“Pretty High Land”

I told you last week that I have come up to Alaska to participate in a geological field trip, looking at the rocks, minerals, and energy resources of the 49th state from the Kenai Peninsula in the south to Prudhoe Bay and the Arctic Ocean in the north. I have just completed the majority of the trip, and was able to fly down to relatively balmy Fairbanks from very chilly Deadhorse. So now, dear readers, I can take some time to reflect and write to you.

Thrilling and Humbling

On a personal level, I am both thrilled and humbled by my trek across Alaska. In many respects, I am awestruck. And I am privileged, if not blessed, to have been part of the endeavor. I was in the company of a group of astonishingly smart and gifted geologists, supplemented by a number of subscribers to Whiskey & Gunpowder who answered the call of a note that I put out in March. The Whiskey readers were outstanding participants and overall super troopers, as one would expect of such a hardy breed. And the geologists on the transect included 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. As you can imagine, the discussions of geology and, in particular, the oil and gas potential of Alaska were… well, they were pretty deep. (OK, sorry for the pun.) We “went there,” if you know what I mean. And once you go there, perhaps, I think that you can never really come all the way back. There is just so much to say, dear readers. Where to begin?

Mountains and Pipelines

Let me begin at the beginning and go back to Aug. 21, 1778, when the redoubtable British sea Capt. James Cook was sailing north through what would later be named the Chukchi Sea. Cook had, in fact, sailed farther north than even the most daring Russian navigators of that era or previous times. He went into a region inhabited by the relatively nomadic, but also relatively friendly and industrious Native Alaskan people who eked a living from the sparse fruits of a cold sea. 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 westernmost extremity of what is now called the Brooks Range.

And what a range of mountains is that Brooks Range! It is a rugged, jagged, foaming ocean of snowcapped 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 is larger in many respects than the Appalachians, yet in my experience, few have even heard of this massive geological feature. The Brooks Range, so named in the 1920s after a brilliant and bold geologist who pioneered the exploration of the mountain system, boasts peaks of 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.


Earlier in the 20th century, many geologists thought that the Brooks Range was an extension of the U.S. Rocky Mountains and their northerly companion, the Canadian Rockies. But now, in an era when plate tectonics is the operative geological paradigm, it appears that the Brooks Range is its own Arctic mountain system, sui generis, and filled with thrust-faulted masses of sedimentary rocks that are, in turn, closely related in time, space, and tectonic force to the opening of the Arctic Ocean Basin due to sea-floor spreading. And because of this interesting scientific tidbit, the Brooks Range and North Slope offers an entirely different sort of petroleum and natural gas system than one might initially expect when using “lower 48” forms of geological thinking. Hold that thought, dear readers.

I will discuss more geology in this and, of course, future articles. But I also want to get you thinking about the fact that the Trans-Alaska Pipeline System (TAPS) — in particular, the famous Alaska Pipeline — has 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 the size of several railroad locomotives connected together in a 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. Hold that thought, too.

TAPS crosses the Brooks Range at Atigun Pass, a narrow crack in one particular mountain composed of mostly solid quartzite conglomerate. Atigun Pass is about 170 miles south of Prudhoe Bay and sea level, offering one of the only clear shots to the south, albeit over a glacially carved valley and at an elevation more than 4,800 feet above sea level. Atigun Pass is, they say, utterly treacherous in wintertime, which is most of the time up here. 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. Hold that thought as well.

Putting Thoughts Together

OK, dear readers, I asked you to hold some thoughts and now it is time to put some of these thoughts together from the perspective of Outstanding Investments.

Hydrocarbon-Bearing Formations

One of the oil-bearing and -producing formations at Prudhoe Bay is called the “Lisburne limestone.” Does that name sound familiar? It should, because it is related in time and origins to the rocks that form Capt. Cook’s so-named Cape Lisburne, many hundreds of miles to the east. And there are many other hydrocarbon-bearing rock formations that the good Capt. Cook never saw or suspected, currently productive or otherwise prospective, north of the Brooks Range. These rock formations are deeply buried under the North Slope, and extend from under the Chukchi Sea, along the northern coastline of Alaska and offshore, following the line of the Arctic Ocean all the way over into northern Canada. Also of exploration interest, somewhere in northern Canada, according to some geologists, lies the “other half” of the Arctic Basin rift system, where there may be rock units similar to what we find beneath the North Slope. So there is immense hydrocarbon potential along the North Slope, and perhaps elsewhere in the northern region of North America.

Isolated, Vast, Cold

Yet 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 dog sled 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, which is significant.

Climate is, as one would expect so far north of the Arctic Circle, constantly extreme and from an environmental standpoint extremely fragile. As Capt. 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. And it is cold, too. It is very cold, my friends. When I stood at the edge of the Arctic Sea the other day, a sunny day in June, with my boots just touching the ice-clogged waters, the temperature was nominally in the low 30s Fahrenheit. But I think that somebody was lying. It had to be colder than that, or perhaps it was the 40-knot gusts of wind that cut through and penetrated a U.S. Navy-issue Gore-Tex Arctic outer liner, plus numerous other layers of protective clothing. There is something about the Arctic wind that just wants to kill you, and for a deeper understanding of that, I recommend any of a number of poems by the great Robert Service. But the point is: Wow, was it ever cold!

When you find something in that frozen north (and if you look hard, dear readers, you probably will), 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.

One of the World’s Great Oil Finds

I mentioned earlier that geologist Gil Mull, who was part of the original exploration team that found the Prudhoe Bay field in 1967, was on the trip to the north. Gil described the early days of exploring around Prudhoe Bay in the mid-1960s, when the oil workers would take off in a transport aircraft from Fairbanks and fly north to an utterly isolated drill site on the edge of the frozen Arctic Ocean. This was, of course, before the Haul Road, the Pipeline or anything else even remotely resembling the current state of development after 40 years. There was no global positioning system (GPS) in those days, and not even any of the radio navigation aids that were then around and available farther south but not working so far north. All they had to steer by was dead reckoning, aiming the nose of the airplane eventually at the glowing light on top of the drilling rig. Little rig, big Arctic. And once they saw the light, they would land the airplane, in the dark, on an ice runway carved out of frozen tundra. Any volunteers?

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, they 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.” At one point, the geologists conducted what is called a “drill stem test,” in which they allowed the fluids from the well simply to flow into the drill pipe. “We rapidly had a supercritical pressure buildup,” said Gil. “And then we closed off the drill stem mechanism and it took over 12 hours simply to blow down the pressure. We were flaring natural gas for 12 hours just to get the high pressure down.”

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 got developed only because it was so large. Anything much smaller might not have paid off, because there was no other infrastructure. 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? Because, dear readers, whatever happens is going to cost, and cost really big, and I mean that in many respects. This is spectacular territory, but it is spectacularly fragile and treacherous as well. 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 that? 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.

Things Are Going to Happen

I will close by saying that I believe strongly that many great and vast and difficult things are going to happen in northern Alaska, and I am going to watch it all like a hawk. But I know, and I am absolutely certain, that whatever happens will have to occur in a harsh and utterly unforgiving Arctic world that is very much different from the world in which our civilization developed its resources in the past. People are, in all likelihood, going to do what has to be done, and spend the funds to accomplish the tasks. But what challenges! And what expenses! And what risks! Fools dare not rush in, and we want to screen those fools out of our Outstanding Investments portfolio. That is why I am discussing so much in this update to you.

Looking at things more broadly, I do not think that, at any time over its entire history, mankind has ever done anything remotely similar in scope to what is going to occur up in the frozen north over the next few generations. As I stated near the beginning of this article, I am simply humbled at the measure of the task. I am awestruck.

Please keep reading this newsletter, dear readers. There is much more to say. But for now, I bid you all adieu.

Until we meet again…
Byron W. King

June 19, 2007

The Daily Reckoning