ConocoPhillips’ capital budget took a big hit from the drop in oil prices, but Alaska stayed relatively flat, ConocoPhillips Alaska President Joe Marushack told the Alaska Support Industry Alliance May 14.
Marushack, who was in Alaska as vice president of gas development from 2000 to 2007 for Phillips Petroleum Alaska and then for ConocoPhillips Alaska, left the state in 2007 when he was named president of ConocoPhillips Australia. He has since headed ConocoPhillips Canada and ConocoPhillips Asia Pacific and Middle East.
He returned to Alaska April 1 this year as president of the company’s operations here.
Overall ConocoPhillips’ spend dropped by a third from $17.1 billion in 2014 to a 2015 budget of $11.5 billion, Marushack said, from a planned 2015 budget of some $17 billion.
In Alaska, where the company’s capital spend rose from $800 million in 2012 to $1.1 billion in 2013 and $1.6 billion in 2014, two times the 2012 spend, the 2015 capital budget did drop, but only to $1.4 billion. The difference between 2014 and 2015 in Alaska, Marushack said, “is mostly just capturing deflation and lower fuel price,” because the company buys a lot of fuel and the price has dropped.
Alaska is continuing all of its programs in 2015, he said, and it’s the only region within ConocoPhillips where that is true.
He compared the Eagle Ford, where ConocoPhillips ran 36 rigs last year and is running 12 this year, to Alaska, where the company has seven rigs running, the most rig activity it’s had in decades. The six rigs at Kuparuk include two coil tubing rigs, two workover rigs and two drilling rigs. There is also a rig at Alpine, he said.
Not unprepared
Marushack compared the drop in oil prices to a slug in the face, but said ConocoPhillips was not entirely unprepared.
One of the planning scenarios the company developed was called tidal wave, “an assumption that with all the shale that was coming on” in the Lower 48 in the Eagle Ford, Bakken and Permian basins, “that maybe at some point in time there would be too much oil, which would result in a collapse in price.”
So ConocoPhillips was not completely surprised by the oil price drop, Marushack said, although the company “did not see $50 oil - we saw something like $60-$65 oil.”
Another factor the company didn’t see with total clarity is the “expectation that yes, prices will rise,” but under much more volatile economic conditions than the company had foreseen.
The volatility is caused by industry’s ability to turn shale off and on quickly, with a number of wells in the Lower 48 waiting to be hooked up, he said, and noted that another change in the situation is that “the Saudis appear to not be willing to be that swing producer anymore.”
Tough times
Marushack said ConocoPhillips expects “some tough times over the next couple of years.”
He said the company expects to see prices rise, but “not this year, maybe not next year.” And its thinking is that those prices will rise to the $70-$75-$80 per barrel level, but with more volatility, which will require a strong balance sheet, and “means we’re only going to be able to do the very best projects.”
Marushack said a stable tax regime in Alaska would be important for the company’s projects in the state, because prices cannot be controlled.
It will also be important for ConocoPhillips to communicate its project plans with the contractor community so contractors can plan, he said.
Kuparuk, Prudhoe
At Greater Kuparuk, where production was declining at a 7 percent rate in 2004, the production decline rate had slowed to 1 percent by 2012. Marushack said it won’t be possible to stem Alpine’s 12 percent decline, but overall, the company’s net production is expected to increase.
“I can tell you the projects that we’re doing right now within ConocoPhillips Alaska will result in an uptick in our net production,” he said, increasing it to more than 200,000 barrels per day within five years.
That won’t be possible for the whole North Slope, he said, because Prudhoe Bay is such a huge field, but it may be possible to slow Prudhoe’s 6-7 percent decline to a 2 percent decline. Reducing Prudhoe’s decline to 2 percent would “add about another 20 years of actual production,” allowing the trans-Alaska oil pipeline to run longer, giving other developments an opportunity to fill the line.
Marushack said ConocoPhillips has four major projects, three of which have gotten a final investment decision and are moving forward.
He said several modules for CD5, the new pad on the western edge of the Alpine field, were stuck on the Dalton Highway when it washed out. The governor’s declaration of a state of emergency on the Dalton allowed faster work on the highway and all the modules got to the Slope before the company lost the use of the winter’s ice roads.
The expectation now is that CD5 will begin operations in October, Marushack said, followed by the new Drill Site 2S development at Shark Tooth in Kuparuk, which will start up in the November-December timeframe.
A final investment decision was made for a new West Sak development, 1H NEWS, and that is expected to come online in 2017.
Greater Mooses Tooth
The fourth project is Greater Mooses Tooth 1 in the National Petroleum Reserve-Alaska.
Marushack said ConocoPhillips is close to reaching an agreement with the federal Bureau of Land Management on measurement issues associated with GMT1, and if that agreement is reached, “we will FID that project late this year.”
GMT2 will follow GMT1 by two or three years.
Although the four projects are spread out over time, Marushack said together they are a gross $3 billion investment, with 50,000 bpd of production at peak rates.
Alaska LNG
Marushack said ConocoPhillips is very serious about the Alaska LNG project, in which it has a 22 percent interest, which “would be the equivalent in gas of about 120,000 barrels of oil equivalent per day.”
He said the project is “very, very material to us.” ConocoPhillips produces some 1.5 million to 1.6 million bpd, and AKLNG “would add another 8 percent to that. So it’s a huge opportunity for us.”
