Nearly 2 decades after the last time any company had enough interest to bid, a surge of oil and gas industry interest convinced the US Minerals Management Service (MMS) to put 29.7 million acres of blocks off the northwest coast of Alaska out for open bidding.
The Chukchi Sea lease sale will be held Feb. 6, 2008, at the MMS offices in Anchorage, Alaska, and could open the door to a potentially recoverable 15 billion bbl of oil and 76 Tcf of natural gas. Details are available at www.mms.gov/alaska.

Those are new figures. A report titled “Undisclosed Oil and Gas Resources of the US Arctic

The MMS will open bids next February on properties in the Chukchi Sea offshore northwestern Alaska. The Burger discovery is a potential multi-Tcf field. (Map courtesy of MMS)
Alaska Continental Shelves,” prepared for a poster session for the 2001 American Association of Petroleum Geologists International meeting by Kirk W. Sherwood, James D. Craig, Peter P. Johnson and Larry W. Cook of the MMS, calculated hypothetical maximum field sizes from a mean estimate of 1.1 billion bbl of oil to a 5% chance of 3.5 billion bbl of oil. The mean estimate of the largest gas field was 10 Tcf, with a 5% chance of a 34-Tcf field.

For contrast, they estimated the Beaufort Shelf off the North Slope of Alaska could contain fields from 1 billion to 3.8 billion bbl and gas fields from 7 Tcf to 22 Tcf, but the conditions are much like those in the Barents Sea off the northern coasts of Norway and Russia.

The MMS has conducted leases in the area previously. The two lease sales in 1988 and 1991 brought in a half-billion dollars as operators took 483 blocks. That activity generated 100,000 miles (160,900 km) of 2-D seismic and five rank wildcat wells. All the wells were plugged and abandoned and all land was returned to the MMS.

Two subsequent calls for interest in 2003 and 2004 generated no responses from industry.
The lease sale next year will include territory from 15 to 50 miles offshore generally north from Point Barrow, Alaska, along 156° west longitude, north to 73° north latitude, west to 169° west longitude (the Russian border) and south to about Cape Lisburne, Alaska.
The water generally ranges from 95 ft to 262 ft (29 to 80 m) deep except in the far northeast corner, where depth plunges to 9,800 ft (2,989 m).

This time, someone is interested. Shell Offshore, ConocoPhillips Alaska and GX Technology all shot 2-D seismic in the area in the summer of 2006 when the pack ice retreated. This summer, Shell and ConocoPhillips went back to shoot 3-D seismic and GX shot more 2-D lines. All those locations are proprietary.

The most widely known of the five wildcats drilled previously was Shell’s Burger No. 1, which tapped a structure with 189,800 acres of closure under all or parts of 50 blocks some 80 miles off the Alaskan coast. It intersected a 107-ft (32.6-m)-thick Cretaceous gas sand at 5,560 ft (1,696 m). Since only one well was drilled, resource estimates are highly speculative, but a 2000 assessment assigned a mean unrisked resource level of 14 Tcf of gas and 724 million bbl of condensate to the structure. Most likely risked numbers are 9.48 Tcf of gas and 489 million bbl of condensate.

The economic assessment assumed subsea wells would deliver wet gas by overland pipeline to Prudhoe Bay and that a gas pipeline would be completed by the time the gas got there.
Assuming a 22-year field life and reserves of 11.5 Tcf of gas and 600 million bbl of condensate, with the field producing at a peak rate of 1.68 Bcf/d of gas and 85,000 b/d of condensate, the model found the threshhold price on Burger production would be US $5.22/Mcf gas and $29.34/bbl for condensate, using standard net present value calculations.

Those numbers would avoid a loss, assuming an $11 billion investment and $800 million annual operating expenses. In addition to the bid bonuses, the properties would be
subject to a 35% federal tax rate, a 2% property tax rate and, at current prices, a 12.5% royalty rate.

If prices dropped below an annual rate of $39/bbl for oil and $6.50/Mcf for gas, operators could claim a royalty suspension on as much as the first 30 million boe on large tracts.

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