The Rude Awakening
Prudhoe Bay, Alaska
Friday, June 15, 2007 ------------------------- - Grab your thermal underwear, we're off to Alaska,
- The Energy & Scarcity Investor heads to the North Face,
- The fate of $11 billion in 1970s-era dollars and much more…
------------------------- Byron King, reporting from the North Slope of Alaska… I'm up in Alaska looking at rocks. I traveled to the 49th state to participate in a geological field trip, looking at the rocks, minerals and energy resources…from the Kenai Peninsula in the south to Prudhoe Bay and the Arctic Ocean in the north. I was in the company of a group of astonishingly smart and gifted geologists - including the famous Gil Mull, one of the original Richfield Oil (later, ARCO) team that discovered the 15-billion barrel Prudhoe Bay oil field in 1967. To give away the happy ending of the story of the first well in the Prudhoe Bay area, the "discovery well" of one of the world's great oil finds, Gil and his team drilled into a 300-foot gas cap at the top of a deeply buried structure, underlain by dozens of feet of oil-soaked sandstones and conglomerate. Many months later, when they drilled the confirmation well about seven miles away on the flank of the structure, they found over 400 feet of oil column in the rocks. Gil discussed how, during one coring operation, they started to pull the core out of the drilling tube, and "it simply flowed out, just sand and rock and oil, 180 degrees or so hot, flowing and steaming all over the drilling deck." Yes, Gil was fortunate enough to have been part of a group that found the largest oil field ever discovered in the U.S. or Canada, 10 billion barrels or so they thought at the time. (Now, we know that it is much larger, near 15 billion barrels.) But the Prudhoe Bay field only got developed because it was so large. Anything smaller might not have paid off, because there was no other infrastructure in place in this distant wilderness. The next step was to build the Haul Road and adjacent Alaska Pipeline, which ultimately took an act of Congress and a total of $11 billion in 1970s-era dollars. Could we do something similar today? And we have to ask, would it be worth it to do so? To re-phrase the question, where will the next 15 billion barrels of crude oil come from…and what will it cost? In a world where oil supplies are continuously depleting, and oil demand is continuously increasing, rising oil prices seem inevitable…especially when the much of those oil supplies lay thousands of feet below harsh landscapes.
Crude oil will continue flow from distant lands, but it will not be cheap. In other words, the next gallons of gasoline won't be as cheap as the last gallons. To gain a glimpse into the costly future of oil production up here in the freezing hinterlands of Alaska, let's take a peak at the past. --- Memo From the Desk of Addison Wiggin --- *** Announcing Byron King's New Investment Research Service: It's called the Energy & Scarcity Investor and it'll cost at least $995 per year when we launch it in the next couple of months. But since you're a valued Agora Financial member, you can receive it 100% FREE. Here's Why You'll Get Our Newest $995 Investment Research Service Completely Free… But you must respond before Midnight on July 5th… Read On Here: Energy & Scarcity Free Offer* *Offer Valid Until Midnight, July 5 Only ----------------------------------- Vacation in Prudhoe Bay
By Byron King In August 21, 1778, the redoubtable British sea captain, James Cook, was sailing through what would later be called the Chukchi Sea. Cook had, in fact, sailed further north than even the most daring Russian navigators of that era. Cook gazed at one distant body of land and wrote in the ship's log about a place that "appeared to be pretty high land, even down to the sea." Cook also noted, of interest, that it was "destitute of wood." Cook called the place Cape Lisburne, after a British Earl of that same name. Cape Lisburne is the western-most extremity of what is now called the Brooks Range - a rugged, jagged, foaming ocean of snow-capped mountains, 150 miles wide and 750 miles long, extending from the northwest coastline of Alaska far to the east and deep into the Canadian Yukon. The Brooks Range boasts peaks exceeding 10,000 feet in elevation, and lies entirely above the Arctic Circle. Much of it lies within the protective jurisdiction of the Gates of the Arctic National Park, and the Arctic National Wildlife Refuge (ANWR). The Brooks Range is the northernmost range of mountains in the world, geographically isolating a very flat, coastal plain the size of California that is called the North Slope of Alaska. The famous Alaska Pipeline had to cross the mighty Brooks Range as part of the first leg of its route south from Prudhoe Bay, about 500 miles east of Cape Lisburne. Thus in the first push for the petroleum of the North Slope, immense pumps which are the size of several railroad locomotives connected together in series, drive the oil from sea level to up and over the aforementioned Brooks Range, along a "Utility Corridor" established by federal law for just that purpose. Currently, the oil pushed through and making the ride amounts to about 800,000 barrels per day, although in earlier years the North Slope was producing, and the Alaska Pipeline was transporting, in excess of 2.2 million barrels per day. (The decline is due to reservoir depletion.) Think of just the energy required in overcoming the force of gravity, in order to lift that much oil high enough to cross a broad, high mountain range.
And the Brooks Range is just one of three immense mountain ranges, and nearly 1,000 rivers and streams, that the Alaska Pipeline crosses in its long, 800-mile path to Valdez on the southern coastline of Alaska. In other words, it ain't easy pulling oil out of the artic. Despite the rich prospective hydrocarbon potential of this vast Arctic area, it is immensely difficult to accomplish even the most basic of tasks. The place is almost entirely uninhabited and there are simply no roads or other infrastructure. Ingress and egress is by dogsled in winter, airlift most other times (except when the winds are blowing 150 miles per hour), or barge during the few ice-free months of summer. Most everything else currently arrives in Deadhorse, Alaska after a 420-mile trip up the 20-foot wide, gravel "Haul Road" (now named the Dalton Highway) that parallels the Alaska Pipeline from Fairbanks to Prudhoe Bay. My group of touring geologists rode up that rough road in a set of tough vans, viewing (and feeling) every hard mile of Haul Road, and observing the Pipeline in all its industrial glory. Climate is, as one would expect so far north of the Arctic Circle, constantly extreme. As Captain Cook noted, the area is "destitute of wood." Yes indeed, and it is destitute of almost everything else under God's sun. In fact, for many months of the year it is destitute of even the sun. When you find an oil deposit in that frozen north, what do you do with it? How much is there? What are the numbers on any given prospect? What are the economics? What is the environmental impact? How do you plan for large-scale industrial development in such a remote and harsh environment? What are the logistic challenges, the hurdles, the utter barriers (such as crossing Gates of the Arctic National Park lands, or ANWR) to accomplishing what you want to do? How do you arrange for long-term extraction operations, and transport your treasure to the eager markets of the world? These are just the first of many hard and exceedingly expensive questions you have to ask. Whatever happens next is going to cost…and cost really big. As Barry Lopez wrote in his book Arctic Dreams, "No summer is long enough to take away the winter. The winter always comes." To my observation, winter never really leaves. Think of this in terms of current and future exploration to the far west of Prudhoe Bay, in what is quaintly labeled on the pretty maps as the "National Petroleum Reserve-Alaska." Yeah, right. "Petroleum Reserve." Piece of cake, huh? Who is going to develop that "petroleum reserve?" Who will pay to drill it up, and to build the next part of the Arctic energy complex? Who will take the risks, and make a series of large hydrocarbon discoveries, and then build an accompanying "Northern Pipeline" across 500 miles of North Slope and Arctic Ocean coastline? Will anyone venture to build something else down to the south (and if so, to where?) across that all-but-impenetrable Brooks Range of mountains? Think about it. Who is going to do what? Will someone find another Prudhoe Bay and mark out another Atigun Pass, maybe? There is nothing easy about this, nothing at all, not even breathing that cold Arctic air. Many great and vast and difficult things are going to happen in northern Alaska. Crude oil will continue to flow to a refinery near you, but it will not be cheap. Joel's Note: You have probably heard about Byron King's new investment research service, the Energy & Scarcity Investor. Byron, our resident geologist, will be uncovering profit opportunities in the vast and difficult energy sector, from places like Prudhoe Bay to your own back yard. After July 5, this service will set you back about a thousand bucks but, right now, you can nab it for free. It's all part of our promotion for the re-opening of the Agora Financial Reserve - a lifetime subscription to all our research letters and trading services. There are plenty of other bells and whistles but, the crux of it is, for less than what you would pay for all these services for a year, you get them (and any others we introduce) for life. The details, if you are interested, can be found right here: Byron King's Energy & Scarcity Investor P.S. And remember, if you already subscribe to one of Agora Financial's paid services, you could be eligible for a further discount. Find out here: Agora Financial Reserve Lifetime Offer | 
