Update on Alaska OCS Development

BRADFORD G. KEITHLEYPRESIDENT AND PRINCIPAL, KEITHLEY CONSULTING, LLC

DECEMBER 5, 2013

Ninth Annual Comprehensive Conference on Energy in Alaska

Overview

Setting the stage Current status of Alaska OCS

activity Arctic activity elsewhere in the

world

Alaska OCS: Setting the stage

“One of the world’s largest untapped resources”

132 Tcf of natural gas, 27 billion bbls oil

ISER: 68,600 jobs during production, $63 billion in Alaska payroll

Setting the stage: potential knock on effects Development of NPRA

Pipeline opens up opportunity for development of regions currently deemed non-commercial

Extending life of TAPS Replacement oil as onshore sources decline A key to maintaining economics of smaller

developments on state lands

Replacement source of state revenue But would require significant Federal legislation

Recent history Four significant players in past five years

Chukchi: Shell, ConocoPhillips, Statoil Beaufort: Shell, BP (Liberty)

Three (and a half) gradually have put plans on hold BP: Liberty (2012) Statoil: Chukchi (2013) ConocoPhillips: Chukchi (2013) Shell: Beaufort (2013)

Reasons “Do-ability”: Cost, permitting, technology

Current status

Shell 2014 focus on Chukchi:Dec 4 (Reuters) - Royal Dutch Shell Plc will return to Alaskan offshore drilling next July and will deploy an upgraded drillship in the Chukchi Sea, while keeping a newly contracted backup drillship ready if needed, according to plans released on Wednesday … Drilling at Shell's Burger prospect is set to be carried out from July through October, according to Shell's Integrated Operating Plan.

Subject to … BOEM approval of Exploration Plan (filed Nov. 6) Status: BOE has asked Shell to respond to additional

questions

Other factors affecting current status

Additional BOEM questions (Fuelfix, Dec. 4) “Regulators at [BOEM] have asked Shell to provide

dozens of additional documents and other information in connection with its proposed drilling blueprint for the Chukchi Sea”

Reduced frequency of tests on blowout preventer, capabilities of drillship, modifications being made for extreme weather conditions

Shell’s “Integrated operations plan” (filed Nov. 26) In response to DOI questions raised as a result of 2012

drilling activities Focused on Shell’s control over operations

DOI “Six Keys to Arctic Exploration” (Nov. 2013) “Safety and environmental performance” “Strong, fair and independent oversight” “Preparedness” (“dealing with the worst

case”) “Respect for local communities” “Good governmental coordination and

efficiency in the permitting process” “Strategic vision & integrated Arctic

management”

Other ongoing issues … “Interagency Working Group on Coordination of Domestic

Energy Development and Permitting in Alaska” Formed mid-2011 in response to approval gridlock related to CD-5

resulting from multi-agency review

Coast Guard Arctic deployment Evolving plans and funding BSEE/Coast Guard MOU (Nov 2012)

Arctic Council “Agreement on Cooperation on Marine Oil Pollution Preparedness

and Response in the Arctic” (May 2013) Canadian and US Chairmanships over the next four years

Sleepers (and maybe asleep) Potential DOI (BOEM/BSEE) rulemaking regulating Alaska OCS

exploration (not mentioned in November 2013 RDC speech, but in an interview said “first quarter 2014”)

“Marine Spatial Planning” (NOAA)

Elsewhere in the Arctic …

Russia

Norway

Greenland

Canada

Iceland

Going forward … Waiting on “proof of concept”

Are there recoverable hydrocarbons

Can they be recovered economically

In Alaska, Shell now being looked at to deliver “proof of concept”

Is it gas or oil Gas less valuable than oil, already many LNG projects

Competition for investment dollars Major lease purchases occurred in 2008, just as “shale

gale” was starting to emerge

A number of producers are continuing to refocus attention on shale opportunities