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Vol. 19, No. 20 Week of May 18, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Conoco positive on Alaska

Johansen: Repeal of SB 21 threatens projects; says company spending in state up

Kristen Nelson

Petroleum News

ConocoPhillips has a number of expansion projects in the works in Alaska, as well as facilities maintenance projects, based on a spending plan of some $1.7 billion for the state this year.

That was the message ConocoPhillips Alaska President Trond-Erik Johansen had for the Anchorage Chamber of Commerce May 12.

But he also had a warning - if the current tax regime, passed last year as Senate Bill 21, is rejected by voters in the primary in August, some of these projects will be hard to justify.

Johansen said Alaska became more competitive after the 2013 passage of SB 21, and while the state’s production hasn’t caught up with that of Lower 48 states, he said the decline in Alaska production is starting to taper off.

‘Easy oil’ gone

Repeating a mantra which ConocoPhillips has been using for some time, Johansen said the “easy oil is gone.”

There is still huge potential in North Slope fields, an estimated 12 billion barrels of remaining oil in place at Prudhoe Bay and 3.75 billion barrels remaining in Kuparuk, he said. Prudhoe also has 26 trillion cubic feet of natural gas and Kuparuk has 15 billion barrels of heavy oil.

Johansen noted that the greater Prudhoe area originally held 24 billion barrels of oil in place, of which 20 percent was believed recoverable.

Today recovery is close to 50 percent - how much more is recoverable depends, he said, on technology, the fiscal regime and the political environment.

Part of what the company is doing on the North Slope is renewal work, Johansen said, with $400 million in the 2014 capital budget for Kuparuk, which ConocoPhillips operates. That $400 million includes a 14-mile replacement of a 30-inch seawater line, pigging and other projects. There are similar efforts at Prudhoe Bay, operated by BP Exploration (Alaska), where ConocoPhillips, along with ExxonMobil, is a major working interest owner.

Winter work

ConocoPhillips is developing CD-5, the fifth pad at the Colville River unit, and what will be the first production from the National Petroleum Reserve-Alaska. Johansen said that $1 billion project was 40 percent complete. Activity this past winter resulted in completion of three smaller bridges and gravel in place, he said. The final bridge, the largest, will be completed in early 2015.

First oil from CD-5 is scheduled for late 2015, and is expected to peak at about 16,000 barrels per day in 2016. Employment on the project is some 600 North Slope jobs and major fabrication activities in Anchorage and Fairbanks.

ConocoPhillips also drilled two NPR-A exploration wells, Rendezvous 3 and Flat Top, to prove up new reserves, but Johansen the company was still evaluating drilling results and it was too early to comment.

Additional rigs

Johansen listed two additional drilling rigs at Kuparuk, Nabors 7ES and Nabors 9ES, as a result of the passage of SB 21, bringing the total rigs at Kuparuk to six rotary rigs and two coil tubing rigs.

Nabors 7ES began drilling in May 2013, he said, and by March 30 had resulted in 2,900 bpd of gross additional production. Nabors 9ES began drilling new development wells in January, and production numbers are not yet available, he said.

Developments under consideration

A new drill site at Kuparuk and development of Greater Mooses Tooth 1 in NPR-A have targeted final approval dates of October, for Kuparuk, and the end of the year for Mooses Tooth, Johansen said.

Kuparuk drill site 2S, at the southwestern edge of Kuparuk, is targeting an undeveloped section of the Kuparuk formation drilled by the Shark Tooth well. Gross development cost is some $600 million, with field work and pad construction ongoing, final approval targeted for October and first oil for late 2015. Production is expected to peak at some 8,000 bpd.

Johansen said the Shark Tooth development would be challenging if SB 21 is repealed in the August primary.

The Greater Mooses Tooth 1 development is expected to cost some $900 million with first oil in late 2017 and production peaking at some 30,000 bpd. Facilities for the development include an 8-mile gravel road with two bridges; an 11.8-acre well pad; and pipeline, valve pads, power and communication infrastructure.

Eight wells, three producers and five water/miscible gas injectors, are planned, with the potential for additional wells.

ConocoPhillips applied for development permits in July 2013 and project approval is targeted for the end of the year, based on permit approval.

Kuparuk News

ConocoPhillips is also working on a 9-acre expansion of Kuparuk drill site 1H, the Northeast West Sak or NEWS project. This includes additional surface facilities with some 19 new wells. Permits have been filed and a funding request is expected to be made late in the year.

Cost is pegged at some $450 million with first oil in 2017 and estimated peak production at 9,000 bpd.

Johansen said engineering has been approved for the project and for some long-lead items.

On the Alaska liquefied natural gas project, AKLNG, Johansen said the summer field season has begun. AKLNG is a partnership between BP, ConocoPhillips, ExxonMobil, the Alaska Gasline Development Corp. and TransCanada.

He said the partnership for AKLNG is a positive thing because the parties, including the state, are now going for the same goal instead of fighting each other. The high cost of the project, estimated at $45 billion to $65 billion, requires an acceptable fiscal deal with the state, he said.

Step change in spending

Johansen said ConocoPhillips’ spending in Alaska was in the $600 million to $800 million a year range from 2008 through 2012, with a step up in 2013 to some $1.1 billion. Spending has almost doubled this year from that earlier range, he said. The company has indicated a $1.7 billion capital spend planned for the state.

When its budget was announced in December, ConocoPhillips compared the $1.7 billion for Alaska projects in 2014 to $1.1 billion budgeted for 2013 and said that 2014 figure was more than double the $828 million the company actually spent in 2012.

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