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State trims Point Thomson oil settlement production forecast

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Posted: Thursday, January 24, 2013 10:55 am

Last spring, the state oil forecast stated the Point Thomson field would be producing 9,000 barrels per day by 2016 and remain at that level for the balance of the 10-year forecast.

About the same time, the Parnell administration reached a settlement with Exxon that upped the target to 10,000 barrels per day.

State officials said the 10,000 mark was a big plus, along with the Exxon agreement to build a pipeline capable of carrying 70,000 barrels per day.

But the new state oil production forecast states we can't count on those barrels.

The forecast predicts the 10,000 barrels per day won't materialize anytime in the next decade.

According to the forecast, Point Thomson will produce 7,500 barrels per day in 2017, dropping each year after that to 4,800 barrels by 2022.

The Parnell administration says the explanation for this leaner outlook is that a new conservative methodology has been developed to more accurately predict future oil production.

It is aimed at eliminating the excessive optimism that marked past predictions, state officials say.

The Point Thomson settlement was developed independently of the oil production forecast, which is why they don't match, the administration says.

The new oil forecast applies a mathematical formula to future oil projects, such as Point Thomson, reducing the expected production levels in all cases.

This is because there is a risk that projects will not turn out as planned, the state said.

With this formula in place, the overall Alaska North Slope production rate for a decade from now has dropped by 100,000 barrels per day from what it was last spring.

All future projects have been trimmed, just to be on the safe side, the state said.

One result of this sizable downward shift is that all revenue projections about the dollar value of potential tax cuts are decreased because the tax cuts are being applied to a smaller amount of oil.

I understand that future projects will not all produce oil in the quantities expected. Some will be delayed, while others will be canceled and others will not work out at all.

Point Thomson is different than most projects because Exxon has agreed in writing to certain production levels. It doesn't do that on other projects, but did so in the court settlement with the state.

If production does not begin by 2016, "significant amounts of acreage will automatically return to the state," the Department of Natural Resources has said in praising the settlement.

That should improve the chances of meeting the 10,000 figure and it ought to be reflected in the state's oil forecasting system.

The new lower forecast is a reaction to the numerous complaints and statements in recent years about the state's oil forecasts being too high.

In looking back, the previous state forecasts on the levels of production from Prudhoe Bay and Kuparuk have been surprisingly accurate.

These are the two largest contributors to North Slope oil production and are expected to remain so in the years ahead. They are the most predictable and profitable fields.

For a better grasp of the production forecast history, it is important to remember the track record on the largest fields.

Where past forecasts have gone astray are for the host of smaller North Slope projects, many of which have been delayed or stopped for economic, political and technical reasons.

In the case of Point Thomson, I question why a standardized risk factor should be applied instead of a judgment that takes into account the specifics of the project and the legal requirements on Exxon.

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