Oil companies are betting that heavy oil in Alaska will result in a big payoff. Heavy oil, which has the consistency of thick molasses, lies in sandstone above the huge reservoir of light oil that has been flowing down the trans-Alaska pipeline since 1977. With that reservoir being drawn down, BP Group PLC and ConocoPhillips Co. are turning to hard-to-pump heavy oil to extend the life of Alaska's largest oil field.
PRUDHOE BAY, Alaska — Oil companies are betting that heavy oil in Alaska will result in a big payoff.
Heavy oil, which has the consistency of thick molasses, lies in sandstone above the huge reservoir of light oil that has been flowing down the trans-Alaska pipeline since 1977. With that reservoir being drawn down, BP Group PLC and ConocoPhillips Co. are turning to hard-to-pump heavy oil to extend the life of Alaska's largest oil field.
Also known as viscous oil, heavy crude makes sense because of increases in worldwide demand, said Phil Flynn, senior energy analyst for Alaron Trading Co., a Chicago-based futures brokerage firm.
"These alternative fuels that we thought just a few years ago would never be profitable to get out of the ground, at $50 a barrel, it is," Flynn said. "We are going to find more and more situations where we are going to squeeze every barrel out of the ground."
So far, BP and ConocoPhillips spent over $1 billion on research, development and drilling for heavy oil and are putting millions more into the effort.
"Mother Nature put something like 15 billion barrels in place," said Don Dunham, who is heading up BP's strategy on heavy oil in the Alaskan region. "The issue is to avoid leaving it in the ground."
Until recently, the companies have been satisfied with light oil -- the more easily pumped crude that has been the lifeblood of Prudhoe Bay for nearly 30 years. With more than 213,500 acres and more than 1,000 oil wells, Prudhoe Bay is the largest field in the North Slope, the large oil-producing region along Alaska's northern coastline.
But the huge oil field -- originally estimated at 25 billion barrels -- is being drawn down. Production is falling by about 3.5 percent a year, and the pipeline now carries about half what it did in the 1980s. Alaska oil accounts for about 17 percent of total crude oil production in the United States.
With the beginning of the end in sight, BP and ConocoPhillips are willing to spend big on heavy oil.
"We believe these developments are economically viable," said Matt Fox, an area development manager for ConocoPhillips. "The issue is how much can be developed economically."
In five years, heavy oil production on the North Slope should be about 100,000 barrels a day, Dunham said. The pipeline now carries about 900,000 barrels a day, well below the peak of more than 2 million barrels a day in 1988.
The time has come to go after the tough stuff, said Scott Digert, one of the leaders of BP's heavy oil project.
"It is a big part of our strategy," he said.
BP and ConocoPhillips are each pumping about 30,000 barrels of heavy oil a day. ExxonMobil Corp. has a smaller operation to bring the combined daily production total to about 75,000 barrels a day.
BP and ConocoPhillips want heavy oil to help keep the pipeline somewhat full until a natural gas pipeline can be built, a $20 billion proposed project that is at least a decade away.
After North Slope natural gas gets going, heavy oil should account for between one-quarter and one-third of the oil produced on the North Slope, Digert said. Between natural gas and heavy oil, the life of the oil fields could be extended until 2050 and beyond, company experts say.
Advances in drilling technology, along with the high price of oil, are making heavy oil exploration possible. Traditional drilling didn't make sense for heavy oil, given the added expense of drilling and production, as well as the lower prices refineries pay for heavy oil.
While traditional drilling involves a straight shot 4,000 to 5,000 feet down, lateral drilling involves a well with three to five lateral holes branching off the main hole. That can open up 25,000 feet of oil-laden sand, compared to between 75 and 100 feet with traditional drilling. Computer-driven drill bits that snake through the sandstone, going from one pocket of oil to the next, also are taking a lot of the guesswork out of drilling.
Lateral drilling is expensive, about three times the cost of horizontal drilling. But with lateral drilling the well as a whole can produce enough so that heavy oil can be cost-effective, Digert said.
Challenges remain, however. The companies continue to struggle with sand that slows the flow and clogs the equipment, and with separating the oil and sand.
"We are producing the easiest of the difficult stuff. It only gets more difficult after this," Fox said.
The companies are trying a variety of techniques to separate oil and sand and continuing to experiment with different types of pumps to increase flow.
"The pace of technology development has been almost breathtaking," Fox said.
Source: Associated Press
