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Conoco hopes to drill Chukchi in 2011 Company bid on federal leases last year, now facing technical and environmental challenges, wants gas pipeline and fiscal stability Eric Lidji Petroleum News
ConocoPhillips could start drilling exploration wells on its leases in the Chukchi Sea as early as two years from now, according to a senior executive with the company.
“We are gathering data. We hope to be able to drill in 2011,” John Carrig, president and chief operating officer of ConocoPhillips, said at the Meet Alaska conference on Jan. 23.
In a federal lease sale last February, ConocoPhillips acquired a major land position in the waters off the northwest coast of Alaska, spending around $500 million for 98 tracts. The company ran two vessels through the region last summer to conduct early fieldwork.
The Chukchi Sea is considered to be among the most promising undrilled acreage in the world, but any explorer in the region faces both technical and environmental challenges.
The Chukchi Sea is remote, icy and hundreds of miles from existing processing facilities.
Previous wells in the Chukchi suggest tremendous gas potential, but any gas reserves remain somewhat stranded without a gas pipeline running from Alaska to the Lower 48.
“We all know that there are obstacles to exploration that are emerging,” Carrig said. “And, depending upon what’s down there, it could all depend on the development of the (Alaska North Slope) gas pipeline, for it to be commercially viable.”
Through a joint venture with BP, ConocoPhillips is trying to build a gas pipeline from Prudhoe Bay into Alberta. TransCanada is pursuing a similar project with state backing.
A large natural gas pipeline would alleviate the pressure to find oil, making explorers “somewhat indifferent to the product that they located in a hydrocarbon basin,” Carrig noted. But even so, the added expense associated with the extremity of the Chukchi Sea guarantees that “the minimum economic field size… is quite large,” Carrig said.
Other mounting obstacles There are nontechnical challenges to drilling in the Chukchi Sea as well.
The region is a focal point of many environmental groups that worry about the impact drilling might have on polar bears in the region. Last year, the U.S. Department of the Interior listed the polar bear as a threatened species under the Endangered Species Act.
“Climate change is a risk for any oil and gas opportunities here in Alaska,” Carrig said.
Carrig repeated a concern about fiscal stability. Investment in the Chukchi wouldn’t yield returns for “at least 10 years,” he said. ConocoPhillips doesn’t want “things that were in your control,” presumably taxes, “to change the day after the project is up and running.”
Carrig also acknowledged a growing concern in Alaska: a weak Lower 48 gas market.
“Some consider the Lower 48 to be a market of limitless demand. Well that’s just not the case,” Carrig said, pointing to increased drilling for unconventional gas last year. “That, I would say, is an unexpected supply injection into the Lower 48 oil and gas picture.”
ConocoPhillips recently said it would reduce spending 20 percent and lay off around 4 percent of its global workforce in response to global economic conditions and low prices.
The company is drilling two wells in the National Petroleum Reserve-Alaska this winter.
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