Vol. 24, No.42 Week of October 20, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

Ed King: Alaska oil production could top out at 700,000 bpd

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Kay Cashman

Petroleum News

In a recent interview with Petroleum News, Alaska economist Ed King said once the Pikka and Willow projects come online, coupled with the natural decline in older fields, the “net effect” could “top out at 700,000 barrels of oil per day and decline from there.”

His numbers are based on public production estimates for the Oil Search operated Pikka unit and the ConocoPhillips-operated Willow unit - 120,000 bpd for Pikka and 130,00 bpd for Willow.

Based on the big North Slope Nanushuk discoveries in these two units, King said “it wouldn’t surprise me if, barring unforeseen obstacles, we keep finding and developing more and more of these prospects,” given that the North Slope is proving to be “what some geologists have been saying for years - “an underexplored basin.”

If more Pikka and Willow-sized discoveries are developed, then production of 500,000-700,000 bpd could last for one, two or possibly more decades, he said in the Oct. 16 interview.

In slides King used in his Alliance presentation in Fairbanks Oct. 10, the shorter term oil production picture is less optimistic, increasing to more than 520,000 bpd for a few months in 2020 and then dropping to just under 500,000 bpd in June.

But he said in the interview that he sees only a “slight decrease in production in the next fiscal year,” July 1, 2020 through June 30,2021.”

The first Pikka production is scheduled to come online in mid-2022; Willow in 2025-26.

What to watch for

The occurrences in Fiscal Year 2020 (July 1, 2019-June 30, 2020) that will impact production levels and therefore state income and Alaska’s economy, are as follows, per King:

* The completion of BP/Hilcorp sale and its impact on jobs.

* Another active exploration season with more exciting announcements.

* Extended reach drilling beginning in the Colville River unit.

* CD5 second expansion to be drilled.

* GMT-2 (Greater Mooses Tooth 2) development should make for busy winter.

* Pikka final investment decision expected next summer.

* Willow ROD (record of decision) should be issued.

* ANWR lease sale should bring strong showing.

* Oil tax initiative will create confusion.

* Climate change dialogue around presidential campaign will damage investor sentiment.

What could go wrong?

Scott Jepsen, ConocoPhillips Alaska’s vice president of external affairs and transportation, weighed in recently on what could derail his company’s plans for the Willow development, a new drill site at GMT-2 in the National Petroleum Reserve-Alaska with a goal of first oil in 2021 (35,000 to 40,000 bpd), and plans to produce the Nuna prospect in 2022 (25,000 bpd per former operator) from the Kuparuk River unit.

The proposed oil tax initiative noted by King is a serious threat to future investment, Jepsen told the Alaska Support Industry Alliance Sept. 12, especially with competition from areas outside Alaska, such as the Permian basin.

Oil prices

The price of crude is also a factor in the continued health of Alaska’s oil and gas industry.

“Oil prices are not predictable,” King said. “Lately they’ve been trading in the $60-65 range … I would expect prices above $65 or so in the next year, but a global economic slowdown could change that … bring prices down.”

There are upsides such as supply disruptions that also impact prices, he said.

“Weighing in the downsides versus the upsides, I expect prices to average $60-65 in the next year,” King said.

Alaska jobs

The good news, from King’s slides, is that oil wages are growing again.

As for the job losses from Hilcorp buying BP and assuming operatorship of all BP’s North Slope operations, King sees jobs at headquarters in Anchorage going down but given the “expanding activities” on the North Slope, “I don’t know what will happen there.”

His slides show the usual seasonal fluctuation, or downturn, in June.

King is not sure the impact on the Anchorage housing market will be as bad as some are predicting.

Hilcorp’s acquisition is “not necessarily going to interrupt the rest of the economy a whole lot,” King said, as he sees many BP employees taking severance packages and staying in their homes.

- Kay Cashman

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