ConocoPhillips Co. is looking at a 2023 timeline to bring its new Willow discovery into production, although permitting delays remain a source of uncertainty for the project.
The international Houston-based independent recently established a team in Alaska “to figure out what’s the most optimum way to develop this new discovery,” Executive Vice President of Production, Drilling and Projects Al Hirshberg told industry analysts at a recent quarterly earnings call, according to a transcript provided by the company.
With the Willow prospect estimated to be capable of producing as many as 100,000 barrels of oil per day, and additional acreage nearby yet to be explored, “we need to think hard about how we move forward around infrastructure, et cetera,” Hirshberg added.
Earlier this year, ConocoPhillips announced the 300 million-barrel Willow discovery from a pair of exploration wells drilled in the Greater Mooses Tooth unit in early 2016.
The company previously said it was trying to determine whether to develop the field as a satellite of the Alpine field or as a standalone field. A satellite would be less expensive than a standalone field, but would produce lower volumes over a longer period of time.
Asked to estimate when the company might bring the Willow field into production, Hirshberg said that timing predictions were difficult for the North Slope because “dealing with the federal government has been pretty uncertain in the past on our other step-out projects, but I would say the earliest you could imagine bringing on a new round of things like Willow that we just discovered would be out in the 2023 kind of timeframe.”
The company also acquired considerably acreage in the vicinity of the discovery in a December 2016 lease sale and commissioned a 3-D seismic survey earlier this year.
Production stable
ConocoPhillips earned less from its Alaska segment in 2016 than the year before, mostly on lower oil prices. But a recent uptick in production and oil prices and a drop in spending helped the company post a large increase in profits during the fourth quarter.
The company reported $233 million in adjusted earnings in Alaska in 2016, down from $482 million in 2015. But the company earned $116 million in the fourth quarter, up from $65 million in the third quarter and $78 million in the fourth quarter of 2015.
Alaska continues to be a bright spot for the company.
ConocoPhillips reported a loss of $3.3 billion for the year, almost twice the loss of $1.7 billion for 2015. Alaska was the second most-profitable segment for the company after the Asia Pacific and Middle East segment, which earned $336 million in 2016.
Production provided a small boost.
ConocoPhillips produced 179,000 barrels of oil equivalent per day from its Alaska operations in 2016, up slightly from 178,000 boe per day in 2015.
The growth came from operations during the first three quarters of the year. The company produced 187,000 boe per day in the fourth quarter, down from 190,000 boe per day during the same period in 2015.
By comparison, ConocoPhillips produced 486,000 boe per day from its Lower 48 operations, 300,000 boe per day from its Canadian operations and 205,000 boe per day from its European and North Africa operations in 2016. The Alaska segment accounted for 11.4 percent of the 1.56 million boe per day the company produced across its portfolio.
The increased production came from oil.
ConocoPhillips produced 163,000 barrels of oil per day in Alaska in 2016, up from 158,000 bpd in 2015. Fourth quarter oil production of 170,000 bpd in 2016 was up from 169,000 bpd during the fourth quarter of 2015.
The increase reflects the result of recently commissioned developments at the Drill Site 2S project at the Kuparuk River unit and the CD-5 project at the Colville River unit.
The steady production in Alaska comes as ConocoPhillips is experiencing declining oil production in the Lower 48, where unconventional projects have struggled in the current price environment. Those two factors have combined to create an unexpected scenario.
While ConocoPhillips historically produced more oil from Alaska than the Lower 48, those trend lines changed as the company invested in unconventional oil prospects in the Lower 48. With the Lower 48 producing only 176,000 bpd in the fourth quarter of 2016, Alaska was closer to Lower 48 production than at any point since 2014.
ConocoPhillips reported declining natural gas liquids and natural gas production.
The company produced 12,000 bpd of natural gas liquids in Alaska in 2016, down from 13,000 bpd in 2015. The decline was entirely attributable to lower second quarter production. Fourth quarter natural gas liquids production was 15,000 bpd in 2016, up from 14,000 bpd during the same period in 2015.
ConocoPhillips produced 25 million cubic feet of natural gas per day in Alaska in 2016, down from 42 mmcf per day in 2015. Fourth quarter gas production was 16 mmcf per day in 2016, down from 41 mmcf per day in 2015.
The sharp decline was the result of ConocoPhillips selling its interest in the Beluga River unit. The company announced plans last year to sell off its Cook Inlet properties.
Prices, spending, taxes
Commodity prices hurt ConocoPhillips last year, although the situation is improving.
The company reported an average oil price of $41.93 per barrel from its Alaska operations in 2016, down from $51.61 per barrel in 2015. But the fourth quarter price of $48.15 per barrel was the highest since the $50.48 per barrel in the third quarter of 2015.
Alaska oil prices include natural gas liquids, which are blended into the stream.
Although natural gas prices are becoming increasingly irrelevant to ConocoPhillips as the company sheds its Cook Inlet properties, the company reported an average price of $5.22 per thousand cubic feet in Alaska in 2016, up from $4.33 per mcf in 2015.
A big boost in profits year over year came from reduced spending.
ConocoPhillips reported $883 million in capital expenditures in Alaska in 2016, down from $1.35 billion in 2015. The decline came as the company completed several major projects in 2015 and converted its activities to regular exploration and development.
The company saw an increase in depreciation, depletion and amortization expenses in 2016 - reporting a total of $867 million in 2016, up from $680 million in 2015.
Taxation was also lower.
ConocoPhillips reported an effective income tax rate of negative 22.5 percent from its Alaska segment in 2016, down from 105.9 percent in 2015. With other taxes, the company reported a rate of 38.5 percent in 2016, down from 98.6 percent in 2015.
Fourth quarter taxes were notable higher. The company reported an effective income tax rate of 35.7 percent, up from negative 64 percent in the third quarter. With other taxes, the rate was 55.2 percent in the fourth quarter, up from 36.4 percent in the third quarter.
