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Appendix C Petroleum Exploration and Development PETROLEUM EXPLORATION AND DEVELOPMENT ON THE NORTH SLOPE OF ALASKA Oil Seepages, First Indication of Significant Petroleum Deposits The first evidence of potentially significant petroleum deposits on the North Slope of Alaska came from the oil seepages that can be seen today along the Arctic Coast from Skull Cliff on the Chukchi Sea to Brownlow Point on the Beaufort Sea. Especially notable are the active ponds of oil and layers of tar at Cape Simpson just east of Barrow. It can be assumed that the native inhabitants knew of these depos- its long before recorded history. John Murdoch, a member of the U.S. Navy' s International Polar Expedition to Point Bar- row and vicinity (1881-1883), reported in 1892 that they had heard stories of a lake of tar on an island a day's sail east of Point Barrow (Murdoch 1892~. This undoubtedly referred to Cape Simpson. The first non-Native to see the Cape Simpson seepages may have been Charles Brower and his partner Patrick Grey while on a hunting trip in August 1886 (Brower 1942~. In 1922, while on a trip to San Francisco Brower described the site to the chief geologist of the Stan- dard Oil Company of California and this resulted in sending a geologic party to investigate the report (G. Dallas Hanna, unpublished report). In 1917, A. M. (Sandy) Smith, prospec- tor, examined the oil seepages along the coast, and he also stimulated the interest of the oil industry. A description of the deposits at Cape Simpson was first published by Brooks in 1909 and was based on information and materials col- lected by E. de K. Leffingwell. Leffingwell published more details, including chemical analyses of the oil in U.S. Geo- logical Survey (USGS) Professional Paper 109, in 1919. William Van Valin, a U.S. Bureau of Education teacher at Wainwright, had heard stories of an oil lake on the Arctic coast, and in the summer of 1914 he traveled to Cape Simpson and staked a claim for a prospecting permit under 167 the old mining laws (Van Valin 1941~. He named the claims the Arctic Rim Mineral Oil Claims. In 1921 several claims were staked, under the old mining laws, in areas near Cape Simpson, Peard Bay, and along the Meade, Kukpowruk, and Kokolik Rivers, by individuals and industry representatives. However, by 1921, large deposits of oil had been discovered and were being developed in Oklahoma and Texas and in- dustry lost interest in the remote Arctic. Wiclespreacl Oil Seepages on North Slope Confirmecl in 1943 In response to inquiries by the Alaska Defense Com- mand and officials of the Territory of Alaska, the Bureau of Mines sent a field party to the North Slope in 1943, specifi- cally to investigate oil and gas seepages. The party was trans- ported by float plane, piloted by pioneer bush pilot, Sig Wien, and guided by Simon Paneak, a Native from Chandler Lake. They examined and sampled the Cape Simpson seep- ages and located several additional sites that had been ru- mored to occur along the Arctic coast. Reports of seepages along the coast at Skull Cliff, Dease Inlet, Cape Simpson, Fish Creek, Brownlow Point, Manning Point, and Umiat Mountain were confirmed. Samples were collected from 12 separate sites. The descriptions of the seepages and labora- tory analyses were published by N. J. Ebbley in 1944 as War Minerals Report 258. Native Use of Petroleum Resources The first utilization of North Slope petroleum resources was undoubtedly by the Native inhabitants, the Inupiat. To what extent the Natives mined and burned oil tars or pitch from Cape Simpson was investigated by G. Dallas Hanna in 1957. Several older Natives at Barrow village described to him how they mined the pitch at Cape Simpson in the spring of the year and transported it in 100 lb (45 kg) sacks to Bar-

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168 row by dog sled and boat. Recollections differed as to when and who began using this material. Hanna notes that in Van Valin's book, "Eskimo Land Speaks," he records his send- ing natives to Cape Simpson for a supply of tar during a fuel shortage in 1918. Ebbley also reported seeing several sacks of pitch at the abandoned Brower Reindeer Station on Dease Inlet in 1943, a further confirmation of the early use of these petroleum resources by the local inhabitants. Oil Shale Collectecl on the North Slope in 1886 The presence of oil shale was further evidence of the potential of the North Slope as a significant oil province. In 1886, Ens. W. L. Howard crossed the Brooks Range de- scending on to the North Slope along the Etivuluk River were he collected an unusual pebble, later identified as oil shale. Howard continued on to Point Barrow and completed what was the first recorded inland crossing of the Brooks Range and North Slope (Smith and Mertie 1930~. In 1945, Simon Paneak, led a USGS field party to an exposure of oil shale on the Kiruktagiak River in the central Brooks Range. Simon said that the inland natives occasionally collected and burned oil shale and coal. Exposures of oil shale have been mapped and collected at several localities in the southern foothills of the North Slope. North Slope Inclicatecl as a Potential Petroleum Province in Published Descriptions of Oil Seepages and Systematic Geologic Reports, Before 1920 By 1920, published descriptions of the oil seepages along the Arctic Coast and of the geography and geology of Alaska's North Slope had indicated the region as a potential petroleum province. The first recorded systematic geologic and geographic traverse to cross the Brooks Range and the North Slope by way of the John, Anaktuvuk, and Colville rivers was made by Peters (topographer) and Schrader (ge- ologist) in 1901 and was published in 1904. Travel was by dog team, canoe, and umiak, native skin-boat. Schrader named and described the Lisburne Formation of Mississip- pian age and he named and described in some detail the Cre- taceous rocks and noted the broad anticlinal structures in the foothills. Numerous coal seams were noted and described along the Colville and Anaktuvuk rivers. They also traversed the Arctic coast from the mouth of the Colville River to Bar- row and on to Cape Lisburne. Schrader describes in some detail the coal exposures along the northwest coast that had been mined by Natives and whalers for many years. From 1906 to 1914, E. de K. Leffingwell mapped the Arctic coast east of Barrow and traversed inland over much of what is now the Arctic National Wildlife Refuge. His re- port was published in 1919 as USGS Professional Paper 109. Leffingwell described and named the rock formations that were to be discovered as the oil-bearing rocks at Prudhoe Bay. He noted the seepages at Cape Simpson and secured a APPENDIX C sample "from a keg of the material collected by natives in the employment of Mr. C. D. grower, of Barrow." He wrote of other reported seepages along the coast. He concluded that, "Even if an oil pool were found in this northern region, there is serious doubt of its availability under present condi- tions, though it might be regarded as a part of the ultimate oil reserves that would some time be developed." His descrip- tion of permafrost and discussion of its origin on the North Slope is one of the first and a classic reference on this impor- tant subject. 1923, Naval Petroleum Reserve No. 4 Establishecl In about 1920, ships of the U.S. Navy were converting from coal to oil to fuel their engines and "experts" were al- ready predicting an oil shortage within a few years. To pro- vide for the future fuel needs of the U.S. Navy, Naval Petro- leum Reserve No. 4 (NPR-4) was established by President Warren G. Harding, Executive Order No.3797-A, dated Feb. 27, 1923. The presence of major oil seepages at Cape Simpson, Ens. Howard's traverse along the Etivuluk River and across the North Slope to Barrow, the pioneering traverse and report by Schrader, and Leffingwell' s classic work were major considerations in defining the borders of NPR-4. 1923 to 1926, First Detailecl Geographic and Geologic Mapping of NPR-4 In 1923, the geography and geology of the interior areas of NPR-4 were largely unknown. The U.S. Navy recognized immediately that administration of the reserve would require mapping and more information on these subjects. The USGS was asked to examine and map the reserved tract. From 1923 through 1926, seven USGS parties crossed the Brooks Range and NPR-4 and mapped, at reconnaissance scales, the geol- ogy and geography along many of the larger rivers including the Kuk and Utukok in the west and the Etivuluk, Ikpikpuk, Killik, and Colville in the east. Travel was by dog team, canoe and by foot. The results of the 1923-26 geologic field work were published by Smith and Mertie in USGS Bulletin 815 in 1930. In addition to mapping the courses of the major rivers and describing the rock units and structure of NPR-4, Smith and Mertie also analyzed the petroleum potential of the re- serve. Although they had very little stratigraphic informa- tion on the apparently widespread oil shales, they felt that these were the best possible sources of petroleum. They felt that sources of oil in the Paleozoic rocks were "extremely problematic" and they recognized no abundant source rock in the Cretaceous. They noted the widespread anticlinal structures in Cretaceous rocks but thought that deposits in these rocks were "likely to be small and of extremely sparse distribution." They recognized and described the faulted and over- thrust structure of the Brooks Range but concluded that north

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APPENDIX C of the range the major structure was a regional dip to the north. Thus they felt that at Cape Simpson, 10,000 to 15,000 ft (3,000 to 4,600 m) of Cretaceous was present and that older rocks were beyond practical drillable depth. Smith and Mertie cautioned would-be prospectors against the adverse geographic factors and the consequential high costs. They recommended that the next step in evaluating the petroleum resources of the reserve should be drilling for stratigraphic and structural information in the vicinity of Cape Simpson followed by geologic field studies and then drilling in other areas that appeared favorable. 1944, First Oil Exploration on Alaska's North Slope Began in NPR-4, a WOO-II Project One of the geologists in the 1923-1926 USGS NPR-4 field survey program was William T. Foran. As Lt. Foran in the U.S. Naval Reserves, he was assigned to the Naval Pe- troleum Reserves Office. He prepared an issue paper on the promising prospects of the NPR-4 and was largely respon- sible for convincing the U.S. Navy to start a petroleum ex- ploration program in 1944, commonly referred to as the PET- 4 program. It was part of the WOO-II war effort and the defense of Alaska. Also in recognition of the tightening oil supplies, caused by the war, the Secretary of the Interior issued Public Land Order 82 in January 1943, which with- drew from entry, subject to preexisting rights, for use in the prosecution of the war, all the generally recognized possible petroliferous areas of Alaska including all of Alaska north of the drainage divide of the Brooks Range. This enabled the PET-4 project, with the consent of Congress, to extend and follow discoveries and favorable trends outside of the bound- aries of NPR-4. This order was not rescinded until 1958 when Alaska became a state. An earlier war project to supply fuel to Alaska had been initiated just across the border in Canada where oil had been discovered and a small refinery was built in 1920- 1921 at Norman Wells in the Mackenzie Valley just south of the Arctic Circle. The Canol project, to develop the Norman Wells oil field and lay a refined products pipeline to interior Alaska, was approved in February 1942. Sixty- seven wells were drilled by March 1945 and crude oil was delivered to a newly built refinery at Whitehorse, Canada, in April 1944. The Canol project was abandoned after only one year of operation and the pipeline to Whitehorse was dismantled. The pipeline to Alaska was shut down in 1945 before any refined products were delivered. Construction of the Alcan Highway to Alaska, another war Project. also started in 1942. The wartime urgency of these projects carried over to the PET-4 program. The initial plan for PET-4 was to barge drill rigs from Norman Wells down the MacKenzie River and then west to Point Barrow. However, available rigs were located in Oklahoma and that plan was cancelled. But much was learned about construction and oil development in the 169 Arctic by the Norman Wells project, and that was passed on to the PET-4 program. The first supplies for the PET-4 program were hauled to the Arctic in 1944 by ships of the U.S. Navy. The first Bar- row expedition, Barex, rounded Point Barrow on August 5, 1944, and stood off Cape Simpson in the fog, rough weather, and floating ice for five days. A suitable landing site could not be found at Cape Simpson and the expedition returned to the Barrow village site, where supplies were landed on a nearby beach and the PET-4 headquarters camp was estab- lished. The course of the program and the future develop- ments at Barrow would likely have been quite different if the landing at Cape Simpson had been carried out. Geologic field surveys in support of the Navy's PET-4 program were begun also in 1944 by USGS. Geologic traverses began along the Colville River and were expanded to all the major north-flowing rivers of the North Slope. The first geologic field parties traveled along the major streams by special collapsible boats that could be flown out to the field along with supplies for the summer in bush planes land- ing on snow. Virtually every stream capable of floating a boat was traversed by 1950. In 1946, detailed structural geo- logic mapping was begun using military-style tracked ve- hicles (Weasels) for overland transportation. Weasels were used to cross the Brooks Range by four different routes, by way of the Okokmilaga River and the Hunt Fork of the John River, and to return to Umiat through Anaktuvuk Pass, by way of the Kiligwa River into the Noatak River Valley, and to the crest of the range at the head of the Utukok River. Helicopters were first used for geologic studies in the Brooks Range in 1950 in the Anaktuvuk Pass area. Trimetrogon aerial photography covered all of National Petroleum Reserve-Alaska and special vertical aerial pho- tography captured over 70,000 mi2 (181,000 km2) of the re- serve and adjacent areas. These photographs enabled geolo- gist to interpret the possible geologic structure of nearly all of NPR-4. A special series of photogeologic maps were pro- duced by the USGS and were utilized to analyze and plan field surveys. Geophysical studies including experimental airborne magnetometer, gravity, and seismic surveys were started in 1945 and by 1952 covered a large part of the reserve. Seis- mic surveys, mostly reflection shooting, along 3,748 line miles covered about 67,000 mi2 (174,000 km2), including areas outside of the boundaries of NPR-4. Travel and hous- ing of the geophysical crews was by tractor-sled trains and smaller tracked vehicles. Gravity-meter surveys covered about 26,000 mi2 (67,000 km2) and were conducted by small aircraft and small tracked vehicles. Airborne magnetometer surveys covered 75,000 mi2 (194,000 km2), nearly all of the coastal plain and much of the foothills of the North Slope. The presence of the seepages at Cape Simpson and a quick reconnaissance of the Umiat Anticline by Foran in 1944 determined the first drilling locations. It was also de- cided that drilling should be limited to no more than 10,000

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170 ft (3,000 m), thought to be the economic limit at that time for development in the Arctic. Supplies were sledded to Umiat in February and March of 1945 and a drilling and logistic support camp was established there. Drilling at Umiat began in 1945, but the Umiat oil field was not discovered until 1950. Umiat, however, became and is still an important op- erating base for air transportation and geophysical and geo- logical operations. Thirty-one shallow core tests were drilled at Cape Simpson beginning in 1945. Oil was produced but the esti- mated reserves were considered to be too small to justify further development. By 1948 geophysical surveys had indi- cated the presence of a large basement high under the Bar- row area. Drilling near the top of this high discovered gas, but no oil, and hard rock basement was penetrated at 2500 ft (760 m). The presence of this basement and further geophysi- cal surveys delineated the so-called Barrow Arch, the north limb of the Colville Basin. In 1949 a test well was drilled near the Fish Creek seep- age and a high-sulphur, heavy oil was found at about the 3000 ft (900 m). No structure was discernible and no reserve estimate was made. Geophysical exploration around the Bar- row high continued and several tests were drilled on small structures around and stepping down from the high, but no significant oil shows were found. The discovery at Umiat and the mapping of several closed anticlinal structures in and adjacent to NPR-4 indi- cated further potential in the northern foothills. Ten shallow test holes were drilled on six structures. One gas field and three prospective gas fields were discovered. Two closed structures were mapped by geophysical surveys in the west- ern part of NPR-4 and test wells were drilled. The Meade test had strong gas shows but the Kaolak test was dry. Thus in the period 1945 through 1952,45 core tests and 36 test wells were drilled within and adjacent to NPR-4. The results included the discovery of one large oil field, Umiat; one large gas field, Gubik; one small gas field, Barrow; three prospective gas fields, Meade, Square Lake, and Wolf Creek; and two small oil deposits at Simpson and Fish Creek. When the PET-4 program was recessed, unexpectedly in 1953, ad- ditional drill sites had been selected and some supplies had been delivered to a location east of NPR-4 in the southern foothills, near the head of the Shaviovik River, and another at the head of the Utukok River in the southwest corner of the reserve. Most of these supplies delivered to these loca- tions were returned to Barrow and Umiat. A comprehensive historical, year-by-year operational report by John Reed was published as USGS Professional Paper 301 in 1958. The 1944-1953 NPR-4 exploration pro- gram utilized all of the then available tools and techniques of modern oil exploration and adapted them to Arctic condi- tions. These special adaptations and their results are de- scribed by Reed in some detail. Drilling activities, geophysi- cal surveys, geologic surveys and studies, and their results are also published in detail in USGS Professional Papers 302 APPENDIX C through 305. Drilling samples and drill cores from the PET- 4 program are still available for study at the Alaska State Core Library in Eagle River, Alaska, and the USGS core library in Denver. North Slope Petroleum Exploration Activities Post PET-4, 1953 to 1968 In addition to the continuation of USGS geologic field studies, several major oil companies made extensive geo- physical and geologic studies throughout Northern Alaska. However no new test wells were drilled on the North Slope until 1963. Seven relatively shallow test wells were drilled from 1963 to 1965 just outside of NPR-4, near Umiat, pre- sumably to explore for extensions and deposits similar to those in the Umiat and Gubik anticlines. In 1966 ARCO drilled Susie No.l, and that was fol- lowed closely by two test wells near the Colville River delta, all east of the National Petroleum Reserve-Alaska. In 1967 ARCO began drilling a test well near Prudhoe Bay that was announced in 1968 as the discovery well of the Prudhoe Bay oil field, the largest in North America. This episode of ex- ploration is covered in more detail in the section on industry oil and gas exploration. Naval Arctic Research Laboratory and Other North Slope Activities Resulting from the PET-4 Program Naval Arctic Research Laboratory Equally and perhaps more significant to the future devel- opment of Barrow village, all the Native inhabitants of the North Slope, and to the continuing exploration and develop- ment of North Slope petroleum resources was the establish- ment and development of a research facility at Barrow. Re- search by the U.S. Navy Bureau of Yards and Docks began in January 1947 in a facility of the Seabee (Navy Construction Battalion) detachment. In May 1947, a building program be- gan to provide housing and laboratory facilities for the Arctic Research Laboratory (ARL) of the Office of Naval Research (ONR). In August 1947, ONR occupied these new facilities and ARL was born. The prefix Navy was added in the mid- 1960s and ARL became NARL to more fully acknowledge the U.S. Navy' s contribution to Arctic research. After the PET- 4 program was recessed in 1953, the entire camp facility was turned over to ONR until December 1954 when the Air Force took over the management of the base camp to support the DEW Line program. The Air Force continued to operate the base camp through a series of civilian contractors until Octo- ber 1971 when the operation of the base camp was returned to the U.S. Navy. During the period 1954 to 1971, ONR man- aged the laboratory through a contract with the University of Alaska. That continued until 1980 when the NARL was de- commissioned and the camp and all facilities were turned over to the Department of the Interior. During the period 1980 to

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APPENDIX C 1984, the laboratory and all camp facilities were managedpri- marily as a base of operation for the Barrow Gas Fields by the USGS and their contractor. In 1984 NARL and the base facili- ties were turned over to the local native corporation, Ukpeagvik Inupiat Corporation (UIC). In spite of all the management changes, NARL contin- ued from 1947 to 1980 to serve as the logistic base and sup- port for Arctic research on land, sea, and air. Barrow inhab- itants were employed at the laboratory and their experience and knowledge was utilized in many aspects of the operation and research. The laboratory, its facilities and personnel, were available to the village when needed, and that affected the economic and social life and development of the village in many ways. NARL had a long and very productive history of research and operations in the Arctic that contributed posi- tively to the exploration and development of oil and gas re- sources on the North Slope. Barrow Gas Fielcl The discovery of gas at Barrow in April 1949 was prob- ably the most significant result of the PET-4 project to the people of Barrow village. The Barrow gas fields established some interesting records. The South Field is the oldest pro- ducing gas field in Alaska and the South and East Barrow gas fields are the farthest north producing oil or gas fields in North America. The PET-4 base camp, located only 4 mi (6 km) from the nearest gas well, was fueled, initially, by oil brought in by barge once a year until the season of 1949- 1950 when the camp was completely converted to using gas. When the PET-4 project began in 1944, there were about 400 inhabitants in the Barrow village. The exploration ac- tivities provided employment opportunities for the local people and the population increased rapidly. The advantage of making gas available to the village was obvious, but it took permission from the Congress to extend gas supply to the Barrow village beginning in 1964. It was not until 1965 that the village was completely converted to natural gas. The U.S. Navy supplied gas at a subsidized cost, and no limits were imposed on its use. The entire Barrow community be- came dependent on the Barrow gas fields for heat and power. The gas fields and all the base facilities and supplies were turned over to the North Slope Borough in 1984. 1976, the Naval Petroleum Production Act and the 1974 to 1985 Exploration of the National Petroleum Reserve-Alaska In 1974, the oil embargo and the discovery at Prudhoe Bay renewed interest in NPR-4 and the U.S. Navy began a new program of geophysical and drilling exploration along the Barrow-Prudhoe trend, the so-called Barrow Arch. From 1974 to 1976 the U.S. Navy drilled seven exploratory wells and found only residual oil in the formations that are produc- tive at Prudhoe Bay. 171 In 1976 Congress passed the Naval Petroleum Produc- tion Act that transferred NPR-4 to the Department of the Interior, renamed the reserve as the National Petroleum Re- serve in Alaska, and authorized the production for sale of crude oil from NPR Nos.1,2, and 3. Thus the purpose of the reserves was redirected to augment domestic supplies. The act authorized continuation of a new exploration program begun by the U.S. Navy in 1976, the further development and maintenance of the Barrow gas fields, and continuation of the cleanup program, begun by the U.S. Navy in 1975, at the suggestion of Interior Secretary Rogers Morton. The ex- ploration program and the ongoing contract with Husky Oil Alaska Operations Ltd. were assigned to the USGS. The act also required a series of resource and manage- ment studies. The special studies were assigned to the Bu- reau of Land Management (BLM) as part of their regular responsibilities for the management and oversight of public lands. The USGS took over the U.S. Navy's facilities at Bar- row and Lonely on June 30, 1976, and continued the explo- ration program with the full support of Congress until 1982. Twenty-one exploratory wells were drilled, including two of the deepest holes in Alaska, to test 17 plays based on the accumulated knowledge of the geology of the North Slope of Alaska and continuing geophysical surveys. From 1974 to 1982 the U.S. Navy and the USGS acquired about 13,200 line-miles of additional seismic reflection data and all were made available to the public. Although nearly all drill tests had shows of oil and gas only one new deposit was discov- ered, the Walakpa gas field, about 20 mi (32 km) southwest of Barrow. This deposit was turned over to the North Slope Borough and has been developed for the long-term supply at Barrow. The cleanup program, the environmental assessments, stipulations, and monitoring during the drilling program and geophysical surveys set a new standard for exploration activi- ties on the North Slope. More than 25,000 fifty-gallon drums left behind by earlier projects were collected, crushed, and buried. More than 12,000 tons (11,000 metric tons) of debris were collected and were burned, buried, or hauled to disposal sites. Ice pads, airstrips, and roads, including a 38 mi (61 km) ice road from the mouth of the Kikiakrorak River to the Inigok test-well site, were used to minimize the impact on tundra vegetation. Three permanent gravel airstrips were built at Inigok, Lisburne, and Tunalik drill sites, and the airstrip at Umiat was extended and upgraded to support the Seabee test. Gravel drilling pads were leveled and most were seeded. The history, technical data, and analyses from this program were released to the public as open files and were published in USGS Professional Paper 1399, in 1988 (Gryc 1988~. Airstrips Access to the North Slope for hunting by non-Alaska- Natives increased with the first federal (U.S. Navy) oil ex-

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172 proration program (1944-1953) and with the second federal program (1976-1983~. These programs provided four per- manent airstrips within the National Petroleum Reserve- Alaska that can be used by large aircraft. These airstrips are at Umiat on the Colville River; the Inigok well site, about 60 mi (100 km) north of Umiat; the Lisburne well site in the foothills on the southern border of the National Petroleum Reserve-Alaska; and the Tunalik well site on the far south- west corner of the National Petroleum Reserve-Alaska. Prior to 1944, aircraft access was available only to a few experi- enced bush pilots flying smaller, single-engine aircraft land- ing on natural airstrips such as gravel bars. INDUSTRY OIL AND GAS EXPLORATION ON THE NORTH SLOPE OF ALASKA AND THE ADJACENT BEAUFORT SEA After the completion of the Navy exploration program, the North Slope remained off limits to the petroleum indus- try until 1958 when lands were finally made available for industry evaluation by the federal government between the Canning and Colville rivers. At the same time, the Arctic National Wildlife Refuge was set aside to protect the north- east corner of Alaska for its wildlife, wilderness, and rec- reational values. The following discussion is about ex- ploration history and potential and is not an analysis of environmental consequences or of competing values for land use. Factors Encouraging Industry Activity While the industry had been aware of and interested in the possible potential of the North Slope, the lack of land availability, remoteness, and the cost of operating in this environment precluded industry participation. However, in the middle to late 1950s and early 1960s, a number of devel- opments provided the impetus for the industry to commence active exploration of the North Slope. Four factors contributed to the entry of the industry into the North Slope exploration scene: (1) encouraging regional geological studies, (2) the NPR-4 exploration pro- gram, (3) oil and gas discoveries in Cook Inlet, and (4) the end of the moratorium on land availability on the North Slope. The discovery of commercial quantities of oil and gas in Cook Inlet demonstrated that it was economically feasible to explore for, develop, and market hydrocarbons in and from Alaska. In 1957, Richfield Oil Corporation made the initial Alaskan oil discovery at Swanson River on the Kenai Peninsula. This discovery contributed signifi- cantly to Alaska statehood in 1959 and provided industry with the incentive for exploration of the other sedimentary basins in the state. The North Slope was one of the areas of interest and was highlighted because of the previous work by USGS and the Navy's exploration program. Both of these efforts sup- APPENDIX C ported the premise that a significant reserve potential existed on the North Slope. However, the most important factor was the decision by the federal government through the BLM to make lands available to the industry for leasing. Pre-Pruclhoe Bay Industry Activity The industry exploration of the North Slope was greatly stimulated by the knowledge that land was to be made avail- able for leasing in 1958, under basically the same conditions that existed in the Lower 48. Leasing and exploration activi- ties are presented separately to provide a less cluttered flow of activity. It should be noted that the various activities are closely related in time and are interdependent. Leasing The federal government offered a total of 18,862,116 acres (7,639,157 ha) for lease in sales held in 1958, 1964, 1965, and 1966 (Jamison et al. 1980, Figure 2~. Most of the offerings were to the east and southeast of NPR-4 (now Na- tional Petroleum Reserve-Alaska) and south of 70 N lati- tude, but the lease sale in 1966 contained 3,022,716 acres (1,224,200 ha) to the west of NPR-4. The leases were offer as simultaneous filings and in blocks or tracts consisting of four contiguous sections (2,560 acres [1,040 hall. Under the Statehood Act, the state of Alaska selected 1,616,745 acres (654,782 ha) across the northern tier be- tween the Colville and Canning rivers and subsequently offered these lands in three sales between 1964 and 1966. In 1964, the state held its first lease sale on the North Slope. The sale offered 650,000 acres (260,000 ha) in the Colville delta area, and 196 tracts totaling approximately 475,000 acres (190,000 ha) were leased. In July of 1965, the state held its second North Slope lease sale in the area that would eventually include the Prudhoe Bay field. The sale offering was 754,000 acres (305,000 ha) and 151 tracts totaling 380,000 acres (154,000 ha) were leased. Richfield-Humble acquired 28 blocks on what was to be the crest of the Prudhoe Bay field and British Petroleum acquired 32 blocks on the flanks. The state's third sale was held in Janu- ary 1967, and 13 tracts were offered and issued. Richfield- Humble acquired seven tracts that covered the remainder of crestal area of the Prudhoe Bay structure. This completed the leasing prior to the drilling of the discovery well at Prudhoe Bay. Data Acquisition With the opening of the North Slope to leasing, the in- dustry began to acquire proprietary geological and geophysi- cal data with the goal of better understanding the subsurface geology and the hydrocarbon potential of the region. These companies acquired two fundamental data sets: geological

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APPENDIX C data through summer field programs and geophysical, pri- marily seismic, data by winter seismic operations. Jamison and colleagues (1980, Figure 3) provide a chart of explora- tion activity spanning the interval from 1958 to pipeline startup in 1978. In 1958, Sinclair operated a three-month field program out of Umiat in preparation for the federal sale in September 1958. Sinclair was quickly followed by others, and an aver- age of 5 to 7 companies were in the field during the 1959- 1961 seasons. The number of companies continued to in- crease, and during 1962-1964 up to 10 companies per year were operating geological field programs. During the fol- lowing three years, field programs declined markedly with only 2 to 3 companies in the field. Sinclair and British Petroleum operated the first indus- try program in 1962. (Because of the lack of information regarding the number of line-miles of data acquisition, the number of crew months is used as a gauge of activity.) The first seismic season consisted of 6.5 crew-months. In 1963 the total was 29.25 crew months and activity peaked in 1964 with 53.5 crew months of work. Seismic crew-months de- creased to 26.75 in 1965, and there was very little seismic acquisition between 1965 and the season following the Prudhoe Bay discovery. Exploration Drilling Based on leasing, geological field work, and seismic acquisition the industry began a program of exploration drilling in 1963 and 11 dry wells were drilled prior to the Prudhoe Bay State No. 1 (AOGCC, unpublished data, 2001). Colorado Oil and Gas Company drilled the first well in the Gubik area. It and the subsequent seven wells were all drilled on leases acquired in the first round of federal leasing and were located in the foothills within 30 mi (48 km) of either the Umiat or Gubik discoveries. The initial exploration efforts were focused in or near the areas that had shown the most promise in the Navy's exploration ef- fort. All eight wells penetrated the Cretaceous and were dry holes. With the failure of the drilling programs in the Umiat- Gubik area, the industry's focus shifted to the north and east. Two wells were drilled, one each by Sinclair and Union, during the 1966-1967 interval on acreage acquired in the first state sale in the Colville area. These were both drilled on the eastern flank of the well-recognized Colville high and both were dry holes. During the same time frame, ARCO-Humble drilled the Susie No.1 in the northern foothills of the Brooks Range on acreage leased in the state's second North Slope sale. This well was also a dry hole and presented ARCO-Humble with a critical decision: either release the rig and forego further drilling or haul the rig 60 mi (100 km) to the north and drill in the Prudhoe Bay area. Ultimately, the decision was made to drill the Prudhoe Bay State No. 1. 173 Discovery at Pruclhoe Bay and Aftermath The proposed drilling site for the Prudhoe Bay State No. 1 well was on State of Alaska leases atop the Prudhoe Bay structure. The principal objective was the carbonate se- quence of the Mississippian/Pennsylvanian Lisburne Group. Secondary objectives included Cretaceous elastic and the Permian/Triassic Sadlerochit sandstones. The carbonates were the preferred reservoir objective because of the highly indurated nature of the Cretaceous and Permian/Triassic units seen in surface exposures. The drilling rig was hauled north during the winter and the Prudhoe Bay State No. 1 commenced drilling in April 1967. Drilling was suspended for the summer and resumed in the fall, after freeze-up. ARCO-Humble announced the discovery in January 1968. Upon completion of a confirma- tion well, the Sag. River State No. 1, 7 mi (11 km) to the southeast, the recoverable economic reserve estimate of 9.6 billion bbl (403.2 billion gallons) of oil and 26 tcf of gas was released. The timing of the well was fortuitous, as other explora- tion activities had virtually shut down at the time the Prudhoe Bay State No. 1 was drilled. In 1967, there were only three crew-months of geologic field work, no seismic programs were conducted by the industry, and other than the Prudhoe Bay State No. 1 all drilling activity had ceased. With the success at Prudhoe Bay, the state announced an additional sale in the Prudhoe Bay area for the fall of 1969. As a result of the magnitude of the discovery and the pending sale, the industry greatly increased the level of ex- ploration activities on the North Slope. The geological and geophysical programs leaped from the 1967 levels to 12 geo- logical crew-months and 24 crew-months of seismic acqui- sition in 1968 and then to 20 and 97 crew-months, respec- tively, in 1969 (Jamison et al. 1980~. In 1969, 33 wells were drilled and completed (ADNR 2000~. This number is three times the total of all industry wells drilled on the North Slope prior to the Prudhoe Bay discovery. Alaska State Competitive Lease Sale No.23 was held in September 1969. The sale offering was 179 tracts totaling 450,858 acres (182,600 ha). The acreage represented the unleased portion of the state's 1,600,000-acre (650,000 ha) allotment from the Statehood Act. High bids on 164 tracts totaled more than $900,000,000 with an average price per lease of $2,181.66 per acre ($5,386.81 per ha). This was to be the last sale on the North Slope for 10 years (ADNR 2001a). During the flush of activity immediately after the Prudhoe Bay discovery, several other oil accumulations were discovered. The major fields discovered in 1969 were the Kuparuk, West Sak, and Milne Point fields. These pre- dated the 1969 sale and provided the operators and their partners with additional information and encouragement for the sale.

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174 Post-Pruclhoe {1970 to the Present) Industry Activity The focus of industry activity from 1969 to the present has been determined by land accessibility. There were no lease sales held on the North Slope or in the adjacent waters of the Beaufort Sea between 1969 and 1979. For that 10-year interval, drilling activity was confined to those areas that had been previously leased. Starting in 1979, the shallow State waters and Federal OCS areas of the Beaufort Sea were made available through a series of lease sales, and additional onshore sales were held in the Colville-Canning area. In the 1980s and again in 2000 portions of the National Petroleum Reserve-Alaska were opened to leasing by the federal government through the BLM. The Arctic National Wildlife Refuge has never been leased, but there are Native inholdings and a land trade with Native corporations was considered in the mid-1980s. At various times the Arctic Slope Regional Corporation (ASRC) has made portions of their lands available to companies under exclusive explora- tion/leasing agreements. The discussion of the post-Prudhoe activity will focus on four geographic areas that have different degrees of ac- cessibility and economics. These are the Colville-Canning area/shallow state waters, the Beaufort Sea OCS, National Petroleum Reserve-Alaska, and the 1002 Area of the Arctic National Wildlife Refuge. The onshore areas frequently con- tain some combination of state/Native or federal/Native land ownership. The Chukchi Sea area to the west of the North Slope will not be included in this review. Colville-Canning Area/Beaufort Sea State Waters Through the 1970s the area between the Colville and Canning rivers, from the Beaufort Sea south to the Brooks Range, was the sole area of industry exploration on the North Slope. Because of limited land availability and the success at and near Prudhoe Bay, this area has been the focus of explo- ration activity since the discovery well was drilled in 1968. The bulk of exploration and drilling has been concentrated in the northern portion of the area, near Prudhoe Bay and east and west along the coastline, following the structural trend of the Barrow Arch. In 1979, the State of Alaska began a leasing program in the state waters of the Beaufort Sea. This acreage is generally confined to a strip 3 mi (5 km) wide seaward from the shoreline and from Barrow to the Canadian border. The issue of ownership becomes some- what irregular in the vicinity of the barrier islands and major inlets. Leasing The 10-year leasing hiatus ended with a joint state-fed- eral Beaufort Sea sale in December 1979. The state offered 71 tracts (341,140 acres [138,162 ha]) and granted leases on 62 tracts (296,308 acres [120,005 hall. This sale marked the APPENDIX C first major venture into offshore leasing in the Arctic by ei- ther the state or the federal governments and signaled the opening of a new, but highly sensitive and expensive, explo- ration province. Between 1979 and the present, the state conducted 37 lease sales on the North Slope and the adjacent state waters of the Beaufort Sea (ADNR 2000 and 2001a). The level of leasing activity has varied greatly over this 20-year interval. The state offerings have ranged from as little as 677 acres (274 ha) (1989) to area wide sales, with several million acres available (1998, 1999, 2000, 2001, and 2002~. The total acreage leased was 7,659,536 acres (3,102,112 ha) with 25 onshore lease sales of 6,208,187 acres (2,514,316 ha) and 12 offshore lease sales of 1,451,349 acres (587,796 ha) (ADNR 2001a). (There have been additional state sales since this citation was published and those numbers are not included.) A significant portion of the total leased acreage in- cludes leases that were acquired in earlier sales, subsequently surrendered back to the state and released in later sales. Lease acquisitions per sale have varied greatly during this timeframe. Onshore leasing has ranged from a high of 170 leases and 978,560 acres (396,317 ha) in the 2001 foothills sale to a low of zero leases and no acreage in 1993 when 1,033,248 acres (418,465 ha) were offered. Offshore leasing has shown simi- lar variability with a high of 162 leases and 323,835 acres (131,153 ha) in 1997 when 365,054 acres (147,847 ha) were offered to a low of zero leases and no acreage in 1992 when 153,445 acres (62,145 ha) were available. Much of this variability, especially the low participation in 1992 and 1993, reflects changes in the market and eco- nomic conditions rather than lack of success or dearth of ideas and opportunity. This was also a time when staffs were being reduced and acreage was being surrendered to the state as a cost saving mechanism. Currently, the state is holding an area-wide lease sale each year and the participation has been high. Data Acquisition There was a change in the level and mode of data acqui- sition after the major discoveries in the Prudhoe Bay area. Following the high level of activity generated by the Prudhoe Bay discovery, geological and geophysical crew activity de- creased sharply in the early 1970s and then slowly increased and stabilized by the late 1970s. Seismic activity was at a high in 1970 with 96 crew-months; this decreased to 8 crew- months in 1972 and grew back to 54 crew-months in 1974 (Jamison et al. 1980~. In the late 1970s seismic activity averaged about 25 crew-months per year. Since 1980, the level of seismic ac- quisition has varied, but probably averaged less than 20 crew-months per year. One of the major reasons for this de- crease has been the departure of several companies and the merger of former competitors. This has resulted in a signifi- cant reduction in speculative and group seismic programs.

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APPENDIX C Also, the existing regional seismic grid has been found to be of sufficient quality to allow companies to more finely tune their seismic acquisition and focus on specific areas. The more recent seismic acquisitions tend to be 3-D programs that provide a more detailed image of the subsurface than do the 2-D surveys. Seismic 3-D programs are too costly to be acquired on a truly regional scale and are generally limited to a maximum of 500 to 600 mi2 (1,300 to 1,600 km. Geological field activity has exhibited a similar profile. In the early 1970s, geological field programs averaged about 20 crew-months per year. By 1974, this had decreased to 6 crew-months and averaged 5 to 6 crew-months through the remainder of the 1970s (Jamison et al. 1980~. During the 1980s and 1990s, the amount of fieldwork varied consider- ably, but the activity never reached the levels seen in the 1960s and 1970s. Over the last decade geological activity has averaged 1 to 3 crew-months per year. This is once again due in large part to the decrease in the number of major com- panies actively exploring for oil on the North Slope and the data available from earlier field work. One important aspect of the geological field activity is that, unlike seismic acquisition and exploration drilling, it frequently takes place external to the principal area of explo- ration interest. Much of the fieldwork was carried out in the Brooks Range to the south and in the Sadlerochit and Shublik Mountains of the Arctic National Wildlife Refuge. The work in the Arctic National Wildlife Refuge was severely curtailed by regulations in the late 1970s and 1980s. Entry into the Arctic National Wildlife Refuge (not the 1002 Area) has become possible in the last decade. Geological fieldwork that may have impact on the OCS and the Arctic National Wildlife Refuge would be included in the previously men- tioned programs. Exploration Drilling Following the initial flurry of drilling activity associ- ated with the Prudhoe Bay discovery, exploration drilling decreased markedly. The future of the pipeline was uncer- tain and no lease sales offering additional drilling opportuni- ties were held between 1969 and 1979. Only 34 exploration wells were drilled in the five years (1970-1974) following the 1969 sale. This is only one more than was drilled in 1969. An additional 33 exploration wells were drilled during the 1975-1977 interval, prior to the start up of the Trans-Alaska Pipeline System (TAPS) in June 1977 (Jamison et al.1980~. Between 1977, the opening of the pipeline, and the end of 2000 an additional 193 wells in the Colville-Canning area and state waters of the Beaufort Sea have been classified as exploration wells by the State of Alaska (AOGCC, unpub- lished data, 2001~. This is an average of 8.5 wells per year and ranged from one exploration well in 1988 to 15 explora- tion wells in 1981. The most recent five-year span (1996- 2000) has seen an average of eight exploration wells per year. 175 It appears that the Alaska Oil and Gas Conservation Commission (AOGCC) has been fairly liberal in its defini- tion of an exploration well, and has apparently classified a large number of delineation wells as exploration wells. Ac- cording to the AOGCC count, there have been a total of 296 exploration wells drilled on state leases on the North Slope and shallow Beaufort Sea since the state began its North Slope leasing program in 1964 (AOGCC, unpublished data, 2001~. Currently, all exploration drilling is conducted during the winter and the drilling site is constructed atop an ice pad that melts away during the summer. Transport to and from these exploration sites is either via an ice road or by air. Discoveries From 1970 to the present, there have been 35 discover- ies on state lands (ADNR 2001b). These range from the cur- rently uneconomic Kavik (1969) and Kemik (1972) gas fields in the east-central portion of the Colville-Canning province to large oil discoveries at Endicott (1978) and A1- pine (1994~. A very significant undeveloped resource is the Point Thomson gas and light oil field (1977~. The field is located just to the west of the mouth of the Canning River and contains reserves estimated at 5 TCFG and 360 million bbl (15.1 billion gallons). A point worth noting is that in the 2000 area-wide state lease sale, one of the bidding groups acquired a very sub- stantial tract of leases in the Kavik-Kemik area. They picked up all the leases, except those held by the discovery wells, which had been surrendered by previous leasees. The possi- bility of a gas pipeline from the North Slope has changed the perception of those discoveries. The winning companies are betting on gas and that the reserves are larger than previ- ously estimated. Twenty of the 35 discoveries are either developed and on production or currently being developed. Northstar, located offshore, is an example of the latter. At least seven or eight of these discoveries are satellite fields and would not have been developed if they were not "immediately" adjacent to a large field with an existing infrastructure. Tabasco and the Mid- night Sun/Sambuca fields are satellites, each of which has OOIP of 30 to 70 million bbl (1.2 to 2.9 billion gallons). Since the first commercial discovery at Prudhoe Bay in 1968, a total of 39 discoveries have been made on state leases and 24, nearly all in the immediate Prudhoe-Kuparuk area, have been or are being developed. This area has been and will continue to be the primary exploration grounds until or unless large, attractive areas of the National Petroleum Reserve-Alaska and/or the Arctic National Wildlife Refuge become available for leasing. Fecleral OCS, Beaufort Sea The Beaufort OCS lands were unavailable to the petro- leum industry until the joint state/federal lease sale of 1979.

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176 This and subsequent sales provided access to waters beyond the three-mile limit, stretching from Point Barrow in the west to the Canadian border in the east. Leasing The Beaufort OCS has been the site of seven lease sales, commencing with the joint state/federal sale in 1979 and continuing over a 20-year period to the most recent sale held in 1998 (ADNR 2001a, MMS 2001c). These sales were held at two to five year intervals, with sales in 1979,1982,1984, 1988, 1991, 1996, and 1998. The total acreage offered was 54,811,200 acres (22,198,500 ha) in 10,131 blocks (MMS 2001c). The total includes previously unoffered lands, reofferings of surren- dered leases, and reoffering of previously offered but un- leased acreage. The offerings ranged in size from 173,423 acres (70,236 ha) in 46 blocks (1979) to 18,556,776 acres (779,384,592 ha) in 3,417 blocks (1991~. Issuance of leases ranged from a low of 24 blocks with 85,776 acres (34,739 ha) in 1979 to a high of 227 leases with 1,207,714 acres (489,124 ha) in 1984 (MMS 2001c). The earliest phase of leasing in the late 1970s and early 1980s drew the greatest level of interest with ap- proximately 21% of the offered acreage being leased. The large acreage offerings of the late 1980s and early 1990s (7.28 to 18.56 million acres [2.9 to 7.5 million ha]) drew relatively little interest, with only 3.5% of the offered blocks receiving successful high bids. Interest may be on the rise once again. At the most recent sale in 1998, 9.3% of the 920,983 acres (372,998 ha) offered were leased. Interest peaked early not only in terms of the percentage of offerings receiving bids but also in terms of the values bid on the leases. The average per-block bid in the first three sales was in excess of $9,200,000. The lease sales in the late 1980s and early 1990s averaged $377,940 per block. The most recent sale averaged $222,822 per block. These sales resulted in the issuance of 688 tracks and a total of 3,530,514 acres (1,429,858 ha) (MMS 2001c). Of the 688 tracts leased, only 82 leases, or 12%, are active to- day (MMS 2001c). Most of these leases are clustered around the discoveries or are associated with newly defined pros- pects acquired in the most recent sales. Data Acquisition The data acquisition issue is somewhat different in the case of the OCS regions. There is little or no geologic field work conducted exclusively for the purposes of developing a better understanding of the offshore subsurface geology. Rather, the subsurface well control from onshore drilling activities and, secondarily, outcrop geology is tied into the seismic grids to extend the geologic interpretations into the offshore areas and assist in the definition of potential prospects. APPENDIX C Seismic acquisition in the OCS is not well documented; however, commencing in the mid- to late 1970s both sum- mer marine and winter ice programs have been acquired to correlate the better explored and understood onshore geol- ogy into the Beaufort Sea. Most, if not all, of the existing seismic data are 2-D with little if any 3-D acquisition outside of the areas of existing discoveries or prospects that are be- ing prepared for drilling within the next few seasons. While the per-season or total acquisitions are not known, the totals are easily in excess of 5,000 line-miles. The existing seismic grid extends across state waters and ties into onshore wells or wells in the shallow near-shore portions of the Beaufort Sea. The acquisition area extends from near Point Barrow on the west to near the Canada bor- der on the east. Exploration Drilling The Alaska Department of Natural Resources (ADNR) Division of Oil and Gas (2000) states that 27 exploration wells were drilled within the OCS without providing a list- ing of these wells. The Minerals Management Service (MMS 2001 d) counts 30 exploration wells. This discrepancy is probably the result of the Division of Oil and Gas consider- ing wells drilled on acreage jointly owned by the state and federal governments to not be OCS wells; whereas, MMS considers these same wells to be OCS wells. The first OCS exploration well was the Beechy point No. 1, spud in 1981, and the most recent exploration well was the Warthog No. 1, spud in 1997. The peak of explora- tion drilling was in 1985-86 when 11 of the 30 exploration wells were drilled. A secondary drilling mode occurred in 1991-93 when 7 wells were drilled. Since 1993, only two exploration wells have been drilled, and both of those were drilled in 1997 (MMS 2001d). Phillips Alaska, Inc., had planned to drill an exploration well on its McCovey Prospect in 2001 but was unable to drill the well because of permit- ting problems. AEC Oil and Gas planned to drill this in the 2002-2003 drilling season. Depending on water depth, the OCS exploration wells are either drilled from man-made ice islands or large, heavy, bottom-anchored, ice-resistant drilling rigs. If a discovery is made and the field developed, a more permanent structure is built to provide the base for such long-term operations. Discoveries Eleven of the OCS exploration wells have been deter- mined to be capable of production (MMS 2001d). Of these, five have been termed significant discoveries (ADNR 2000, MMS 2001d). Four of these are in OCS waters and are the Kuvlum, Hammerhead, Sandpiper, and Tern/Liberty. The fifth discovery is the Northstar field (Seal well), which un- derlies federal and state acreage. The first discovery in the OCS was Tern/Liberty in 1983. It was followed by Seal/

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APPENDIX C Northstarin 1984, Hammerhead in 1985, Sandpiperin 1986, and Kuvlum in 1992. Water depths range from as little as 21 ft (6 m) at Lib- erty to as much as 110 ft (34 m) at Kuvlum. These depth variations dictate both the type of basic exploration drilling structure to be used and the type of production platform to be built. The costs escalate significantly with incremental in- creases in water depth. Three of these discoveries, Tern/Liberty, Sandpiper, and Northstar, lie offshore from the well-established Kuparuk and Prudhoe Bay fields and their infrastructure. The Ham- merhead and Kuvlum discoveries are well to the east of the Prudhoe Bay field in relatively deep water. Hammerhead is offshore from the Point Thomson and Flaxman discoveries. The Kuvlum discovery is to the east of the Canning River and offshore from the 1002 area of the Arctic National Wild- life Refuge. The Northstar field has been developed and began pro- duction in late 2001. The fate of the Liberty field develop- ment is unknown at this time. The OCS lands of the Beaufort Sea, now and in the fore- seeable future, provide a modest to good potential for the discovery and development of large fields (2500 million bbl [21 billion gallons]) and smaller satellite fields supported by these larger discoveries. The McCovey prospect is but one example of such prospects awaiting the drill. However costs, environmental issues, and the regulatory climate will delay drilling of exploration wells and the rapid development of any new discoveries. Lead-time from discovery to first pro- duction may be two to four times that of a comparable on- shore field. National Petroleum Reserve-Alaska After the completion of the second round of federally sponsored exploration in the National Petroleum Reserve- Alaska, the government elected to open the petroleum reserve and encourage industry exploration. The second phase of fed- eral exploration did not yield any significant discoveries but did provide a wealth of information for future operations. Leasing The federal leasing program in the National Petroleum Reserve-Alaska commenced in 1982 with two lease sales in January and May. A total of 271 tracts with 5,035,772 acres (2,039,488 ha) were offered in the two sales. Most of the acre- age was located in the south and southeastern portions of the National Petroleum Reserve-Alaska. Between the two sales, 38 tracts with a total of 927,965 acres (375,826 ha) were leased. The leased activity was focused in the areas west of Nuiqsut, west of Umiat, and west of the Lisburne well. In both sales the leasees appeared to be pursuing Umiat play-types. A third sale was held in July 1983. This sale offered 84 tracts and 2,195,845 acres (889,317 ha) spread across the north- 177 em portion of the National Petroleum Reserve-Alaska. Twenty tracts, totaling 419,618 acres (169,945 ha), were leased (BLM, unpublished data, 1990~. These tracts appear to have been se- lected to evaluate Prudhoe Bay play-types and were largely con- centrated in the area between Admiralty Bay and the Chukchi Sea. A fourth sale was scheduled for July 1984. Sale No.841 was to offer 64 tracts and 1,550,677 acres (628,024 ha). When no bids were submitted for the sale, leasing was can- celled (Weimer 1987, Banet 1991~. During this brief leasing period, the industry acquired 58 tracts and 1,347,583 acres (545,771 ha). None of these leases are currently in force. The last of these leases were relinquished in the early l990s. The discontinuance of leasing in 1984 resulted in a 15- year hiatus in leasing activity and exploration in the National Petroleum Reserve-Alaska. It was not until after the 1994 discovery of the Alpine field in the Colville delta area that the government recognized the renewed industry interest in the National Petroleum Reserve-Alaska and reinstituted leas- ing in the petroleum reserve. With the assistance of the MMS, the BLM developed a leasing program in the late l990s, and the first sale of this new series was held in May 1999. The sale was restricted to the northeastern corner of the National Petroleum Reserve- Alaska, an area comprising 4.6 million acres (1.9 million ha). The sale was conducted with multiple restrictions re- garding drilling locations and presence of surface facilities. Approximately 3.9 million acres (1.6 million ha) were of- fered. This offering drew 132 high bids on 861,368 acres (348,854 ha). Twenty-two percent of the offered acreage was leased (BLM, unpublished maps, 2001~. The bulk of the leased acreage is in the vicinity of Nuiqsut and extends from the Colville River westward through Townships 9-12 North to Range 6 West. A second, smaller block of leased tracts lies between Teshekpuk Lake and the Ikpikpuk River (Mapmakers Alaska 2000~. These leased areas include lands that were originally leased in the 1980s leasing episode, but they were surrendered without having been drilled. The leasing pattern indicates that the industry is focused on exploring for Alpine-type plays in the area of eastward migrating Jurassic and Early Cretaceous shelf margins. Addi- tional objectives probably resemble Tarn and Kuparuk plays. An additional sale was held in the northeastern area in 2002. It was essentially a re-offering of 3,051,500 acres (1,235,858 ha) not leased in the 1999 sale. A total of 60 tracts with 579,269 acres (234,604 ha) were leased. The newly leased acreage is generally to the south and west of the previously acquired leases. Data Acquisition The bulk of the data utilized in the industry's evalua- tions were obtained by federal agencies during their explo-

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178 ration efforts. A total of 16,479 line-miles of seismic data were acquired during the government's exploration effort (Schindler 1988~. These data are publicly available and have been extensively reprocessed to enhance their utility. In the early 1980s, a number of geologic field parties were conducted in the foothills south and southwest of the the National Petroleum Reserve-Alaska, along the Colville River, and in the coastal area from the vicinity of the Corwin Bluffs to Cape Lisburne. After the discovery of the Alpine field and in prepara- tion for pending sales in the National Petroleum Reserve- Alaska, the major participants in ongoing North Slope ex- ploration began to conduct 2-D and 3-D seismic programs in the probable sale area. The total line-miles of seismic data acquired are not known. There were at least seven 2-D pro- grams acquired between 1992 and 1997 totaling 2,615 line- miles. A single 3-D program was shot in 1996 and covered an area of 152 mi2 (394 km2) (Kornbrath et al. 1997~. There have been additional 2-D and 3-D programs acquired since 1997; however, the number of programs and coverage are not known. Exploration Drilling Leasing in the early 1980s resulted in the drilling of only one industry exploration well within the National Pe- troleum Reserve-Alaska. This was the ARCO Brontosaurus No. 1. It was drilled in 1985 as a test of the Ivishak trunca- tion a Prudhoe Bay-style prospect. The well was located in the western portion of the National Petroleum Reserve- Alaska about 40 mi (64 km) south-southwest of Point Bar- row. The hole was dry and any other plans to drill were aban- doned. However, the well was not an entire waste, as it provided a much-needed data point and an additional control for future exploration in the Chukchi Sea. An additional well, the Chevron Livehorse, was drilled on Native inholdings and will be discussed later. After Sale No. 991 in 1999, the industry commenced an extensive drilling program in the northeastern portion of the National Petroleum Reserve-Alaska. Three wells were drilled in the winter of 2000 and an additional six wells were drilled in 2001. Most, if not all, of these wells are probably targeting Alpine-style prospects. It is anticipated that drilling and additional lease sales will keep this area an active focus of exploration for at least the next 6 to 10 years. Discoveries At least five of the wells drilled in the National Petro- leum Reserve-Alaska have discovered hydrocarbons. Both oil and gas were found. The size of the discoveries has not been made public. But the operators have indicated that the APPENDIX C oil reserves are at least equal to those of the Alpine field. The gas potential is unknown. Arctic National Wildlife Refuge The 1002 Area of the Arctic National Wildlife Refuge has long attracted the interest of the petroleum industry. There are numerous active oil seeps, exposures of oil-stained sandstone, and large attractive structures. However, these lands are currently closed to the industry and can only be opened for exploration and potential development by an act of Congress. Leasing Because ANILCA prohibits it, there has been no leasing in the 1002 Area. However, in 1987 the Reagan administra- tion proposed to trade land/exploration rights in the 1002 Area for Native corporation inholdings in national parks and other sensitive areas. Six Native corporations were found qualified to participate and each chose an industry partner. The industry partners were to supply technical expertise and have exclusive right to explore any lands acquired by their Native corporation partners. The federal government did propose and develop a tract selection/trade process and the Native corporations and their industry partners proceeded to bid on 71 complete or partial tracts. These tracts were 4 mi2 (10 km2) parcels. This land trade was never carried through to completion and the lands were not transferred. As a point of interest, virtually all the prospective trade lands identified in that process were either along the Marsh Creek Anticline or to the east of it. Unpub- lished industry evaluations have tended to place a greater portion of the areas potential resources in the deformed area. This would include the Marsh Creek Anticline and areas to the east. Data Acquisition Data acquisition in the Arctic National Wildlife Refuge has been largely restricted to geological field parties in the Brooks Range, south of the 1002 Area, and to the limited seismic acquisition program conducted under government oversight in 1984 and 1985. The seismic program was acquired during two succes- sive field seasons (1984 and 1985~. A 22-company consor- tium shared the cost of the data acquisition and processing. These two seasons produced approximately 1,400 line-miles of mostly poor to moderately good data quality. Because of the paucity of seismic control, public and proprietary gravity and magnetic data were used extensively in the Arctic Na- tional Wildlife Refuge.

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APPENDIX C Exploration Drilling Since there has been no leasing within the 1002 Area, there has been no exploration drilling. However, Kaktovik Inupiat Corporation holds surface title to some lands, and the city of Kaktovik lies within the boundaries of the refuge. British Petroleum/Chevron drilled a well on Native lands through an exclusive exploration agreement with the Native corporation. The information from that well has been held confidential since it was drilled in 1986. Discoveries Since there has been no drilling within the 1002 Area there have been no discoveries. However, there are two dis- coveries west of the Canning River that abut the 1002 Area. It is possible that either the Sourdough or Point Thomson fields may extend eastward into the 1002 Area. If and when they are developed, they may have the potential to drain oil and/or gas from beneath the Arctic National Wildlife Refuge. Native Corporation Lancis The Arctic Slope Regional Corporation (ASRC) and its various village corporations have extensive land holdings across the slope. These extend from Barter Island in the east to the Chukchi Sea in the west and from the Beaufort Sea in the North to the crest of the Brooks Range in the south. The regional corporation and several of the village corporations have entered into exploration agreements with various pe- troleum companies. These agreements have generally re- quired some form of initial monetary commitment, specific work commitments, and an agreement to lease potential acre- age or forfeit the right to explore at an agreed upon date. One or more exploratory wells are also required if the company elects to go to lease. Leasing There is no competitive leasing process that the MMS or DOG utilize to make lands available to industry. The ne- gotiations are generally confidential. Chevron, Texaco, ARCO, and Unocal have had such agreements in the past. Anadarko Petroleum and its partners currently have an ex- clusive exploration agreement with ASRC for nearly 3 mil- lion acres (1.2 million ha) in the foothills area of the Brooks Range. Data Acquisition The data acquired on Native corporation lands, espe- cially seismic and other geophysical data, are usually kept confidential, and the data are only available to the corpora- tion and its industry partners. Therefore, it is difficult to as- 179 sess the amount and quality of such data. Geological field programs are in most cases applicable to both state and pri- vate lands and have been addressed previously. However, with the recent interest in a gas pipeline, there has been in- creased activity in the Brooks Range foothills, and the Na- tive corporation lands there are being reevaluated for both oil and gas. This has resulted in a recent increase and refocus of geologic field efforts in the foothills belt. Similarly, new seismic data were acquired during the recent winter seasons. These seismic programs included both 2-D and 3-D acquisi- tion technologies. Exploration Drilling Through ASRC's exploration agreements with various companies, l l exploration wells have been drilled on Native corporation lands on the North Slope (ADNR 2001b). Some of these Native corporation holdings are in the form of inholdings within national parks, national monuments, and wildlife refuges. This has afforded those companies with Native corporation exploration agreements the opportunity to drill and evaluate areas that are not otherwise assessable and are off-limits to the rest of the industry. These wells have been drilled on inholdings within the Arctic National Wildlife Refuge and the National Petroleum Reserve-Alaska as well as in the foothills of the Brooks Range south of the state acreage in the Colville-Canning area. There have also been wells drilled on ASRC lands to the west of the National Petroleum Reserve-Alaska. A listing of these wells, their general location, year drilled, and operator is presented to indicate the spectrum of ASRC holdings. OPERATOR AND WELL LOCATION YEAR 1. Texaco, Tulugak No. 1 Chevron, Eagle Creek No. 1 Chevron, Tiglukpuk No. 1 4. Chevron, Akuluk No. 1 5. Chevron, Killik No. 1 6. Chevron, Cobblestone No. 1 7. Chevron, Livehorse No. 1 8. Unocal, Tungak Creek No. 1 9. Chevron/BP, KIC No. 1 10. ARCO, Big Bend No. 1 11. ARCO, Nuiqsut No. 1 26-5S-3E (Umiat) 29-8S-45W (Umiat) 15-12S-2E (Umiat) 23-5S-49W (Umiat) 08-12S-10W (Umiat) 25-1OS-8E (Umiat) 13-17N-2W (Umiat) 12-6N-42W (Umiat) 01-8N-36E (Umiat) 24-3S-2W (Umiat) 05-llN-4E (Umiat) 1977 1978 1978 1981 1981 1982 1982 1982 1986 1993 1998 The KIC well was drilled on Kaktovik inholdings in the Arctic National Wildlife Refuge and provided Chevron and BP with a source of information unavailable to all other com- panies. The well is being held confidential. The Livehorse well was drilled on Native inholdings in the northern part of the National Petroleum Reserve-Alaska. It provided Chev- ron a data point that could have been of benefit in the sales held in the National Petroleum Reserve-Alaska during the 1980s. The Akulik, Eagle Creek, and Tungak Creek wells are located to the west of the National Petroleum Reserve-Alaska

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180 and are the only wells in that portion of the North Slope. The information from these wells provides the only subsurface data in this part of the state. There are only two other wells, both within the National Petroleum Reserve-Alaska, within 100 mi (160 km) of these wells. The Cobblestone, Killik, and Tiglukpuk wells are the southern-most wells on the North Slope. They are well south of the existing leased acreage of the Colville-Canning area and provide key subsurface information for the foothills lease sales, especially with regard to gas potential. The availability of native corporation lands can provide a company with access to areas otherwise off limits to the industry and may supply data that will give the operator an advantage over competitors in future land acquisitions. Ad- ditionally, these wells may lead to large discoveries that lack the problem of joint ownership with those same potential competitors. Discoveries There has been one discovery associated with ASRC lands in the Colville River delta. The Alpine field extends beneath leases jointly held with the state. The KIC well has been held confidential by Chevron and BP since it was drilled in 1986. There has been considerable discussion regarding the stratigraphic succession that may have been encountered as well as speculation regarding the presence of hydrocar- bons in either commercial or subcommercial quantities. If commercial hydrocarbons were found, there is still a major problem confronting any plans for development even if Con- gress allows oil and gas activity in the Arctic National Wild- life Refuge and/or the ASRC inholdings. To produce any oil that may have been found at KIC, a pipeline to TAPS would have to either pass westward across the 1002 Area or be buried offshore in the Beaufort Sea. The offshore pipeline would need to extend westward beyond the Canning River before it could be brought ashore and tied into future pipe- lines in the Point Thomson/Sourdough area. To date, the relative remoteness of the Native land se- lections has required very large reserves or has encountered access barriers that have somewhat limited the general in- dustry interest. With the development of a more far-reaching infrastructure and the pending market for natural gas, the Native land position may assume a preeminence not seen before on the North Slope. Future Exploration Potential There has been concern regarding the long-term viabil- ity of the oil and gas industry on the North Slope. The de- clining production at Prudhoe Bay, Kuparuk, and other older fields has led to speculation that the industry will soon turn its eyes and investments elsewhere. However, with the ad- vances in technology the development of new exploration concepts, the pending market for gas should be sustained APPENDIX C provided that the exploration opportunity exists and that lands are made available for future drilling and development. Within the geographic confines of the North Slope and Beau- fort Sea, there are at least four areas of opportunity for the future exploration and development. Continuation Of Present Exploration Trencis The Colville-Canning area and the Beaufort Sea will continue to be the central focus of exploration for some time. There is little doubt that small satellite accumulations will continue to be found in close proximity to the major facili- ties at the Prudhoe Bay and Kuparuk fields. However, these will fall far short of offsetting the production declines in the major fields. The major petroleum potential exists in the fed- eral OCS portion of the Beaufort Sea and to a lesser extent in the state waters. The Jurassic, Cretaceous, and Early Tertiary age shelf sandstones and lower slope to basin turbidite objectives will continue to be targets and may yield additional Alpine- and Point McIntyre-size fields. The probability of finding large Prudhoe Bay- or Endicott-type fields in the northern portion of the Colville-Canning area or in the shallow Beaufort Sea is low. National Petroleum Reserve-Alaska Early exploration efforts by the Navy and USGS se- verely damaged the hopes of finding Prudhoe Bay- and Lisburne/Endicott-style plays along the westward extension of the Barrow Arch into the National Petroleum Reserve- Alaska. However, the Barrow, Simpson, and Walakpa gas fields of the northwestern part of the National Petroleum Reserve-Alaska and the Alpine oil field of the northeastern part of the National Petroleum Reserve-Alaska indicate that these Jurassic/Cretaceous shallow marine shelf reservoirs offer a multitude of opportunities. This trend could poten- tially be pursued across the entire northern half of the re- serve. As seen at Alpine, there is the potential for 500 mil- lion bbl (21 billion gallons) fields. Oil plays may extend well south into the foothills. The Navy's discovery at Umiat demonstrates the potential for reserves in the several tens to a few hundred million barrels range. Recent work by the USGS and DDGS has shown that even in the southern portions of the National Petroleum Reserve-Alaska and at the same latitudes to the east and west, source rocks currently in the oil window and oil stained sand- stones are not uncommon. With an ongoing leasing program in place, the National Petroleum Reserve-Alaska may play a significant role in the future viability of the North Slope as a hydrocarbon prov- ince. However, it is unlikely that the area will yield fields that will rival Prudhoe Bay or even Kuparuk in terms of recoverable reserves.

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APPENDIX C Arctic National Wildlife Refuge The environmentally end politically sensitive 1002 Area of the Arctic National Wildlife Refuge has the greatest re- maining potential for the discovery of large oil fields in Alaska. Large structures are evident on the surface and from the limited seismic data. Oil seeps occur at several localities, there are numerous exposures of oil stained sandstone, and several accumulations abut the area on the west and may possibly extend into the refuge. Several high-quality oil source rocks are known to be present within the Arctic National Wildlife Refuge. They are exposed in the front ranges to the south of the 1002 Area and within the 1002 Area itself. These sources are locally submature to mature for oil generation and support the thesis that oil has been generated and may have accumulated in the large structural and stratigraphic traps of the coastal plain. The technically recoverable reserves attributable to the 1002 Area have been estimated to be as great as 11.8 bil- lion bbl (496 billion gallons) with a mean estimate of 7.7 billion bbl (322 billion gal) (Bird and Houseknecht 1998~. There is no comparable publicly available estimate for gas reserves. Gas Plays in the Foothills and Portions of the National Petroleum Reserve-Alaska With the possibility of a gas pipeline to transport North Slope natural gas to domestic and world markets, there is increased interest in gas exploration. Without a gas pipeline or the promise of one, gas has had no value and in fact has had negative value in those cases where gas-handling costs are high. In addition to the major gas reserves associated with the large oil fields along the Barrow Arch, there have been several minor gas discoveries in the Brooks Range foot- hills. The best known discoveries are Gubik, Kavik, and Kemik gas fields. The Gubik gas field was discovered dur- ing the Navy's National Petroleum Reserve-Alaska explo- ration program in 1951, and the Kavik and Kemik fields were discovered by the industry in 1969 and 1972 respec- tively. Each of these fields is estimated to contain 100 to 300 or 400 BCFG. The southern area has large structures, abundant gas- prone source rocks or overmature oil-prone source rocks, and thick sequences of sandstone with porosities and permeabilities adequate for gas reservoirs. Fracturing tends to be common and is the source of the bulk of the porosity in the Kavik and Kemik wells. The emerging gas potential of this area can be seen in the bidding trends of the state's 2000 and 2001 North Slope and foothills area-wide lease sales. This strongly implies a very concerted effort to explore the area for gas as well as the more conventional oil plays. This area has the potential to equal the reserve base of the Barrow Arch-associated gas accumula- 181 lions and would signify a long-term future for gas exploration and production on the North Slope. A gas pipeline along the haul road from Prudhoe Bay would pass through the central portion of this potential gas province. Spur pipelines to the east and west could be constructed to tie into the gas line in the vicinity of TAPS pump station No.3. Factors Influencing Future Exploration The North Slope may continue to play a major role in meeting the energy requirements of the United States well into the twenty-first century, but several key elements will greatly influence the magnitude, stability, and duration of that role. Among the most significant of these factors are oil and gas prices, land availability, regulatory environment, and level of competition. Prices The price structure for oil, and to a lesser extent gas, and its stability will play a pivotal role in the future of the petro- leum industry in Alaska. Recent low world oil prices have demonstrated just how sensitive the Alaskan oil industry is to fluctuations in price. With low prices, the high cost of producing a barrel of oil in Alaska places North Slope crude at a disadvantage relative to the OPEC cartel and other low- cost producers. It also tends to dry up funding for Alaskan projects by the producing companies who can realize a greater return on investments in those same low-cost envi- ronments. With prices that provide a reasonable return on investment, exploration and development opportunities will continue to attract industry to the North Slope. Label Availability Even with sustained high oil prices, there will be no significant reserve additions without attractive exploration opportunities. These opportunities only exist when there is a continued and diverse offering of exploration acreage. A successful exploration effort requires that a broad mixture of potential play types of a size sufficient to provide economi- cally viable targets be made available in a predictable and systematic manner. In such a scenario, exploration would provide a spectrum of field sizes such that the larger accu- mulations generate the demand for the infrastructure, which will in turn create an environment in which smaller fields (satellites) may be profitable to develop. In the relatively near future, the available relatively low- cost operating areas near existing infrastructure will have been reasonably well explored. They will be deemed to no longer have the potential to yield discoveries of sufficient size to replace the production lost due to decline of the older major fields. At that point, there will either be pressure to open additional lands to exploration or it will be acknowl-

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182 edged that the region is in decline and that reduced produc- tion will ensue and eventually lead to the shutdown of opera- tions and the pipeline. Prediction Versus Reality Apparent failure of early stage predictions, regarding reserve size, number of wells to be drilled, size of areas to be affected by development, and miles of roads and pipelines, has caused concern and raised the issue of credibility in some minds. Obviously, if anticipated potential effects are based on the early stage predictions, any significant deviation from those forecasts will result in a difference in the magnitude of any activity-associated effects. The problem lies in the failure to recognize that each of these predictions, whether they are the number of oil fields in an area, the size of the accumulations, or the amount of infrastructure necessary, is based on very little solid scien- tific data. When exploration begins in a new area, like the North Slope in the 1960s, no one has direct evidence of the true nature and distribution of potential reservoirs in the sub- surface, let alone the presence or volume of hydrocarbons that may be present. Seismic data used to determine the pres- ence of potential structures and traps and outcrop exposures, often tens or hundreds of miles away, are the sole source of possible reservoir data. Based on these bits of information a first prediction is made as to the probability of oil or gas being present and then if the assumptions regarding struc- ture, trap, reservoir, and source are reasonable, what range of hydrocarbon volumes may the feature contain? As can be readily seen, the reality as revealed by the drill may be very different from the pre-drill predictions. Prudhoe Bay was a definite surprise, it was far larger than expected and the vast bulk of the oil was found to be in a rock that was not thought to be a reservoir target prior to drilling the well. The first predictions were wrong. The sec- ond prediction at Prudhoe Bay was that the field contained 9.6 billion bbl (403.2 billion gallons) of recoverable oil. An independent company based on the evaluation of delineation wells determined this value. Subsequent planning for the field used that reserve figure. Advances in technology and geologic variability in the reservoir have placed current esti- mates of recoverable oil in the 13 billion bbl (546 billion gallons) range. Similar results have been noted at Kuparuk and Endicott fields. The Lisburne field has not met expectations either in terms of daily production rates or cumulative production. This is largely the result of applying the incorrect reservoir model to the field in its early stages. Predictions made at the time of the discovery of these fields did not recognize the upside that existed (or the down- side in the case of the Lisburne). As a result estimates of the life span of the fields, size of areas to be affected, number of APPENDIX C wells to be drilled, and other variables were not precise and should not have been expected to be. Additionally, the development of the infrastructure at Prudhoe Bay and Kuparuk, plus TAPS, made exploration for previously unrecognized or ignored nearby small accu- mulations feasible. This again contributed to a larger area of development than was forecast at the time of the original estimates. Once again it must be recognized that these satel- lite fields were either unknown, not economic under then present economics, or were known to individual companies as a result of proprietary data that were not shared with com- petitors for obvious reasons. These early estimates work both ways; there tend to be more overestimates of potential than underestimates. The public generally never hears of these because either the company drills a dry hole and abandons the project or it acquires additional data that indicate the prospect is invalid or uneconomic and no drilling occurs. The most notable failure in north Alaska was the Mukluk well. The potential of this prospect was thought by many to rival Prudhoe Bay. Exploration, leasing, and drilling costs may have totaled as much as $2 billion. The well was drilled and abandoned as a dry hole. Uncertainty and risk are the nature of the exploration business. Any company that is willing to spend the money and time to acquire data, lease land, and drill exploration wells is hoping for a discovery of a size sufficient to justify the costs and provide an adequate, competitive return on the investment. That company is also gambling that the field will provide the infrastructure to support possible nearby accumulations when and if they are found. An observer may note that when an exploration com- pany acquires a new lease or block of leases, it will often permit multiple well locations. In reality, only a fraction of these locations are normally drilled. This is due either to a failure to discover an economic accumulation in the most favored locales or because the initial interpretation of the geology was not correct. Historically the successful prediction of exploration and development activity in terms of how much, when, and where has been as much an art as it is a science. Recent technological advances have resulted in a much improved exploration success rate, but frontier areas still bear high risk and failure rates. With the full awareness of this uncertainty, a range of potential and cumulative effects of future oil and gas activities can be addressed. The best approach is to use the knowledge derived from known activity and its effects and project a likely case into the future, with a series of sce- narios that vary the future activity within reasonably con- strained limits. This approach still will not guarantee when, where, and how much. However, it should provide the most reasonable range of estimates of the overall effects of future activities.