TESTIMONY OF WILLIAM D. VAN DYKE SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES Mr. Chairman, and members of the Committee: My name is William D. Van Dyke. I am a petroleum engineer with nine years of experience in Alaska. I serve as Petroleum Manager for the Division of Oil and Gas in the Department of Natural Resources. I am actively involved in the permitting of oil and gas activities on State lands, unitization of State oil and gas leases, and design of the terms and conditions attached to State oil and gas leases at the time of sale. I also have been very involved in developing the State position concerning proposed leasing of the coastal plain of the Arctic National Wildlife Refuge (ANWR). Before discussing the details of possible ANWR development strategies and specific mitigation measures, I would like to stress four very important points. First, oil and gas leasing in Alaska is extremely important to both the State and the nation. Second, from the information I have seen, I am convinced that the coastal plain of ANWR is the most prospective unexplored petroleum province remaining in North America. Third, given what we have learned from our years of experience at Prudhoe Bay and along the TAPS line, I believe that oil and gas development can take place in ANWR with a minimal degree of impact to the environment. And fourth, an exploration-only policy should not be considered for ANWR. The manner in which State North Slope oil and gas lessees conduct their business has certainly evolved since what might be termed the "early years" at Prudhoe Bay. Government agencies' understanding of North Slope oil field operations and of the arctic environment have likewise matured. Summertime cat trains over the tundra and long gravel airstrips at each and every exploratory well site are now only stories of the past. Large balloon-tired vehicles, ice roads and comprehensive planning reflect the technologies and tools of today. We do not know everything that there is to know about the environment and the ecology of the coastal plain. Year by year our understanding of these matters is growing, and we are developing better and more effective mitigation techniques. Certainly that trend will continue in the future. We have seen a progression from the first development at Prudhoe Bay and TAPS construction in the 1970's to the more recent developments at the Kuparuk, Milne Point, Lisburne and Endicott fields. The improvements reflect the incremental knowledge and experience gained. What has been learned at these fields can be applied to future activities on the coastal plain. Let me cite a few examples of the advances that have been made: 1. Typically, on the North Slope, numerous development wells are drilled from a single gravel pad. At Prudhoe Bay, the original development wells were about 120 feet apart from each other. At the Kuparuk Field and at Lisburne the wells are about 60 feet apart. At the new offshore Endicott field, those wells are only 10 feet apart, but this requires a specially modified drill rig. Overall, this closer well spacing means that drill sites can be much smaller for a given number of wells; overall utilization of gravel is reduced and fewer square feet of tundra are covered. 2. Significant advances have also been made in 3-D seismic interpretation, directional drilling technology, and Measurement While Drilling (MWD) technology. Again, fewer drill sites may be needed, and the sites can be optimally located. Having some flexibility in being able to move the drill site allows sensitive habitats to be avoided, while at the same time the subsurface reservoirs can be properly developed and produced. 3. Development and operation of giant oil fields requires wide-ranging support activities. Drilling mud and cement companies, construction contractors, well service operators, and the like, are all a necessary part of the day-to-day operation. As with the actual in-field operations, we are now much more experienced in planning for the needs of the service companies. The Kuparuk River Oil Field, with its associated Kuparuk Industrial Center, is a contemporary example of how to plan and permit these types of activities. We made some early mistakes at Prudhoe Bay, but we learned from those mistakes. Certainly development of oil and gas on the coastal plain will require some trade-offs. However, relative to what might have been required even just 10 years ago, the magnitude of those trade-offs has been significantly diminished and in some cases even eliminated. Through a combination of innovative thinking, close observation of the actual effects caused by development, and pure scientific study, we are in a position today to say oil exploration and development can proceed in ANWR without significant adverse impact. I believe an exploration-only policy in ANWR would be a big mistake for this country. An exploration-only policy would cost the Federal government a lot of money. These costs would take several forms. The operation of an exploratory program would result in sizeable out-of-pocket government expenditures. Secondly, the government would forego lease and bonus revenues. And thirdly, such a program could effectively condemn adjacent acreage, and the attendant revenues that could flow from that property. The National Petroleum Reserve (NPRA) is a prime example of a government-sponsored exploration program and the problems inherent in such a program. Between 1923 and 1953 the United States Navy drilled 37 test wells and found three oil accumulations and six gas accumulations within the NPRA. Only two of these discoveries were considered sizeable. This 30-year exploration effort cost the Federal government between $50 and $60 million. In 1974, exploration began again in the NPRA, this time under the direction of the U.S. Geological Survey. Between 1974 and 1981 twenty-seven exploratory wells were drilled within the NPRA at a cost to the Federal government just over a half billion dollars. After the Federal exploration program ended, Congress authorized competitive leasing in NPRA, and three sales were held. The first two of these sales received minimal interest, and the third received no bids. If the NPRA had been leased under a traditional competitive leasing program not only would it likely have generated millions of dollars of bonus revenues, but the exploration costs would have been borne by the oil industry. Additionally, an exploration-only policy raises a number of technical issues. One issue is how many wells are necessary to confirm (or condemn) the region's resource potential. In the ANWR coastal plain, where the subsurface geology is extremely complex, it will require a very large number of exploratory wells (each at a high cost) to evaluate all the geologic plays which have the potential to yield commercial deposits. The drilling of six to 12 unsuccessful exploratory wells will not establish, with a high degree of confidence, that no commercial oil deposits exist in the 1002 area. The problem, as I see it, is that exploratory wells reveal more about the subsurface geology and oftentimes indicate additional plays and stratigraphic intervals that warrant evaluation. More questions are created than are answered. With a limited exploratory well program, the possibility exists that the area will be falsely condemned without the complete and thorough evaluation a more traditional leasing and exploration program would provide. A traditional competitive leasing program results in many companies participating in the evaluation of different plays. One entity (the USGS, the State, or an individual company) cannot generate as many different interpretations from these data (or novel ideas for potential deposits) as a group of companies. Thus, the exploration-only proposal limits not only the number, but the types of plays that will be evaluated, further increasing the possibility that deposits could be missed. In the case of a well (or wells) that is successful, various land management decisions and conflicts will arise related to the dispensation of the unleased lands. In most cases it requires a number of delineation wells to determine the size of a discovery--who will incur the cost of the delineation wells? How will leasing of partially known deposits be managed? These are problems that are not present with a competitive leasing regime. With respect to the design of mitigation measures, both our leasing and permitting systems use a formal tri-agency review procedure to assure that lease sale proposals and permit applications receive a broad and a thorough review. The Alaska Department of Fish and Game (ADF&G), the Alaska Department of Environmental Conservation (ADEC), and the Alaska Department of Natural Resources (ADNR) each provide comments on the proposal. No single State agency has veto power, and conflicts between agencies are elevated--when necessary--to agency directors or commissioners for final resolution. We also solicit input from the Federal resource agencies, the oil industry and the people living in the sale area. Given the scope and complexity of oil field operations and the broad range of environmental concerns at hand, I cannot imagine any one State or Federal agency possessing the expertise that is needed to properly review and approve all the terms of sale that might be used for the leasing of the coastal plain or. for approval of a proposal to develop a major new oil field in the coastal plain. In my view, joint State-Federal multiagency review is a necessity at both the lease sale planning stage and during the actual permitting process. The State has also recommended joint State-Federal monitoring and enforcement teams be created. This will be essential in ANWR where Federal, State and fee ownership of subsurface mineral rights is a certainty, and permitting jurisdictions overlap. Our terms of sale are a mixture of general performance standards and very site-specific requirements. We have taken this approach for a number of reasons. First, it is impractical to go out into the field ahead of time and gather the enormous amount of site-specific baseline data that would be needed to write detailed all-encompassing stipulations for each and every square foot of proposed lease sale area. Second, in our lease sale areas, we are not absolutely certain where the oil and gas is located and what volumes might be there. We therefore cannot anticipate ahead of time the exact location or optimum layout of roads, pipelines, well sites, etc. Because of these two factors it is best to let the potential lessees know at the time of sale the parameters within which they will be expected to operate, while we retain the flexibility later in the process to fine-tune the proposals as they are developed. In those areas where we have more detailed information (such as along the major North Slope river systems) or for those concerns that are well recognized (such as seasonal protection of caribou calving areas), we do draft very detailed site-specific measures. If you have the studies and the data in hand, it is only fair to let the lessees know that very specific restrictions will apply in certain areas or during certain times of the year. But in those instances where the data are sketchy or nonconclusive or if there is a choice of possible mitigation measures, I believe it is a mistake at the lease sale stage to lock in rigid stipulations that later may turn out to be ineffective or unnecessary. Recent exploration on the Federal OCS in Alaska and on State lands has been very disappointing. Our aggregate North Slope oil reserves are about half gone, and Cook Inlet production is well past its zenith. In reality, very few giant oil fields are ever discovered, but the ones that are found account for about two-thirds of all the oil produced. Because of the development at the Prudhoe Bay, Kuparuk, Milne Point, Lisburne, and Endicott fields, we have safe, proven technology. In terms of being able to plan and design for protection of biological resources, we are over the major hurdles that a major development proposal might present. Prudhoe Bay currently provides over 20% of this Nation's domestic production. As that area moves into decline, ANWR represents this country's best opportunity to supplement those reserves. With the 10-15 year lead time necessary for exploration and development in the Arctic, this is the ideal time to begin a competitive ANWR leasing program. The State of Alaska stands ready and willing to work with the committee as it considers this important legislation. We will be happy to provide the specific information you need on our current North Slope leasing and permitting practices, and our ideas on specific mitigation measures for ANWR. For the record, along with my written testimony, I have submitted copies of three of our recent State notices of sale which list sale terms and conditions representative of those used to lease State acreage adjacent to ANWR. Sale 51 was an onshore sale. Sale 50 was an offshore sale. Sale 54 is an onshore sale proposed for January 1988. The notices for sales 50 and 51 contain the complete set of sale terms and conditions the State applied. The notice for Sale 54 is still in the preliminary stage, but you can see where we are headed in terms of mitigating measures for that area. There is no need to go through those notices page by page. Rather, I believe it is important for you to understand how we arrived at the final product, and the rationale behind those sale terms. We are submitting the first stage of a lease sale stipulation review and analysis study that the State has undertaken. The study is being done to reassess the costs and the benefits of each stipulation given the advances that have been made over the past few years. Additionally, a summary of the different leasing methods the State currently has the authority to use is included. Thank you for the opportunity to testify today and I will be happy to answer any questions. |