ConocoPhillips Alaska Inc. is the past, present and future of North Slope exploration.
Its predecessor companies drilled some of the earliest exploration wells responsible for launching oil development in northern Alaska. Since 2000, the subsidiary of the Houston-based company has been the most active explorer in the state, having drilled 60 exploration wells including 25 in the National Petroleum Reserve-Alaska. And the company is widely used as a marker of industry health when policymakers debate ways to make the state fiscal regime induce investment while yielding state revenues.
This year has been one of the busiest for ConocoPhillips in perhaps a decade, which the company attributes to recent revisions to the fiscal system. Those projects include exploration, appraisal and development activities across its four North Slope units: the Kuparuk River, the Colville River, the Greater Mooses Tooth and the Bear Tooth units.
ConocoPhillips is also one of a handful of federal leaseholders in the Chukchi Sea, although the company recently postponed exploration plans in the wake of uncertainties.
And ConocoPhillips is a major player in Cook Inlet, operating the Beluga River unit, the North Cook Inlet unit and its associated Tyonek platform and the liquefied natural gas export terminal in Kenai. But its exploration efforts in Cook Inlet have flagged recently.
Expanding Kuparuk
The Kuparuk River unit started the westward expansion of Alaska oil development.
Sinclair Oil and Gas discovered the Kuparuk River oil pool in 1969 with the Ugnu No. 1 well, but it took another decade before tightening domestic oil supplies and rising international oil prices convinced ARCO Alaska to sanction development of the field.
Through mergers and acquisitions between 1999 and 2002, ConocoPhillips became the operator of the Kuparuk River unit. Today, ConocoPhillips owns a 55.3 percent interest in the unit, with BP Exploration (Alaska) Inc. owning 39.2 percent, Chevron U.S.A Inc. owning 4.9 percent and ExxonMobil Alaska Production Inc. owning 0.6 percent.
Kuparuk came online in late 1981 and production peaked at 339,386 barrels per day in December 1992, according to the Alaska Oil and Gas Conservation Commission.
Since then, Kuparuk activities have included infill drilling, satellite development and enhanced oil recovery. Those activities have yielded a 76 percent increase over the total amount of oil engineers expected to recover from the field. The original estimate at startup was some 1.5 billion barrels, but total production is already past 2.5 billion barrels.
While the main Kuparuk oil field is responsible for some 2.3 billion of the 2.5 billion barrels of oil produced from the Kuparuk River unit through July 2013, the past two decades have been focused on developing the satellites responsible for the remainder.
ARCO began production from the West Sak, Tarn and Tabasco satellites in 1997, from the Meltwater satellite in November 2001 and from the Palm satellite in November 2003.
ConocoPhillips’ activities at the Kuparuk River unit over the past decade have mostly been about applying improved technologies to those producing areas. Those include hydraulic fracturing, enhanced oil recovery, coil-tube drilling and 4-D seismic surveys.
2012 Shark Tooth
In early 2012, ConocoPhillips used Doyon rig 141 to drill the Shark Tooth No. 1 well from an ice pad four miles from Drill Site 2K, which is associated with the Tarn satellite.
The well appraised a discovery ARCO had previously made with the KRU 21-10-08 well in the late 1980s. It was “critical for any future development of this part of the Kuparuk reservoir,” as ConocoPhillips told regulators, because it would “provide additional reservoir information in this area and narrow uncertainty around reservoir description parameters including oil-water contact, sand quality and thickness, and oil viscosity.”
The well “discovered hydrocarbons in the Kuparuk sands, in accordance with expectations, and confirmed mapped volumes,” ConocoPhillips said in late 2012.
ConocoPhillips considered developing the prospect from its existing 2L, 2M or 2K drill sites in the southwest corner of the unit, but the company decided those plans would have taxed existing drilling technology and instead began permitting the new Drill Site 2S.
While ConocoPhillips started laying gravel in early 2014, it will not seek internal or partner approval until the fourth quarter. If the working interest owners sanction the project, facility construction would begin at the end of the year, followed by drilling in mid-2015 and startup sometime toward the end of next year, according to the company.
The Drill Site 2S development would cost some $595 million and employ some 240 people at the height of construction. ConocoPhillips has described plans for a 24-well pad at the drill site, to support estimated peak production of 8,000 barrels of oil per day.
Alongside those efforts, ConocoPhillips is also undertaking a renewed effort to apply enhance oil recovery techniques to the viscous oil deposits at the Kuparuk River unit with an expanded 1H pad in the Northeast West Sak of NEWS area of the unit. The goal is to spend $450 million to produce some 9,000 barrels of oil per day gross of peak production.
To support those and other infill drilling programs, ConocoPhillips recently commissioned the Nabors 7ES and Nabors 9ES rigs at a combined cost of $109 million.
Expanding Alpine
The Colville River unit continued the westward expansion of the North Slope.
ARCO Alaska discovered the Alpine oil pool in 1994 with the Bergschrund No. 1 well, announced commerciality in 1996 and brought the field online in November 2000. After mergers and acquisitions, ConocoPhillips now operates and owns a 78 percent working interest in the unit. Anadarko Petroleum Corp. owns the remaining 22 percent interest.
Similar to its strategy at Kuparuk, ConocoPhillips has been expanding development at the main Alpine oil field while also bringing a series of satellites into the production.
ConocoPhillips initially developed Alpine from the CD-1 and CD-2 pads, but in a 2003 the company proposed five Alpine satellites called Fiord, Nanuq, Lookout, Spark and Alpine West, and hinted at 10 potential satellites within 30 miles of the Alpine field.
ConocoPhillips brought the Fiord satellite (CD-3) and the Nanuq satellite (CD-4) online in 2006, and brought the Qannik satellite online from an expanded CD-2 pad in 2008.
Those three satellites brought the company to the edge of the Colville River, which created problems for future satellites. An attempt to cross a channel of the river to develop the Alpine West, or CD-5, satellite initially yielded some local opposition.
After negotiating a preferred route with nearby communities, ConocoPhillips ran into regulatory opposition. The U.S. Army Corps of Engineers finally approved a bridge across the channel in late 2011 and now ConocoPhillips is completing site work and fabrication in advance of installation in early next year and first oil in late 2015.
Into the NPR-A
The remaining satellites are now being treated as related NPR-A developments.
The potential developments all involve discoveries Phillips Alaska Inc. announced in May 2001. They were the first discoveries made in the NPR-A since the federal government re-opened the region to oil and gas exploration in 1999. The company had drilled six wells and a sidetrack over the previous two seasons. Spark No. 1 and Spark No. 1A, Moose’s Tooth C, Lookout No. 1, Rendezvous A and Rendezvous No. 2 all encountered hydrocarbons. The sixth well, targeting a different interval, was a dry hole.
“These discoveries mark an important milestone in the Alaska oil industry,” Phillips Alaska President Kevin Meyers said. “Though the results are preliminary, we’re confident the discoveries will prove to be of commercial quantities. We believe that the five successful wells have encountered three separate hydrocarbon accumulations.”
With the recent ruling allowing ConocoPhillips to cross the Colville River, the company has also begun preparing GMT-1, which would be the first development in the NPR-A.
ConocoPhillips had originally proposed the development as Lookout/CD-6, but changed the name and the scope after the U.S. Bureau of Land Management formed the Greater Mooses Tooth unit in 2008. The revised application calls for an 11.8-acre gravel pad with the capacity for 33 wells, although the company is planning an initial eight-well program.
The $890 million development is expected to come online by late 2017. It would produce some 30,000 bpd and employ at least 400 people plus support positions at its peak.
Western exploration
The GMT-1 project would be in the eastern edge of the Greater Mooses Tooth unit.
Earlier this year, ConocoPhillips drilled two exploration wells a little farther west into the Greater Mooses Tooth unit: Rendezvous No. 3 on lease AA-81784 and Flattop No. 1 on lease AA-87896. The company said it is still evaluating the results of those two wells.
The ConocoPhillips predecessor Phillips Alaska Inc. drilled the Rendezvous A well on lease AA-81803 in April 2000, drilled the Rendezvous No. 2 well on lease AA-81781 in April 2001 and returned to test Rendezvous No. 2 in early 2009. Both wells found oil.
An un-stimulated test of the Rendezvous A in 2001 flowed at a rate of 360 barrels per day of liquid hydrocarbons and 6.6 million cubic feet per day of gas. A test of Rendezvous No. 2 in early 2008 “ranged from about 500 barrels of oil per day to as high as 1,300 barrels of oil per day of high API gravity oil” and gas production rates “averaged about 1.5 million cubic feet per day for each well,” according to the company.
ConocoPhillips and its predecessor Phillips Alaska have staked several wells in the vicinity of the current Flattop No.1 well since 2001, but never drilled any until this year.
When BLM expanded Greater Mooses Tooth in 2009 to include four leases along the eastern edge - AA-87896, AA-81797, AA-81796 and AA-81795 - it required ConocoPhillips to spud an exploration well, into the upper Jurassic, on the additional acreage, by the third quarter of 2015, which suggests the target depth for Flattop No. 1.
A supplemental environmental impact statement meant to consider changes to the CD-6/GMT-1 application is also considering future developments, such as a GMT-2 pad.
Future activities
Those developments could also spur activity to the northwest.
After forming Greater Mooses Tooth in 2008, BLM formed the Bear Tooth unit in 2009, which allowed ConocoPhillips to retain some 105,655 acres on 23 leases.
The original unit agreement required ConocoPhillips to drill a well in a section called Unit Area A and test the previously drilled Scout No. 1 well by June 2012, but the federal agency later extended the deadline by a year because ConocoPhillips had “established that producible hydrocarbons have been encountered in the Scout No. 1 well sufficient to demonstrate that a prudent operator would maintain the lease for future development.”
ConocoPhillips included well locations in the Bear Tooth area in its environmental assessments of the region for 2006-11 and 2007-12, but never drilled. The company staked seven well and sidetrack locations in the Bear Tooth unit in late 2012 and drilled the Cassin No. 1 well in early 2013. The well, which the company had referred to as a “wildcat,” made “a new oil discovery,” but additional details have remained scarce.
In late 2013, Kuukpik SAE LLC - a joint venture between the seismic firm SAExploration Inc. and the Native corporation Kuukpik Corp. - launched a three-year 3-D seismic campaign across the Colville River, Mooses Tooth and Bear Tooth units, and other acreage in the so-called “billion-dollar fairway,” on behalf of “multiple clients.”
Chukchi plans uncertain
While the past three decades have been a slow and steady march west for ConocoPhillips, the company has also pursued opportunities much farther afield in that frontier direction.
The efforts included some remote wildcats near Barrow, but the wells failed to yield discoveries large enough to justify the infrastructure needed to bring them to market.
The westward push also includes efforts to explore the Chukchi Sea.
Shell is generally considered to be leading the way on Chukchi Sea exploration, but ConocoPhillips is definitely second. Given the delays and difficulties in bringing those plans to fruition, the companies are generally running neck-and-neck in their efforts.
Among the reasons ConocoPhillips is so interested in the Chukchi Sea - aside from the potential for a huge discovery - is infrastructure. If any company ends up building a pipeline through the NPR-A to connect a Chukchi Sea discovery to the trans-Alaska oil pipeline, it would improve the economics of many marginal fields through the reserve.
ConocoPhillips commissioned a 3-D seismic survey in the Chukchi in 2006, but, in an attempt to pacify local communities by reducing the amount of activity in the region, it cancelled plans to return to collect additional seismic information the following year.
In early 2008, ConocoPhillips spent some $504 million in high bids on 98 tracts in a federal lease sale in the Chukchi, second only to $2.1 billion in bids from Shell.
While Shell took most of the prized Burger prospect in a bidding war, ConocoPhillips nabbed the Klondike well and immediately prioritized the region over its leases in the Beaufort Sea. “Chukchi is definitely our offshore focus right now,” Michael Faust, offshore exploration manager for ConocoPhillips, told Petroleum News in September 2008. “We’re spending the bulk of our time offshore working in the Chukchi.”
The early efforts included a two-ship program to collect baseline environmental information about the region and a shallow hazards survey of the specific leases.
Partners in Chukchi
In early 2010, ConocoPhillips sold a 25 percent working interest in 50 Chukchi leases at Devil’s Paw to Statoil, the Norwegian company that also bid on Chukchi acreage during the 2008 sale. ConocoPhillips later farmed out a 10 percent working interest of its leases in the Chukchi to OOGC, the U.S. subsidiary of the Chinese National Offshore Oil Corp.
By January 2009, ConocoPhillips was aiming to drill at the Devil’s Paw prospect near the Klondike well as early as 2011, but just a few months later the U.S. Court of Appeals for the District of Columbia upheld an appeal against the federal lease sale program. By November 2009, ConocoPhillips was discussing plans for a 2012 exploration program.
President Barack Obama affirmed his support for offshore exploration in a policy announcement early 2010, but the administration subsequently imposed a moratorium on offshore activities following the Deepwater Horizon oil spill in the Gulf of Mexico.
The legal challenge against the original lease sale program continued throughout 2010, and by early 2011 ConocoPhillips had pushed its exploration to 2013, at the earliest.
In early 2012, ConocoPhillips submitted an exploration plan to federal agencies. The plan called for drilling at least one well, but possibly two, at the Devil’s Paw prospect in the summer of 2014, using a custom-built state-of-the-art jack-up rig from Noble Corp.
“They’re building six of them and we’re getting one of the rigs fresh out of the yard,” Faust said in early 2013. “We’re not going to bring up a 30-year-old piece of equipment. We’re bringing up state-of-the art new stuff that is meant to work in the Arctic.”
In April 2013, though, ConocoPhillips canceled the 2014 program. “While we are confident in our own expertise and ability to safely conduct offshore Arctic operations, we believe that more time is needed to ensure that all regulatory stakeholders are aligned,” ConocoPhillips Alaska President Trond-Erik Johansen said at the time.
At an earnings call around the same time, Executive Vice President of Exploration and Production Matt Fox said ConocoPhillips had been “on the cusp of having to make some very significant commitments” for equipment, but felt unconfident about making those commitments without more regulatory certainty. “We felt that the prudent thing to do was to take a pause there and let things evolve a little bit before decide to drill those wells.”
With Shell and Statoil also halting their Chukchi programs for the time being, and several lawsuits still playing out, it is unclear when ConocoPhillips might resume work.
Even with the delay, ConocoPhillips has been undertaking activities in the region. In September 2013, the company made the first approved commercial use of an unmanned aircraft, or drone, when it sent the ScanEagle on a 36-minute flight over the Chukchi.
Cook Inlet exports resume
ConocoPhillips is also a major player in Cook Inlet, but its exploration activities have waned in recent years. Instead, the company has focused resources on three development-related assets: the onshore Beluga River unit, the offshore North Cook Inlet unit and its associated Tyonek platform and the liquefied natural gas export terminal in Nikiski.
ConocoPhillips spent more than $80 million drilling four wells at the Beluga River unit between 2008 and 2010 and spent another $60 million in 2011 dispersing compressor stations to improve the pressure and increase the quality of the machines at the field. The current development plan, valid through June 2014, calls for no additional drilling.
In 2008 and 2009, ConocoPhillips spent $75 million drilling three wells at the North Cook Inlet unit, but the company later called those wells disappointing. ConocoPhillips recently told regulators it “plans to evaluate future drilling opportunities after 2015.”
While ConocoPhillips is not actively exploring in Cook Inlet, it is certainly encouraging exploration in the basin by maintaining its LNG export terminal. The plant went idle when its federal export license expired in March 2013, but in April 2014 the U.S. Department of Energy gave the company permission to export of up to 40 billion cubic feet of gas per year from the plant to non-free-trade-agreement countries, such as Japan.
ConocoPhillips has said it plans to send six cargo loads to Asian markets this year. Each would contain some 2.75 billion cubic feet, of which some 60 percent is expected to come from third parties, according to ConocoPhillips. Thus, the facility is creating market opportunities for smaller producers in the region who felt shut out of Southcentral when Hilcorp Alaska LLC and Enstar Natural Gas Co. signed a four-year supply deal.
