SUPPLEMENTAL REBUTTAL REPORT—FRANK MOLLI
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`Prepared by William Van Dyke, P.E.
`Petrotechnical Resources Alaska
`3601 C Street, Suite 822
`Anchorage Alaska
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`July 25, 2011
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`PUBLIC AS REDACTED DEFENDANT
`Fedars! Enespy Popalatory Commission 11-19-2011 EX. MUNJT- (]
`Decky dp, LS OT-34T— Dol ADMITTED O
`Hearing tv e B T= B2 AN-06-8446 C1 {07-09)
`Dete idvustiiea .. Lofelie (Case Number)
`Dte Adwmitied __Lwl]t.:i.__
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`Van Dyke Rebuttal (Molli)
`000048 MUNT-D023 Page 1 of 11
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`ANS
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`ADGCC
`bbi
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`BPXA
`CMR
`DOG
`DOR
`DOE
`Elf
`EOR
`EUR
`KRLU
`MPL
`Municipalities
`HNERA,
`0Cs
`PBL
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`PRA
`PUD
`RSB
`5ARE
`SEC
`SPE
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`TAPS
`us
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`Supplemental Molli Rebuttal Report
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`LIST OF ABBREVIATIONS
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`Alaska WNorth Slope
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`Arctic Mational Wildlife Refuge
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`Alazka il and Gas Conservation Commission
`Barrels
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`Barrels Par Day
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`British Petroleum Exploration Operating Company
`British Petraleum Exploration (Alaska)
`Department of Natural Resources
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`Divisicn of Qil and Gas
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`Department of Revenue
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`Department of Energy
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`Energy Infarmation Administration
`Enhanced Qil Recavery
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`Estimated Ultimate Ol Recovery
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`Kuparuk River Unit
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`Milne Point Lnit
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`City of Valdez, North Slope Borough, and Fairbanks North Star Borough
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`Mational Petroleum Reserve Alaska
`Cuter Continental Shelf
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`Frudhoe Bay Unit
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`Proven Developed
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`Petrotechnical Resources Alaska
`Froven Undeveloped
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`Revenue Sources Book
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`State Assessment Review Board
`Securities and Exchange Commission
`Society of Petroleum Engineers
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`Trans Alaska Fipeline System
`United States
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`Van Dyke Rabuttal (Molli)
`000049
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`MAUNT-00ES Page 2 of 11
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`Supplemental Maolli Rebuttal Report
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`1. Abstract
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`This report comments on the expert report prepared by Frank Malli dated February 18, 2011,
`on behalf of the Alaska Department of Revenue with respect to the proven oil reserves on the
`Morth Slepe of Alaska for the tax years 2007, 2008, and 2009 and more specifically the
`remaining life of the proven il reserves on the North Slope of Alaska for those years.
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`This report supplements a rebuttal report | prepared in May., New information was again
`received from Mr, Molli just a few days ago. | reserve the right, as appropriate to supplement
`this report based on a review of that new information just received.
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`2. Purpose of Report
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`| was retained by the City of Valdez, the North Slope Borough, and the Fairbanks Morth Star
`Borough {Municipalities) to prepare this report and an expert report on the proven oil reserves
`on the North Slope of Alaska for the tax yvears 2007, 2008 and 2009 and more specifically the
`remaining life of the proven oil reserves on the North Slope of Alaska for those years. | am
`gualified to make this report. | am a registéred professional engineer {petroleum) in the State
`of Alaska with over 30 years of oil and gas experience in Alaska, | have participated in the State
`Assessment Review Board (SARB) TAPS property tax appeal proceedings for 2007, 2008, 2009,
`2010 and 2011 an behalf of the Municipalities. 1 also testified at the TAPS 2006 Superior Court
`TAPS property tax trial. A copy of my résumé is included in my expert repart.
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`1 am employed by Petrotechnical Resources Alaska (PRA) as a petroleum engineer. PRA is an oil
`and gas consulting firm located at 3601 C Street, Suite B22, Anchorage, Alaska, 99503, The
`office phone number is 907-272-1232. The office fax number is 907-272-1344.
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`3. Introduction
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`Mr. Molli's expert report contains several errors and omissions. Overall, he underestimates
`Morth Slope reserves.
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`Listed below are my specific comments on Mr, Molli‘'s expert report.
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`1. Wir, Molli relies on a production forecast prepared during the Fall of 2010 and uses data
`through that date. Mr. Molli's 2011 report was prepared with data not known or knowable in
`2007, 2008 and 2009. This is because he or others invalved in the state's case prepared a
`forecast in the Fall of 2010 and then added back actual production to build production forecasts
`for 2009, 2008 and 2007,
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`2. Some of Mr. Molli's work papers or back up data that could be used to verify the calculations
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`or numbers that are cited in his report were not provided. In addition, Mr. Molli's report as
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`ooo0s50 MIUNT-0023 Page 3 of 11
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`initially provided was heavily redacted, and as such could not be analyzred, except with respect
`to a few conclusions and summary tables. Wr. Molli did eventually provide a full copy of his
`report but did not provide all the calculations and data needed to verify his work,
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`3. Mr. Molli concludes his production forecasts in 2060. He makes no conclusions as to the end
`of field life—be it rate limited, economic test limited or assumed TAPS low-flow issues.
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`4, Mr, Molli does not conclude that he calculated proven reserves or if his production forecast
`represents proven reserves using the definition of proven reserves found in AS 43.56.060. He
`makes no statement as to how his production forecast comports with the standards contained
`in the Court’s 2006 TAPS Decition issued in 2009,
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`5. Mo individual time-specific forecasts were made as of 1/1/07 or 171708 or 1/1/0% using data
`and information of the day, His forecast was prepared in the Fall of 2010. The table below
`shows the Greeley/Molli reserves as compared to the Platt reserves. The Platt reserves are the
`reserve estimates | prepared using the Platt report prepared for this case. Mr. Greeley uses
`bir. Molli's production forecast im his expert report for this case.,
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`Alaska North Slope Proven Reserves (billions of barrels)
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`Tax Year Molli-Greeley Platt Flatt Adopted by
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`(Through ?77)* {Through 2040) [Through 2075) Van Dyke
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`2007 54" 6.5 8.2 8.2
`2008 Lax 6.0 7.8 7.8
`2009 4.9* 5.6 74 74
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`*Mo end of field Iife date appears to be indicated in Mr, Greeley's or in Mr, Molli's expert
`reports, Additionally, no information was provided as to how reserves were calculated.
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`&. Figure 1 shows the Molli production forecasts for Fall 2009 and Fall 2010 as compared 1o the
`Platt forecasts for the same two years. There 15 no way to compare the Modli 2009 and 2010
`forecasts used by the DOR in this case against anything other than the Platt forecasts made
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`Van Dyke Rgbuttal (Molli)
`Q00051 MLINT-D0Z3 Page 4 of 11
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`Supplemental Molll Rebuttal Report
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`during the same time period. As can be seen oan Figure 1, the Malli forecasts are significantly
`lower than the Platt forecasts. The Platt forecasts were taken from the reports Mir. Platt
`prepared for the SARB in 2010 and 2011.
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`7. Figure 2 shows the Molli and Platt 2010 forecasts as well as end of field life information from
`the BF Prudhoe Bay Royalty Trust SEC 10K filings. The information from the Trust 10K filings
`indicates that Prudhoe Bay Field will continue to produce for as long as 2075 Mr, Malli's
`forecast only extends to 2060 and it is not clear what Mr. Molli considers as the end of field life
`for the Prudhoe Bay field.
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`8. Figure 3 is the Molli total ANS production forecast taken from page 101 of his expert report,
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`5. Figure 4 is a plot of the Maolli, Platt and BPXA production forecasts for the Greater Prudhoe
`Bay area. The BPXA forecast is taken from BPOTAVO03540-003546 and is the B+O categary.
`BAr, Molli's forecast falls well below the Platt and BPXA forecasts.
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`10. Figure 5 is a plot of the Molli, Platt and BPXA production forecasts for the Greater Kuparuk
`River area. The BPXA forecast is taken from BPOTANVOD3540-003546 and is the B+0 category.
`mr. Molli's forecast falls well below the Platt and BPXA forecasts,
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`11. FEEEIE
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`13. The Molli production forecasts appear to suffer from a lack of long term information.
`Mr. Molli does not consider the long term development, operations, drilling and facility plans
`proposed by the operators of the ANS fields.
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`Van Dyke Rabuttal (Molli)
`000052 MUNT-0023 Page 5 of 11
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`14. Mr. Molli does not perform any independent check of his production forecasts against
`aperator filed statements of expected oil recovery or operator generated production forecasts,
`either public or confidential in nature,
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`15. | could not verify Mr. Molli's under development and under evaluation categories or
`production forecasts for those categories. Either the data was not provided or not identified as
`such.
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`16. Mr. Maolli's use of a well-by-well praduction forecast for large complex fields like Prudhoe
`Bay and Kuparuk River results in very conservative "currently producing” production forecasts,
`These complex reservairs have numerous wells being drilled, fixed or re-warked on a daily
`basis, have multiple drive (recovery] mechanisms in play and have surface facility
`considerations such as gas handling and water handling constraints that are balanced on a daily
`basis that affect individual well performance. A well-by-well decline curve analysis as
`compared 1o a pool level decling curve analysis cannol easily capture all these intricacies and it
`appears that Mr. Molli did not capture all of them.
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`17. Mr. Molli in his waork papers shows that he calculated "0 factors used in hyperbolic
`production decline curve equations having values greater than 1.0, In his report he states that
`he used b factors no greater tham 1.0 to make his forecasts. He did not state or decument that
`he “force fit” the b factors to a value of 1.0 or less; or that the data showed that the b factors as
`calculated were and should be greater than 1.0,
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`Conclusion
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`In my professional apinion and based on the evidence | have reviewed, the remaining life of the
`proven ail reserves an the North Slope extends through 2075 for tax year 2007, through 2075
`for tax year 2008, and through 2075 for tax year 2009,
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`Van Dyke Rebuttal (Molli)
`000053 MILINT-00Z3 Paga & of 11
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`BOOZNEL 1TION #e=ss-
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`TT0Z L1V =——
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`OTOL NES NOW == == -
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`WMUNT-D023 Page T ol 11
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`Van Dyke Rebuttal (Mol
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`Figure 2
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`Barrels per Day
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`Platt Production Farecast and Extended DOR Production Forecast
`with BP Prudhoe Bay Royalty Trust 10K End of Field Life (EOFL) Shown
`— it 2011 - OCR 2010
`700,000
`| | BP2049EOFLasof | (w0 206080 L a0t |
`Sty | B3uRce || 1273172009 |
`600,000 ! J
`| BP 2062 EOFL as of
`\ | 12/31/2006
`500,000 :
`i BPF 2065 EQFL as of
`12/31/2005 =
`400,000 "-‘ |
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`| BP 2075 EOFL az of
`\ 12/31/2007
`300,000 ' |
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`200,000
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`100000 |
`[ “‘h‘h
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`010 015 020 2025 2030 2035 I040 2045 OSD 2055 2060 OGS 2070 2075 Iflfl
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`Van Dyke Rebuttal (Molli)
`ooo0ss MLENT-0022 Page 8 of 11
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`Flald: ALASKA TOTAL NS Figure 3
`U Cumenty Lindar Lindar Tolal
`Producing | Davelopment | Evaluafan Eapored Frrata s
`| Fiscal Year i [popd] il [bopd} il [bopd] | NGL= lbopd] | NGLS [bopd] [ba
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`011 e *
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`a012
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`2013
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`2014
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`2015
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`A8
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`20T
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`2018
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`2019
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`020
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`o REDACTED
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`2023
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`024
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`2025
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`2008
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`22T
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`028
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`202G
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`SO0
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`2031
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`22
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`T n { ety
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`o TAXPAYER
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`z = i i
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`2035 CONFIDENTIAL
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`3T
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`038
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`a5
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`2041
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`2044
`2045
`45
`04T
`S48
`049
`2050
`2081
`2052
`2053
`Pt
`b
`056
`2057
`058
`099
`S0
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`Van Dymlfleh uttal (Molli)
`000056 MUNT-D0Z3 Fage 9 of 11
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`Greater Prudhoe Bay Production Forecasts
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`gure 4
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`REDMCTED
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`Aeg sad sjpuieg
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`Van Dyke Rebuttal {Molfi)
`Q00057 MUMT-0023 Page 10 of 11
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`Greater Kuparuk River Production Forecasts
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`5
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`figure
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`REDACTEL
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`=]
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`A
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`200,000
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`150,000
`100,000
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`Van Dyke Rebuttal (Molli)
`000058
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`MLINT-0023 Pageé 11 af 11
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