Explorer Claims Major Oil Find in North Alaska
October 04 2016 - 6:50PM
Dow Jones News
A little-known energy exploration company said on Tuesday that
it has made a world-class oil discovery in remote Alaska,
potentially breathing new life into the state's declining North
Slope.
Caelus Energy LLC, a closely-held firm backed by private-equity
fund Apollo Global Management LLC, said it made the oil find in the
shallow waters of Smith Bay, about 300 miles north of the Arctic
Circle.
The company says it expects to be able to extract between 1.8
billion and 2.4 billion barrels from the discovery, probably using
barges built along the Gulf Coast, then towed to Alaska and
permanently sunk in the bay to create man-made drilling
islands.
If those initial estimates prove to be correct, the discovery
would be substantial—larger than Exxon Mobil Corp.'s 2015 discovery
off the coast of Guyana in South America.
"It is not going to be easy, but we've had projects like this
around the world," said Caelus Energy Chief Executive James
Musselman. He previously led Kosmos Energy Ltd. and the former
Triton Energy, exploration firms that made giant finds off the west
African coast.
Caelus said it planned to build an $800 million, 125-mile
pipeline that will carry the oil underneath state-owned waters to
connect with existing pipelines.
That idea likely will generate strong support from a state
grappling with plummeting oil revenue. If Alaska can't find a way
to reverse steep declines in its oil production, which are putting
the Trans Alaska Pipeline in jeopardy of freezing up, it could face
a near-total collapse of the oil industry and its entire economy.
Adding new barrels from Smith Bay could extend the pipeline's
life.
Alaska Gov. Bill Walker said on Tuesday that the find
underscores why it is important that Arctic land remains open to
further exploration.
"In this day and age of technology and regulatory requirements,
I am sure it will be done safely," he said. "We look forward to the
discovery being turned into oil in the pipeline."
A new pipeline in far northern Alaska, which will connect to the
Trans Alaska Pipeline, is likely to encounter environmental
opposition.
In the 1970s, when oil was first discovered in Alaska, the find
was welcomed by a nation shocked by high prices and the anxiety of
Middle Eastern producers threatening to stop selling their oil to
the U.S.
In recent years, a well-organized environmental movement has
blocked new pipelines in an attempt to make it difficult or even
impossible to develop new fossil fuel reserves.
"We can't afford to imperil our coastal communities and our
climate with this dangerous drilling, especially as there are
increasingly affordable and accessible clean energy solutions,"
said Michael Brune, executive director of the Sierra Club.
Regardless, such a project would not be simple or easy, making
tapping the oil find challenging, experts said.
"It is a massively complex, massively expensive undertaking to
get that (oil) to market," said Cody Rice, a principal analyst at
energy consultancy Wood Mackenzie and a former economist for
Alaska's Division of Oil and Gas.
Royal Dutch Shell PLC abandoned plans to explore for oil in deep
federal waters off Alaska after it drilled a dry well, following
months of public protests about its plans.
So far, Caelus has drilled two wells, six miles apart, to
support its estimate that there could be as much as six billion
barrels of oil under Smith Bay. It plans to drill a third well in
January 2018.
Right now, wells can only be drilled in winter months and the
company didn't finish analyzing the results of the first two wells
to plan to drill a third this winter.
Mr. Musselman said he was counting on strong support from Alaska
to help push the project through required federal permits.
"The state of Alaska is very, very hungry for this kind of
development," he said. "I think the state of Alaska will put their
shoulder down to support this."
Timothy Puko contributed to this article.
Write to Russell Gold at russell.gold@wsj.com
(END) Dow Jones Newswires
October 04, 2016 18:35 ET (22:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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