Conoco pulls out of Beaufort; gives up 41 state, federal leases

ConocoPhillips has almost entirely pulled out of the U.S. Beaufort Sea, citing the economic difficulty of developing the remote, isolated and challenging region.

Since late last year, the company has surrendered 26 leases, or 107,000 gross acres in the waters stretching off the coast of the North Slope, and allowed another 15 to expire.

“We released them because we don’t believe there is hub potential in the area,” Natalie Lowman, spokeswoman for ConocoPhillips Alaska, told Petroleum News in an e-mail on March 24. “Exploration within the Beaufort Sea is cost-intensive since the targets are offshore and the area is substantially segregated from existing production infrastructure.”

The surrendered and expired leases cover two separate areas in the U.S. Beaufort Sea.

Most sit 15 miles off the coast of Stefansson Sound, the body of water just north of the Prudhoe Bay oil field. The other leases are farther west and much farther offshore, sitting some 40 miles north of Smith Bay, north of the National Petroleum Reserve-Alaska.

ConocoPhillips picked up the acreage in lease sales and acquisitions between 1998 and 2007. The surrendered leases had expiration dates ranging from 2012 to 2017.

The surrendered leases include the McCovey No. 1 exploration well drilled by EnCana in December 2002, and the 54-1 and 54-1-A wells drilled by Gulf Oil around 1984.

ConocoPhillips is retaining three federal leases in the waters of the Beaufort northeast of the Milne Point unit. The leases, which cover 15,000 gross acres, are the site of the Sandpiper prospect, estimated to hold between 20 million and 70 million barrels of oil.

The State of Alaska manages offshore leases within three miles of state land. The U.S. Minerals Management Service handles offshore leases in the Outer Continental Shelf.

The trend of buying and relinquishing large blocks of acreage isn’t new.

ConocoPhillips, along with partners Anadarko Petroleum and Pioneer Natural Resources, dropped 300,000 acres of federal leases in NPR-A in September 2007, and another 19 federal leases south of Barrow in February 2008.

David Brown, Alaska land manager for ConocoPhillips, justified those decisions last September, saying, “It’s all purely part of high-grading your portfolio: exploring, drilling a well, finding what’s in it, evaluating whether you should hold it or release the acreage.”

The move to surrender the Beaufort Sea acreage comes a year after ConocoPhillips spent $506 million on federal acreage in the Chukchi Sea. In September 2008, Michael Faust, offshore exploration manager for ConocoPhillips, told Petroleum News that the company prioritized the Chukchi acreage over its pre-existing portfolio of Beaufort Sea leases.

“Chukchi is definitely our offshore focus right now,” Faust said.

ConocoPhillips’ decision to relinquish its Beaufort Sea acreage follows Shell’s recent decision to drop 33 state leases in the Alaska Peninsula and 28 federal leases across the Beaufort Sea. Shell spent $2.1 billion on acreage in the Chukchi Sea last February.

—Eric Lidji