Providing coverage of Alaska and northern Canada's oil and gas industry
January 2018

Vol. 23, No. 4 Week of January 28, 2018

Keeping Alaska oil industry competitive

Marushack outlines active exploration and development on the North Slope but says investment in state depends on fiscal stability

Alan Bailey

Petroleum News

Likening the annual debate about oil taxes at the start of each Alaska legislative session to Groundhog Day, Joe Marushack, president of ConocoPhillips Alaska, said that fiscal stability is essential for continuing capital investment in the state’s oil industry. And that capital expenditure is the key to growth in the state.

“We’ve got a lot of promise,” Marushack said. “We’ve got a line of sight to a lot of really good things.”

Fiscal stability

Marushack said that whenever he goes to Houston to argue the case for a new Alaska project, the first question asked is whether the taxes will remain the same. That is a difficult question to answer, he said. Increasing the taxes increases the cost of the project, moving the project down the list of competing ventures and potentially dropping into a situation where investment will not be forthcoming, he said. And Alaska must compete with shale oil development in prolific plays such as the Eagle Ford, which are closer to market than Alaska and have thousands of drilling opportunities.

Moreover, the current ramp up in North Slope activity demonstrates that the current fiscal system is working, Marushack said.

Marushack also commented on the critical importance of workplace safety as ConocoPhillips’ “license to operate” in the state. In addition to the maintenance of a stable fiscal framework, people must be safe and environmentally proactive, as well as continuing to maintain existing facilities, if further development is to move ahead, he said.

Five exploration wells

This winter ConocoPhillips is planning five exploration wells, the company’s biggest exploration program since 2002. The drilling of three wells in the company’s Willow prospect in the northeastern part of the National Petroleum Reserve-Alaska will enable the company to determine whether to do a standalone, $4 billion to $5 billion development in the prospect.

A well at Stony Hill, about six miles south of the village of Nuiqsut, will test that prospect. ConocoPhillips also plans to drill in the Putu prospect, about three miles east of Nuiqsut. The company is also conducting a major 3-D seismic program in 250 square miles of state leases that the company picked up south of the Alpine field.

Development projects

Marushack also reviewed development projects that ConocoPhillips is conducting on the North Slope.

The CD-5 project in northeastern NPR-A has significantly exceeded the company’s expectations. The original 15-well project had anticipated oil production rates of around 16,000 barrels per day. The development was expanded to 23 wells and has now achieved production in excess of 26,000 barrels per day. The company is now going to drill 10 more wells at a cost of around $30 million to further increase the production rate.

To the west of CD-5, a $1 billion development is in progress at Greater Mooses Tooth 1, with ice roads in place for this winter’s development season. This development is expected to result in 25,000 to 30,000 barrels per day of production, with first oil anticipated late this year. ConocoPhillips is also permitting the next project, working west into NPR-A, the GMT-2 development - this is another 25,000 to 30,000 barrels per day project, with a cost around $1.5 billion and first oil expected in 2021.

The Fiord West development in the Colville River unit will involve extreme extended reach drilling using a drilling rig that Doyon is building for the project. That will add around 20,000 barrels per day to North Slope oil production, with first oil expected in 2020, Marushack said. And a Willow development could maybe add another 100,000 barrels per day, perhaps starting in 2023, he said.

In addition to the three rigs being used for exploration drilling this winter, ConocoPhillips will have three rigs involved in field development work: one in the Alpine field and one in the Kuparuk River field, in addition to a coiled tubing rig.

A rosy picture

Looking more broadly across the North Slope and Beaufort Sea, Marushack outlined development plans by various companies including ConocoPhillips that could add 400,000 barrels per day of oil to the throughput in the trans-Alaska pipeline. And underpinning all of that is the continuing robust production of oil from the legacy fields of Prudhoe Bay, Kuparuk and Alpine.

But this whole rosy picture depends on the North Slope oil industry remaining competitive with other regions, in particular with the shale oil plays. With the help of its contractors, ConocoPhillips has been able to reduce its North Slope costs substantially, Marushack said.

In 2017 ConocoPhillips invested about $200 million in maintaining its existing Alaska operations and another $600 million in capital for exploration and development projects. Operating expenses totaled around $1 billion. That amounted to about $1.8 billion flowing into the Alaska economy, with that figure then boosted by multiplier effects within the economy.

But in 2018 total Alaska oil production is anticipated to constitute just 5 percent of the U.S. total, a level far below the 14 percent of production seen just 10 years ago.

“We’ve got to do better than that and we’ve got a lot of potential out there to do better. But we’ve got to have a stable, competitive fiscal policy,” Marushack said.

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