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Vol. 22, No. 43 Week of October 22, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

Five wells confirmed

Marushack says ConocoPhillips North Slope exploration drilling fully funded

Alan Bailey

Petroleum News

ConocoPhillips’ planned North Slope exploration drilling program for the coming winter is fully funded and will involve the use of three rigs to drill five wells, ConocoPhillips Alaska President Joe Marushack told the Alaska Support Industry Alliance on Oct. 12. However, conducting the drilling will require the completion of the necessary permitting. And one of the planned wells, the Putu well close to the village of Nuiqsut, will also need an agreement with the village, Marushack said during a speech to the Alliance’s annual meeting in Anchorage.

This will be the biggest exploration drilling program that ConocoPhillips has conducted on the North Slope since 2002, Marushack said.

Three of the wells, designed to further assess Willow, a major oil discovery in the northeastern part of the National Petroleum Reserve-Alaska, will require the use of one of the rigs. Information from these wells will help ConocoPhillips decide whether Willow would be a standalone development, or whether it should be tied back to the existing CD-5 production pad, Marushack said. Willow is an oil discovery involving the Nanushuk formation, a rock formation that in recent years has become the focus of major new oil development opportunities on the North Slope.

The fifth well is planned for an exploration prospect south of CD-5.

Assuming that the well logs look good, ConocoPhillips plans to conduct tests in all of the wells. That could result in up to seven individual well penetrations and five well tests, Marushack said.

ConocoPhillips is also planning a 240-square-mile seismic survey, south of the Alpine oil field, in the coming winter. This survey could open up 700,000 acres of new exploration potential, Marushack said.

Continuing development

Marushack also commented on ConocoPhillips’ North Slope oil field development program.

Last year the company brought on two new drilling rigs, the Doyon 142 and Nabors CDR3. And the company is commissioning a new extended reach rig that is planned to be in operation in 2021.

“That will be a game changer for our drilling program,” Marushack said.

Drill site 2S in the Kuparuk River unit started up in 2015 with a peak production rate around 8,000 barrels per day. And the CD-5 development in the Alpine field has significantly exceeded expectations.

“That’s been a big project for us,” Marushack said. “It was intended to produce about 16,000 barrels per day. It’s doing about 26,000.”

ConocoPhillips has been working on its Greater Mooses Tooth 1 development, in the National Petroleum Reserve-Alaska, to the west of CD-5. With first oil from this development anticipated in the first quarter of 2018, the company is heading into a busy winter season, Marushack said. This development, with a cost of about $1 billion and the drilling of 33 wells, is anticipated to produce about 30,000 barrels of oil per day.

Greater Mooses Tooth 2, the next of ConocoPhillips’ step-out developments in the NPR-A, should come on line in the third quarter of 2021, with a production level of about 30,000 barrels per day. The company also plans to start drilling in another major project, the 1H NEWS, or drill site 1H Northeast West Sak, project in the Kuparuk River unit later this year.

Low price challenge

Despite the positive nature of ConocoPhillips’ North Slope exploration and development program, Marushack cautioned about the challenges of the current low oil price situation. He said that he anticipates 2018 being a crossroads year, in which competition between the economics of the various regions where ConocoPhillips operates will play out.

Marushack recalled Christmas of 2015, when the oil price had dropped to around $28, a price level that did not work for the company in Alaska.

“We were in big trouble. ... It was a pretty scary time for us,” Marushack said.

Faced with the oil price crash, ConocoPhillips in Alaska figured out how to reduce its cost of oil supply by $15 or $16 per barrel. Marushack said that he had felt satisfied with the progress in cost management in Alaska but that a subsequent meeting with managers from other regions had proven sobering, given the progress that these other managers had also made.

“We’re competitive but we’re not at the front, not at the back. We’re kind of in the middle of the pack,” Marushack said.

Shale oil competition

Marushack particularly cited shale oil development in the Lower 48 as a major competitor with Alaska oil development. Shale oil enjoys the advantages of an extensive support infrastructure, a wealth of prospects, and landowners happy to encourage development on their land, he said. Shale oil productivity has increased sharply, and shale oil producers can ramp production up and down in response to oil prices.

Although development in the Eagle Ford, for example, requires more drilling than does development at Prudhoe Bay, the estimated resource in the Eagle Ford is about 15 billion barrels, around the same size as the Prudhoe Bay field. There may be 70 billion barrels of oil in place in the Permian basin.

Given the scale of the shale oil resource and accelerating improvements in shale oil productivity, the oil price will likely remain at around the $50 level for a long time, Marushack cautioned.

The challenges for Alaska

Marushack said that middle-of-the road cost projects such as the Greater Mooses Tooth projects represent a sweet spot for ConocoPhillips. But the cost of supply is critical in determining whether projects such as this can compete with developments elsewhere, he said.

Alaska has the advantages of an experienced and knowledgeable workforce, with project costs that can be estimated with considerable certainty. And, with the region being oil rich, developments tend not to produce excessive quantities of natural gas that need to be dealt with.

But the region suffers from being an expensive place in which to operate. And that is not just a question of the issues surrounding the state’s fiscal system - the total cost of supply, including transportation, operating costs, taxes and royalties, matters, Marushack emphasized.

However, Marushack said that the instability of Alaska’s fiscal system is the biggest single challenge that he faces when formulating long range plans for his company.

“About the least stable fiscal system in the ConocoPhillips portfolio right now is Alaska,” Marushack said. “We’re always under threat. We never know what it’s going to be from year to year. And that really creates problems when we’re trying to make long term commitments.”

Faced with continuing fiscal instability in Alaska, ConocoPhillips investment dollars targeted for the state may end up going instead to regions such as the Permian, the Eagle Ford and the Bakken. And while ConocoPhillips can work through that kind of change, Alaska would suffer, Marushack said.

But, while cost is critically important in oil industry economics, ConocoPhillips continues to give priority to safety and protecting the company’s environmental record.

“Safety is critical to our operations. We can’t have a big issue up here,” Marushack said.

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