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An Inside Look At Alaska’s Oil Industry

As I mentioned Tuesday, I’m on the ground in Anchorage, Alaska, investigating one of the biggest energy investment opportunities in the country.

I’ve had the privilege of meeting with the local agencies and government officials responsible for directing the state’s energy policy, as well as several companies operating in the region.

Our contingency, made up of oil executives, attorneys and consultants, met with Energy Commissioner, Dan Sullivan, several environmental officials and Alaska Governor, Sean Parnell.

The takeaway is this: Alaska has a huge pipeline with the capacity to move more than 2 million barrels of oil per day from the North Slope/Prudhoe Bay region. Right now, that pipeline is carrying around 600,000 barrels per day. That leaves a lot of spare capacity – and revenue – on the table.

Indeed, Alaska’s state budget receives more than 90% of its revenue from the oil and gas sector. So, the incentive is there to promote as much exploration and production as responsibly possible.

To be frank, I have never met a group of government officials more pro-business.

Unlike states such as California, which is about as anti-drilling as you can get, Alaska’s government offers a myriad of incentives, financing programs and tax benefits for those hardy souls willing to take the risks to exploit the state’s vast energy resources.

And there are billions of barrels of oil and trillions of cubic feet of gas to be had.

Of course, the opportunity here isn’t without risk. And the question here isn’t whether or not the resources are present; it’s whether or not it’s economically feasible to retrieve them, given the super-high costs associated with drilling in inclement conditions.

One rig operator that we met with quoted rig rates of close to $150,000 per day – and that’s after taking tax benefits into account! That compares to about $25,000 per day in places that have more favorable environmental conditions.

This means explorers and producers need to hunt for elephant-sized fields to make the economics work.

The good news, though, is that the companies I’m looking at are succeeding in doing just that.

Prudhoe Bay, the last huge oil find in the United States, contains proven reserves of more than 20 billion barrels of oil.

Now, a good chunk of that has already been recovered. But there’s more oil in the North Slope, where the new wave of explorers is using fracking technology and methods to access the oil on-shore.

Estimates vary as to how much oil is recoverable, but they range as high as 2 billion barrels or more. The key is the results from exploratory wells. These results will start coming in between now and the end of the year, and we’ve got the line on four companies involved in the chase.

The important thing to note about drilling in Alaska – versus, say, the prolific Bakken region – is the potential for major finds.

In the Bakken region, you have gobs of operators making relatively small finds. The potential doesn’t exist for a big-time score. But in the North Slope, it’s feasible that a small find of a few million barrels will lead to a major find in the 50 million to 100 million barrel range.

So, if you’re a small-cap explorer like the ones we’re following, the potential from owning and drilling in the right acreage can be absolutely massive, and that’s why the risk and expenses are taken.

As early as two months from now, the initial results should start coming in, and we’ll be there on the ground to further evaluate the finds.

So stay tuned.

And “the chase” continues,

Karim Rahemtulla