An Oil Legend's Biggest Hunt Ever: 10 Billion Barrels in Alaska

(Bloomberg) -- It’s hard to tell where the world ends here on the Alaska North Slope. 

In the subzero twilight, when the Arctic winds snarl, snow and cloud stretch to every horizon in a seamless vault of spectral white. Beyond the tundra, five miles out on the frozen sea, oil workers from a tiny outfit called Caelus Energy have welded the drilling rig shut against trespassing polar bears. 

“Spooky,” one of them says into the whiteness, and he’s right. The North Slope in February is beautifully, impossibly spooky. 

This is where Jim Musselman hopes to save Alaska, or at least make a fortune trying. 

In a shallow estuary called Smith Bay, Musselman’s flyspeck company will work to extract an astonishing 6 billion barrels of crude. The nearby tundra, Caelus says, could yield 4 billion more. 

If Musselman is right—if he can actually make this happen—it would be nothing short of a miracle. Everyone in the state knows firsthand that the fracking revolution in the Lower 48 has crushed Alaskan oil, that ‘70s-era answer to OPEC. Four decades after the Trans Alaska Pipeline System went live, transforming the North Slope into a modern-day Klondike, many Alaskans fear the best days have passed. Jobs have vanished. The budget in Juneau is a disaster. 

And all of this, every last painful bit, comes down to oil, the state’s lifeblood. Hard economics are slowly rendering the Tans-Alaska obsolete. The great pipeline, and the money, are running low.

Which is why everyone from the governor down hopes Musselman can somehow pull this off.

“With an oil pipeline that is three-quarters empty, this is good news,” Governor Bill Walker said when word came of the Smith Bay find.

Good news, yes. But also a monumental challenge, and a monumentally expensive one. The closest pipeline is 125 frozen miles away. Linking up would cost roughly $800 million, Musselman says. That’s the cheap part. Actual production could run $10 billion over a decade. Even Musselman, a Texas oilman with a record of big discoveries, might have trouble raising that kind of money.

David Houseknecht, a senior research geologist at the U.S. Geological Survey, says the Smith Bay discovery seems to have incredible potential. Then he adds: “But it’s the last one you’d want to bet your retirement money on.” 

Even in the winter white-out, work never stops on the North Slope. On this mid-February day, BP Plc workers are plowing snow, fixing pipes and laying ice roads as the temperature falls to 30 below. An archipelago of brightly lit pump stations, drilling rigs and work camps spreads for miles. 

Musselman, 69, dreams of turning Smith Bay into a rival to Prudhoe Bay, 150 miles to the east, where the Trans Alaska starts its 800-mile journey southward. Mega-major BP rules Prudhoe Bay. Caelus, by comparison, has 100 employees.

But no one searches for oil in Alaska unless he’s prepared to be lucky. “North to the Future”—that’s the state motto. When the oilmen came to this last great U.S. wilderness, they transformed it into a mini petro-state. Not even the 1989 Exxon Valdez spill, which blackened 1,300 miles of coastline, could cool the oil lust. Every Alaskan gets a cut just for living here. For decades now, the state oil wealth fund has paid each resident an annual dividend. 


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