Early legislative session questions focus on oil forecast, avoiding energy crisis

JUNEAU, Alaska (KTUU) - Following the adjournment of the House and Senate after short floor sessions Wednesday, some lawmakers moved straight into their first committee meetings of the new legislature, beginning with the House Finance Committee pressing the Department of Natural Resources for more details on oil production and forecasts.

Throughout the day, those requests for more information came, at times, with contentious questions surrounding what some lawmakers have characterized as a looming energy crisis, and a need to address widespread economic issues, including figuring out how to balance the budget.

During the House Finance hearing Wednesday, DNR staff told members that the department expects to see a slight production increase for fiscal year 2025, equating to a total of about 474,000 barrels of oil produced statewide each day. However, they also categorized statewide oil production projections as “exceedingly hard to forecast.”

Last budget year, the department staff said the actual FY24 production was approximately 461,000 barrels of oil daily, even though the projection had been approximately 2% higher.

Peltier also explained that a data issue — which he categorized as a “bias,” indicating an incompleteness or inaccuracy — led to recent production projections appearing about 1% higher than they should have been. He said that issue has been addressed, to include FY25 forecasts and beyond.

“You’re never entirely sure how things are going to work out,” said DNR Division of Oil & Gas Petroleum Reservoir Engineer Travis Peltier. “There’s both a high forecast and a low forecast. There’s always uncertainty in the work we do. So, we always have to gauge that forecast value. We’re never entirely sure where we’re going to end up.

“And that uncertainty grows through time,” he added, noting that natural decline in any oil site’s production is not unusual.

Prudhoe Bay, for example, which is the largest oil field on the North Slope, saw a decrease of 10,806 barrels of oil per day from FY23 to FY24, according to DNR data.

“This one produces well over 200,000 barrels of oil per day,” Peltier said. “The decline number looks extremely high, but it has to do with the fact that it’s such a large producing field.

“It just so happens that in August of 2023, there was a relatively deep turnaround in Prudhoe Bay that did affect FY24,” he continued, adding that natural decline also contributed to the drop. “So you see an extremely large decline year-on-year for that reason.”

Several North Slope oil fields also saw increases. Those include Badami, for which the DNR cited a “workover,” which indicates maintenance or repairs of an existing well; Greater Mooses Tooth, where development and drilling are continuing; and Milne Point, where the DNR said infill drilling and other efforts are contributing to production growth. Together, those three add about 5,000 barrels daily, according to the DNR.

House Finance Co-Chair Rep. Andy Josephson, D-Anchorage, said during the hearing that he sees all of the DNR data melding into the revenue forecast.

“We’re somewhat down from where we hope to be on production and on price,” he said. “So we’ve got some patching to do in the FY25 budget. We’re going to do that before May. Tomorrow is where the rubber meets the road.”

The DNR is expected to present its findings to the Senate Finance Committee on Thursday morning.

Separately, in the Senate Resources Committee Wednesday, lawmakers grilled HEX Cook Inlet Chief Commercial Chair Mark Slaughter — who serves in the same role for oil and energy company Furie Operating Alaska, which now operates under HEX Cook Inlet — on the status of his companies’ natural gas project in Southcentral.

Lawmakers’ questions centered largely on the region’s anticipated energy crisis, as well as how the company proposes to get to a production level that would actually alleviate that shortage, as the legislature considers options to ensure enough resources will be available and accessible to provide heat and electricity to homes of Alaskans across the state.

“Current ownership buys the Kitchen Lights Unit out of bankruptcy,” said Sen. Robert Myers, R-North Pole. “Those overriding royalties existed prior to your buying it, and honoring it is a condition of you buying it. You’re telling me these overriding royalties make it uneconomical to develop. So, why did you buy it in the first place?”

Slaughter referred the question to HEX Cook Inlet’s owner but said in part that given there is gas, there is potential.

“At the time, it was still in production,” Slaughter said of the original purchase. “If we fix the economic issues of the unit, it is a very viable company, and we are showing it’s viable.”

Sen. Bill Wielechowski, D-Anchorage, had line of questioning similar to his fellow lawmakers.

“In reality, the state could go ahead and say, ‘Hey, you have an obligation to produce, if you don’t produce, we take away the leases, and then the overriding royalty interests disappear,’ correct?

“Fundamentally, the private sector, the overriding royalties that someone agreed to, have made the project uneconomic,” Wielechowski said. “And now the state is basically being forced to come in and give up a huge chunk of our wealth and interest to make it profitable. Do we get an ownership share? Do we get anything additional?”

The KLU, amounting to about 84,000 acres, is the largest development region in Cook Inlet, per the DNR. Slaughter pointed to it producing about 5 percent of the total gas in Cook Inlet, and coming in as the second-largest Cook Inlet operator.

Nine different committee hearings are scheduled for Thursday. The House and Senate floor sessions adjourned Wednesday until Friday at 10:30 a.m.

You can watch the full Senate Resources hearing, provided by KTOO’s Gavel, by clicking here. The full video of the House Finance committee meeting, also from KTOO, is available here.

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