ENERGY FRONTIERS

Scrappy wildcatters at Great Bear Petroleum go after Alaska's untapped shale oil

ANCHORAGE, Alaska -- Late this month, with the first snow of winter dusting the tops of the Chugach Mountains, Ed Duncan was holding his cards close to his chest when talking about Great Bear Petroleum LLC's winter plans for expanded shale oil development in northern Alaska.

Last winter, Great Bear drilled two exploration wells on its leases along the Dalton Highway, which links the state's lucrative northern oil fields to an export terminal in Valdez.

Exploration wells on the slope are generally drilled in the winter months to avoid damaging the local tundra. Great Bear had hoped to begin horizontal drilling and fracking at the two sites, but the company's rig contract expired in December before the tests could proceed (EnergyWire, April 3).

According to state officials, Duncan's 2012 drilling operation hit a small but promising pool of conventional oil.

Beyond that, however, Duncan, who serves as president and CEO of the privately owned company, won't say whether Great Bear encountered commercially viable resources.

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He notes that the company has spent $40 million on 3-D seismic testing in the last three years and expects to spend an equal amount for future exploration.

"It passes the simple logic test that we're not going to make that kind of capital commitment if we're not encouraged by what we are doing," he told reporters at last week's Alaska Oil and Gas Congress.

State officials are counting on Great Bear to launch unconventional shale development in Alaska. They're hoping that if Duncan succeeds, other companies will buy up state land leases and shale development will spread throughout the North Slope and into other parts of Alaska.

"All it takes is one company," said Department of Natural Resources Commissioner Dan Sullivan. "If they did hit it and start making money, then in a place as big as Alaska -- it could have the potential to really take off."

Two other companies have purchased leases near Great Bear's operations. In November, Alaska will hold a lease sale for an additional 14 million acres of state lands on the North Slope, the slope foothills and the Beaufort Sea.

But at this point, Great Bear remains the only company that is actively working to commercialize Alaska's shale oil reserves.

Bakken of Alaska?

Great Bear's operations have been the subject of close scrutiny since 2010, when Duncan scooped up leases on 500,000 acres of northern Alaska state land in a region that international energy giants had long ago dismissed.

Following that lease sale, Duncan boasted that he expects his North Slope plays to yield bountiful untapped resources as vast as the unconventional oil plays at Texas' Eagle Ford and North Dakota's Bakken shale fields.

In testimony before the state Legislature in 2011, he predicted that his leases could produce 200,000 barrels of crude per day by 2020.

Great Bear's leases contain three layers of rich source rock that geologists say generated Alaska's lucrative Prudhoe Bay and Kuparuk oil fields.

According to a 2012 U.S. Geological Survey report, the North Slope shale formations could contain an additional 2 billion barrels of technically recoverable oil and 80 trillion cubic feet of natural gas. That geology stretches from the Chukchi Sea in the west to the Arctic National Wildlife Refuge in the east.

Duncan, a petroleum geologist and oil industry veteran, explained that the layers of rock underlying his leases hold intriguing potential.

"There's an intermingling of conventional and unconventional plays," he said. "The conventional plays have been proven on the North Slope. The plays are still speculative until we actually see barrels flowing out and being sold."

He expects to produce oil and natural gas liquids that could easily be added to the Trans-Alaska Pipeline, which runs close to his leases.

But Duncan expressed frustration that the dry natural gas Great Bear finds can't be shipped to market.

"As a small company with a very large position in northern Alaska and actively exploring, we have every reason to believe that our resource base might be a significant blend of oil and natural gas liquids and gas itself," he said.

"But today gas in north Alaska is stranded," because a pipeline hasn't been built from the North Slope gas fields to Alaska's population centers. "It's time to get off the dime on this," he added.

Big plans over red wine

This fall, after years of bold projections, Duncan is maintaining a lower profile when discussing his expectation for the coming drilling season.

Last year the company drilled on leases close to the Dalton Highway to provide easy access for equipment and personnel. This year "we have six currently permitted locations along the highway. It's conceivable that we'll drill one of those next."

"But we have a very big position," he added. "So we need to move off of the highway, most likely to the west."

Great Bear has not yet contracted for drill rigs for that operation, however, a significant issue in Alaska, where rigs are usually in high demand during the winter drilling season.

Nonetheless, Duncan said Great Bear's shale development operation is on target to meet its original timetable for moving forward.

"Our hope would be that you would see a sanction of full-field development in the next year or so," he said. Full oil field development could mean as many as 200 wells per year, he added.

At that point, Great Bear will face the task of obtaining environmental permits, building roads and drill pads, and setting up a commercial drilling operation.

For the time being, Duncan won't "speculate on what our forward strategy is" for the Great Bear shale project.

"We have established a very dominant position in the fairways, and we're very, very happy about that," he said. "What we do, how we manage that, is between [him and his wife] and a few other people. And a glass of red wine."

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