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E&P future challenging but not daunting New head of ConocoPhillips Alaska notes Alaska production down 36% from 2003-10, compared to drop of 1% in Texas; Alaska rigs flat Kristen Nelson Petroleum News
Alaska has a world-class resource base, but production is dropping and it will take cooperation between government and industry to put more oil in the trans-Alaska oil pipeline, ConocoPhillips Alaska President Trond-Erik Johansen told the Resource Development Council for Alaska’s annual conference Nov. 17 in Anchorage.
Reservoirs now producing on the North Slope are “what I would call the easy oil,” Johansen said.
What the companies want to produce now is “more difficult” and “more expensive to get out of the ground,” he said.
West Sak, the viscous oil field overlaying the Kuparuk River field and parts of Milne Point, is “quite challenging” to produce.”
“It takes more money; it takes more technology; it takes a lot of effort to get it out of the ground,” Johansen said.
Shallower still is Ugnu, a heavy oil accumulation overlaying West Sak.
Heavy oil is produced in Canada and elsewhere, he said.
“But you ought to know it costs a lot of money; it takes a lot of technology; it takes a lot of patience — very, very high breakeven costs to get this oil into the plant and out to the market.”
In both cases, however, there is a lot of oil, billions of barrels.
But with declining conventional oil production from the North Slope and the gas pipeline still in the future, “We need to do something in the meantime and it’s called filling up the oil pipeline, because the oil is there … you just need to get it to the pipeline.”
It will take cooperation between industry and state and federal government, Johansen said, “and it is challenging, but it is not daunting. I think everyone wants to do something about getting some of these resources into the pipeline,” he said.
Production decline The challenges in Alaska have increased, he said, and include Alaska taxes, low-flow issues for the trans-Alaska oil pipeline, NPR-A permitting issues, uncertainty in the outer continental shelf and the North Slope gas market, he said.
Why is production dropping in Alaska and rising in the Lower 48.
“Is it because there is no oil in Alaska? No; lot’s of oil in Alaska.
“It is because there was a lot of cheap oil in the Lower 48? No,” Johansen said.
In the Lower 48, oil production grew 3 percent from 2003 to 2010; Alaska production declined 36 percent over the same period, he said.
Lower 48 oil production increased when oil prices rose, powered by an increase in oil rigs operating in the Lower 48. In Alaska, however, the rig count dropped from 2003 to 2005 and has been flat ever since.
And for those who say that Alaska is a mature region and that production decline is to be expected, he noted that Alaska has only had serious production for a few decades, compared to Texas which has had commercial production for almost a hundred years.
Yet during 2003-10, Texas production declined only 1 percent compared to the 36 percent decline in Alaska.
Investment issue Alaska needs the right environment in place for more production, “like you see today happening in the Lower 48,” he said.
Johansen said he is “pretty optimistic” that there will be a turnaround in Alaska “because of technology and because of smart decisions between the industry and the state and the federal government to put the framework in place to make sure we can go after it.”
But that isn’t happening now.
ConocoPhillips drilled at least one exploration well in Alaska every year starting in 1965, Johansen said.
“This year is the first year we didn’t drill an exploration well; and we’re not going to drill one next year, either,” he said.
The company is, however, looking for resources outside of state acreage and is ready to drill in the Chukchi Sea.
A lot of groundbreaking technology work has been done in Alaska, and technology will help with future developments.
But while the company is proud of what it’s done in existing state fields, ConocoPhillips — and other companies in Alaska — need “goodwill from the investors that own the company to go after these challenged barrels.”
The problem is that today, “all the upside (from new investments) would go to the government and the state and not to the companies that are actually taking the risks.”
There are great opportunities, Johansen said, but they require cooperation.
Johansen, previously president of ConocoPhillips’ Southeast Asia Exploration and Production organization, was named to head ConocoPhillips’ Alaska operations effective April 1, replacing long-time ConocoPhillips Alaska President Jim Bowles, who died while snowmachining on the Kenai Peninsula Feb. 13.
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