for the year. That would represent a YOY decline of 6.2%. Basically, the State is running out of oil.
    Or is it? If you tie up to the local watering hole and speak to the elder geologists and engineers they will tell you of wells drilled and abandoned, of fields discovered and not produced. Of opportunities they would have loved to have had to develop their favorite prospect. Why has it never been done? Up until Governor Palin took office, the regulations and bonding requirements and environmental zealots have made it impossible for anyone but the very biggest to work operate in Alaska. 95% of all of the production in Alaska belongs to the majors and they don’t have the time or the inclination to mess with “little deals”. 
    Finally the State Government under Palin and now Parnell decided to do something about this mess. Hopefully, we are not too late to reverse this disturbing trend. After years of other administrations catering to the environmentalists and a lack of foresight several laws were passed, not appease the “Big Oil” guys but to instill a sense of partnership and encourage the explorer to get busy. This idea of actually doing something is catching on, a few independents have arrived. If the culture of “get it done” eventually permeates into the regulators and those that assess the bonds we will be rocking.
    Now we move on to the Deepwater Horizon and the damage it is about to do the Gulf of Mexico and it goes well beyond the oil seeping onto the beaches. Those will recover, the US economy might not. As a result of the accident the federal government is now going to follow in the footsteps of Three Mile Island and the great state of Alaska and re-regulate the offshore industry in the United States. I reference the above decline rate in Alaska. In the Gulf of Mexico the decline rate has been suggested to be as high is 25% and it has been offset by the myriads of small finds and big finds thanks to robust exploration. If you stop the exploration you stop the flow of oil. The majors are not all that good at this type of exploration, they are looking for elephants and home runs. Shooting elk or making base hits does not interest them. 
    As the regulations get started the costs will drive the independents out of the Gulf of Mexico. This exodus will permanently affect the region and force the United States to spend more money on foreign oil. It will cause innovation to stop, the rest of the world learned to build really good nuclear power plants. The rest of the producing basins in the United States are heavily worked and explored by independents, not Alaska. History has a nasty habit of repeating itself.
    On the upside for Alaska, we’ve all ready been through the process so hopefully the independents will come to Alaska where we are on the downside of that curve. We are actually taking the money from the majors and redistributing it. I have always thought that if President Obama ever looked at our program he would find it right up his alley. While the Federal Government is busy trying to do hand the Gulf over to the operators that fouled it up, Alaska is trying to get the nimble creative independents up into our Cook Inlet and out onto the North Slope.
    Could Alaska do more? Sure we could, one of the nasty hold over from the Valdez requires up to $ 5 million for permitting bonds for small onshore oil and gas wells, Billions of dollars for Bonds on Tankers to bring oil to the West Coast markets which ran all the smaller competition out of Alaska, by pricing them out of the markets. Could we do something about these things, sure we could.
    Let me use the example of the fire station, to require everyone to have a fire station at each home would be considered really stupid when one government run fire station could be used. Alaska could become a self insured state and cover offshore platform abandonment and oil spills using the 470 fund. This would allow the majors to sell their platforms and other onshore facilities like Badami and others so that smaller companies ready to come to Alaska and begin production can buy them. This would relieve the majors from any and all liabilities, and let them keep hunting elephants.
    Before we laugh this off, I would remind everyone that this program works very well in Brazil, the Middle East, and the North Sea where the governments are in charge of funding the clean up and the producers, not explorers,  are taxed to fund it.
    I am pretty sure the lessons of Three Mile Island and the Valdez are going to be ignored by our federal legislature and the people in the lower 48 are going to get a taste of what we have been dealing with up here for years. Hopefully the State of Alaska can get some new independents from the lower 48 before you guys wake up and start reversing some very policies.
    Jun 27 12:08 PM | Link | Comment!
  • Drill Baby Drill but drill safely and let’s party, BYOR.
    Recently in the petroleum news and other news resources in Alaska a lot of talk has been around bringing a rig to the Cook Inlet of Alaska. We have the prospects and recently we have seen some new companies enter the Inlet to look for Oil and natural gas. So where is our rig? Even the Governor put into law new incentives, serious cash incentives to bring that rig here. So where is it?
    For several years Danny Davis of Escopeta has been trying to get a rig into the Inlet with no success so far. Perhaps we need a different approach. The industry needs to get together and throw a party. A BYOR (Bring Your Own Rig Party) for the Inlet. Up to 60 million is being offered by the state, and in my day you could throw one hell of a party with that kind of prize to give away. But the question remains, who would throw the party? It needs to be someone with right connections, attitude and the ability to bring the rigs.
    Recently several new players have arrived in the Inlet and we have a few who have been here for years. Looking over the crowd maybe we can find our party animal. Linc Energy (NYSE:LNC) is one of the new players but their CEO Peter Bond looks more like a mining guy than a driller. Cook Inlet Energy is another new player, but their CEO David Hall, formerly of Pacific Energy doesn’t seem to have a rig in his pocket either. Aurora Gas, (AOG) headed by Scott Pfoff is another player in the Inlet. He has over 25 years experience in the oil and gas business and currently operates from the Houston office. According to their website, Mr. Pfoff has been directly involved with, or supervised numerous successful negotiations for the sale and purchase of natural gas in Alaska and throughout the Lower 48 states, but nothing about rigs. Of course Apache (NYSE:APA) is led by Steve Ferris, but they have not officially entered the game yet.
    Then I look at Buccaneer Energy (NYSE:BCC), real pirates and pirates should know how to party. Curtis Burton, their CEO, has a long history in the industry. Nothing odd there, each of the players seem to have long histories. But then in reading his Biography (buried on their site) I noticed this. “Mr. Burton worked for Texaco, where he co-founded DeepSTAR, Texaco’s cooperative deepwater technology-development vehicle.” That sounds like he might have had some exposure to rigs. Another interesting note, Mr. Burton served as President of Total Offshore Production Systems (NASDAQ:TOPS), a wholly owned subsidiary of R&B Falcon, and Vice President of Reading & Bates Development Co., R&B Falcon’s equity ownership division. Well, what do you know, R&B or Reading and Bates was a drilling company. 
    So I think we have found our Party Animal, Curtis Burton. He leads a band of pirates, he used to work for a drilling company, he put together a “cooperative” called Deepstar and Buccaneer Recently entered the Inlet in a big way. They are headquartered in Houston, but they are listed in Australia. Australians have been known to a throw a party or two. Perhaps Mr. Burton can bring the service companies together with the Oil and Gas guys and get a rig to the inlet. You have a 60 million pot to split as the spoils.
    Of course there is still this mess down in the Gulf to contend with which might increase the liability for the rig company. Here’s an idea. Alaska's 470 fund already has roughly 50 million from the 2 cents per barrel and three cents that goes to the DEC from every barrel. If Alaska would become a self insured state then the smaller companies can drill and let the state use these funds to help with the liabilities. This might also allow the majors to sell their old leases with platforms that need to be removed and the smaller companies can access the projects while the state covers the liability.
    So let’s get this party started, Anchorage is running out of natural gas, the price of oil is rising, there is a pot of gold waiting to be won, and we have Pirates in the Inlet. Curtis, you should use your old band of rig buddies, pull together the players in Alaska and have the BYOR party today. Send me an invitation and I will be there.
    Jun 24 12:14 PM | Link | Comment!
  • Come to Alaska, we want you to drill!!
    Currently we are watching BP get grilled on Capitol Hill.  I have to admit, Tony Hayward is taking the negative comments very well.  I cannot imagine why he would subject himself to such abuse.

    BP may have made some very serious mistakes in the Gulf.  We may need to look at the regulations and standards being applied in the very deep water and we might need to exclude some of the companies from operating there.

    What strikes me is that Shell, who has no such record, is being prevented from drilling up here in Alaska.  Other companies that would like to drill onshore or in comparably shallow waters are being denied.  ExxonMobil has lost their lease on the Point Thompson project because of paperwork.  This is a very odd move for a country with no national oil company and a huge appitite for oil.

    Alaska on the other hand is open for business.  Our state waters are ready for you to take the leases and drill.  We have a real need for natural gas, and we have a pipeline for oil that is running low.  We have changed the laws and except for a few at the DNR that a little difficult to work with we are ready for you.

    Independents are what the state is looking for.  Over the last several years the majors have reduced their commitment to the state and currently the tax regime does not favor them.

    Have any of the independents answered the call, well Link Energy has.  Cook Inlet Energy has, Australian based Buccaneer Energy has and the rumors are that the Mighty Apache led by Steve Ferris is coming.

    Who is going to follow?  The Gulf of Mexico is off limits, come one come all to the Cook Inlet of Alaska.  My place is just outside Anchorage, I just bought a brand new generator.  Why?  Because the Untility says we may have brown outs starting next year.  That and it was on sale.
    Jun 17 10:16 PM | Link | Comment!
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