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Conoco won’t explore this year in Alaska Company focusing on preparing for Chukchi drilling in 2012; development drilling at Kuparuk, Alpine down; focus on maintenance Kristen Nelson Petroleum News
ConocoPhillips Alaska is changing its exploration focus and looking to the Chukchi Sea, Helene Harding, the company’s vice president of North Slope operations and development, said Nov. 18.
Harding told the Resource Development Council’s 30th annual conference that the company plans no exploration drilling in Alaska in 2010, but will be preparing for Chukchi exploration in 2012.
“ConocoPhillips has been the most aggressive explorer in Alaska for the past decade,” Harding said, with millions of dollars devoted to exploration.
“And unfortunately we’ve had limited success. Because of this we have released, in the last three years, 1.4 million acres of onshore leases,” she said.
(That released acreage includes federal acreage in the National Petroleum Reserve-Alaska and state leases.)
Harding said the number of exploration wells drilled onshore by all companies on the North Slope is down over the last three years.
What ConocoPhillips is doing is “shifting our focus to offshore — to the Chukchi Sea,” where industry spent $2.6 billion in 2008 acquiring federal outer continental shelf acreage.
Harding said ConocoPhillips continues to be dedicated to getting Alaska North Slope gas to market, but “there are many uncertainties that are in front of us,” including the pressure shale gas discoveries in the Lower 48 is putting on gas prices; increasing project costs for the Alaska gas pipeline; and “lack of clarity in fiscal terms.”
“We are working towards the open season in 2010 and we will evaluate the terms and conditions of any open season that will provide a commercially viable project for the shippers and deliver gas” to the Lower 48.
The comparison to 2003 Harding compared where ConocoPhillips is today with an RDC presentation Kevin Meyers, then president of the company in Alaska and now ConocoPhillips’ senior vice president, exploration and production-Americas, made in 2003.
The projection in 2003 was that West Sak viscous oil production would be at more than 30,000 barrels per day by 2010.
But in September of this year West Sak production was just over 18,000 bpd, Harding said.
Meyers listed three keys to success: access to acreage; reasonable regulations and permitting; and an attractive fiscal environment.
Harding said that even with oil at $50 a barrel in 2003 the company was a lot more bullish about the future than it is now.
“We were focusing on improving our viscous production at West Sak. … We were aggressively drilling exploration wells; and at that point in time the ANS gas project seemed like it was about to become a reality.”
But today, in spite of higher oil prices over the last several years, West Sak production is only at 18,000 bpd; exploration drilling is down significantly; and natural gas prices are down and project costs for the ANS gas pipeline project are up.
What about the keys to success?
Issues over access to outer continental shelf leases for drilling point to access issues, she said.
ConocoPhillips’ difficulties in getting permits to develop its Alpine CD-5 satellite points to permitting issues.
And on the fiscal side, “in the last three years alone we’ve had three increases in our taxes and the last one, ACES, ended up … taking away our upside.
“And when you’re in a risk-and-reward business like we’re in, when you take away the upside it’s extremely hard to compete for dollars,” Harding said.
2010 plans As far as the company’s plans for 2010, Harding said safe operation is key as well as operating in an environmentally sound way.
“In addition, it’s very important for us to run level and operate our fields as efficiently as we can and continue to drive costs down and out of the system.”
The company is spending a lot of maintenance dollars to make sure its infrastructure is “sound for the next 30-plus years,” and that causes “less investment in wells and workovers.”
“In fact, we’re at the most reduced activity when it comes to drilling that we’ve been in many, many years,” she said.
No exploration drilling is planned next year.
“We’re going to be focused on doing environmental baseline studies for the Chukchi Sea with the hopes of being able to drill in 2012.”
Not just the big projects The big Alaska projects out in the future are heavy oil development, OCS and ANS gas.
But it will be 10 years until those projects can be realized, she said.
The core fields on the North Slope are crucial over the next 10 years and the Department of Revenue has estimated that $40 billion in investment would be necessary to deliver projected core-field production over the next 10 years, Harding said.
“So we have to stop waiting on these big major projects.
“We need to look at these core fields and what’s happening over the next 10 years. That’s the health of our business,” she said.
Kuparuk and Alpine Harding manages the Kuparuk River and Alpine fields for ConocoPhillips.
Kuparuk has produced more than 2 billion barrels of oil out of 6 billion barrels of oil in place, including satellites.
A 30 percent recovery rate was the original Kuparuk target, “and now it looks like we’re going to be closer to about 40 percent. And we’re continuing to work on technology and challenges to enhance that and make it even better,” she said.
But Kuparuk is nearing 30 years of age and with many years of remaining life “we’re putting investment dollars towards the maintenance of our pipelines, our wells and our infrastructure.”
The company launched its first next-generation coiled tubing drilling rig at Kuparuk in May.
“This rig is used for infield drilling and we are using 4-D or time-lapse seismic technology to help determine areas in the field where we have leftover production,” she said.
Harding said that for ConocoPhillips “to deliver the next 30 years at Kuparuk we really do need an attractive fiscal structure” because projects at Kuparuk are “going to have to compete across the United States and the world for investment dollars.”
Alpine, which has been online for 10 years, had more than 1 billion barrels of original oil in place and has produced more than 400 million barrels.
She said that “this coming season we’re going to be shooting a 3-D seismic survey so that we can continue to expand the extent of the original Alpine field and look at some of the peripheral locations for development.”
Three satellites have been developed at Alpine — Fiord, Nanuq and Qannik — and have helped mitigate the effects of a 50 percent decline in production from peak from the Alpine field itself.
But permitting began for the next satellite, CD-5, in 2005.
“And here we sit today in 2009 and we still don’t have our permits,” Harding said.
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