A curious thing happened on the way to Alaska's latest long-term oil production forecast.
We lost a billion barrels.
Sound alarming?
It's probably not as bad as it sounds. Read on.
Declining projection
On April 9, the Alaska Department of Revenue released its new state revenue forecast.
The semiannual revenue forecast is a vital document, used by the governor and Legislature to plan a state budget extremely reliant on taxes and other revenue from oil and gas production.
Nearly all of the state's oil production comes from the North Slope, in particular the large Prudhoe Bay, Kuparuk River and Alpine oil fields.
As part of developing the revenue forecast, state officials and consultants must try to forecast the level of future oil production.
The Department of Revenue's latest forecast says North Slope production will total just over 5.2 billion barrels through the year 2050.
That's a great deal of oil, to be sure, worth a staggering $415 billion at today's market price of about $80 per barrel.
But the forecast is well shy of what the department was projecting a year ago: 6.3 billion barrels through 2050.
2,000 forecasts
So what's changed in a year?
Are some Prudhoe Bay wells playing out prematurely?
Are oil companies canceling new fields and other investments?
In fact, one of the biggest changes is the state's new approach to estimating the amount of oil each field is expected to produce.
In the past, the state looked at each field on an aggregate level to forecast production, said Jennifer Duval, a Department of Revenue petroleum economist.
But following the spring 2009 revenue forecast, the department began to review historic production data on about 2,000 individual wells on the North Slope, Duval said. The data come from the Alaska Oil and Gas Conservation Commission, which regulates subsurface work in the oil fields.
The idea was to study and forecast each well's performance to better understand what sort of production could be expected from corresponding fields, Duval said.
"I don't really want to say it's more accurate. We won't know for a while," Duval said. "But each well performs differently."
Already, the technique has been used twice -- for the fall 2009 forecast, and for the spring 2010 forecast.
In predicting well output from one forecast to the next, Duval said: "Some wells we were higher, some wells we were lower, some we were right on. On average, we were pretty good."
Lots of other variables go into the production forecast, she said, including talks with oil companies and a review of the development plans they're required to submit annually to the Department of Natural Resources.
Changing company plans can have a significant effect on the forecast. For example, production from a planned Conoco Phillips development, Alpine West, was "pushed out a year" in the latest forecast, Duval said, because of trouble obtaining a permit from the U.S. Army Corps of Engineers.
"Each forecast is made with a different set of assumptions," she said. "You make your best guess based on all the information you have available to you at the time."
Revenue's new man
The Department of Revenue awarded a contract to Frank Molli to do the production forecasts, starting with the fall 2009 projection. That forecast, like the spring 2010 forecast, predicted about 1 billion fewer barrels through 2050.
Molli is doing the forecasts, including the individual well analysis, using software he wrote himself, Duval said.
Molli isn't an Alaskan. He lives in Colorado Springs, Colo., and is president of Molli Computer Services Inc., his resume says. He has a bachelor's degree in electrical engineering from the University of Colorado, and worked as a process engineer and a reservoir engineer during the 1970s and 1980s for Phillips Petroleum Co.
Is this anything?
So Molli and the Department of Revenue are now forecasting, long-range, some 1 billion barrels of oil less than the department predicted a year ago.
But does this really matter?
As anyone in the oil business knows, a lot can change over 40 years and nobody has a clear enough crystal ball to see all the factors that could help or hurt Alaska oil production -- from drilling success and new technology to shifting politics and company priorities to price swings, weather and wars.
The spring 2009 and 2010 forecasts, near-term, really aren't very different. As an example, for 2015 the forecasts put total North Slope production at 232 million barrels and 227 million barrels respectively. Twenty years further out, in 2035, the divergence between forecasts is more pronounced: 117 million barrels vs. 78 million.
Here's another consideration on the significance of a mere 1 billion barrels when forecasting over decades: The department, for the most part, doesn't even include in its estimates the tens of billions of barrels of known heavy or viscous oil in deposits such as Ugnu and West Sak. Nor does it include known oil discoveries such as Kuvlum and Sandpiper on the federal outer continental shelf, or the potentially vast volumes of oil that might one day be recovered with technologies such as low-salinity waterflood or carbon dioxide injection.
"Accordingly, we believe that our current estimates of ultimate recovery from the North Slope are conservative," says the department's fall 2009 revenue forecast.
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