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Vol. 24, No.37 Week of September 22, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

North Slope: Renaissance or not? Jepsen: Conoco update, perspective

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Kristen Nelson

Petroleum News

ConocoPhillips Alaska is moving ahead with a new drill site for Greater Mooses Tooth 2 in the National Petroleum Reserve-Alaska and with plans to produce Nuna from acreage just added to the Conoco-operated Kuparuk River unit. It has the largest mobile land rig in North America under construction by Doyon, scheduled to arrive in Alaska in the fourth quarter and begin drilling at Fiord West in the second quarter of 2020. The federal Bureau of Land Management has a draft environmental impact statement for the company’s Willow project in NPR-A out for public comment. And after drilling eight exploration wells this last winter, the company plans to drill up to seven in 2020 and shoot a 3D seismic program. (See story this issue.)

North Slope production is up compared to an earlier state estimate.

What could go wrong?

The proposed oil tax initiative is a serious threat to future investment, Scott Jepsen, ConocoPhillips Alaska’s vice president of external affairs and transportation, told the Alaska Support Industry Alliance Sept. 12.

That initiative is a headwind the company sees coming, he said.

The safety focus

Jepsen discussed workplace safety, ConocoPhillips’ focus on making the next step change in safety.

Ten years ago, he said, the company determined to reduce its total recordable incident rates - accidents and injuries at work.

The rate was 0.59 in 2009 and rose to 0.67 in 2010. The recordable incident rate reflects the number of injuries requiring treatment per million hours worked. In 2012, when the company began an “incident-free” program, the rate dropped to 0.22, climbed back above 0.3 and then dropped to 0.21 in 2016. It is rising again, and as of August the year to date rate is 0.29.

Jepsen said the company wants to get that incident rate back down, reflecting a safe workplace for all, and is asking for contractor help with a safety focus.

GMT2, Nuna

ConocoPhillips has a lot of North Slope work underway or in the planning stage.

It got Greater Mooses Tooth 1, the first pad at the first of its NPR-A units, into production in October 2018, and is working on the second drill site, Greater Mooses Tooth 2, with a goal of first oil in 2021.

Estimated peak gross production is 35,000 to 40,000 barrels per day, Jepsen said, from up to 48 wells.

Gravel is in place and being reworked for the pad and an 8-mile road, he said, along with preparation for pipeline installation, which will begin next year, as will completion of module and fabrication work.

In 2021 pipeline installation between GMT1 and GMT2 will be complete, modules and pipe racks will be installed.

Drilling will begin, with commissioning and startup of GMT2 in that year.

Estimated gross capex for the product is $1 billion-plus, with some 700 winter construction jobs, Jepsen said.

ConocoPhillips purchased Nuna, adjacent to the Kuparuk River unit, from Caelus earlier this year for $100 million and expanded the Kuparuk River unit to include the new acreage. Nuna oil will be processed through Kuparuk facilities and development will use existing drill sites.

There will be a single construction season with some 400 winter construction jobs, Jepsen said, with first oil planned for 2022.

Extended reach drilling rig

Doyon has been building an extended reach drilling rig for Conoco, Jepsen said, and the rig, which will be Doyon 26, is on its way.

It will be the largest mobile land rig in North America, has a 247 foot mast and weighs 9.5 million pounds. It will arrive on the North Slope in the fourth quarter from Nisku, Canada, in 267 truck loads.

The build was announced in 2016 and allows ConocoPhillips to develop the Fiord West accumulation in the Colville River unit, where the rig will begin drilling in the second quarter of 2020. Production is expected to peak at 20,000 bpd. Jepsen said Fiord West is a known accumulation but development has been problematic because it is along the coast in wetlands.

Fiord West will be developed from the CD2 pad, where some gravel has been added, Jepsen said.

The ERD rig will allow development from a 14 acre pad of 154 square miles of reservoir, compared to 55 square miles today.

Coiled tubing drilling record

Progressing drilling technology has allowed ConocoPhillips to set recent drilling records.

Jepsen said the company set a coiled tubing drilling record at West Sak, 8,183 feet. The well was also the first application of CTD in West Sak.

It has also set an onshore North America rotary drilling record - this one for combined footage on two laterals. The record was set in July at the CD5-98 well, which had total footage of 47,828 feet - combined footage for the well and laterals.

The longest single well, at 32,468 feet, is an Alaska record - also set at the CD5-98.

In May 2018, with another CD5 well, CD5-25, ConocoPhillips set the record for the longest lateral onshore North American well at 21,748 feet.

Jepsen said the 10 longest wells in Alaska have all been drilled by ConocoPhillips at CD5.

Willow draft EIS

The federal Bureau of Land Management has released the draft environmental impact statement for ConocoPhillips’ Willow project in NPR-A, with BLM aligning with the alternative proposed by ConocoPhillips as its preferred alternative.

Jepsen provided an overview of the project, which will require sealifts to bring the modules up and an ice road in the winter to move the modules from a module transfer island some 80 miles to the Willow development site.

The resource is estimated at 400 million to 750 million barrels with peak production greater than 100,000 bpd, first oil in 2025-26 and an estimated cost of $4-$6 billion.

Headwinds

In discussing what ConocoPhillips sees as headwinds, Jepsen said Alaska has tough competition in the Lower 48, where Permian drilling leads U.S. production growth, drilling efficiency is up steeply compared to 2010 and there are more than 7,000 drilled but uncompleted wells. And if oil prices drop, Lower 48 wells can be shut in.

ConocoPhillips’ outlook on Alaska has changed substantially since 2013, he said. In 2013, the company assumed declining production - but the current view, he said, shows continued production growth out through the next 10 years.

That changed outlook, Jepsen said, is based on the improved fiscal framework provided by passage of Senate Bill 21 in 2013, technological advancements and innovations, a comprehensive effort to capture value from legacy fields and infrastructure, renewed focus on exploration and a company-wide focus on lower the cost of supply, which has made Alaska competitive within the ConocoPhillips portfolio.

But the tax initiative threatens future investment, Jepsen said, as it targets Prudhoe Bay, Kuparuk and Colville River - major fields already in production which provide economies of scale and base infrastructure for new developments.

The initiative more than doubles the minimum 4% tax to 10%, and that scales up by 1% each $5 over $50 per barrel, capped at 15%.

Jepsen said the minimum tax really applies at lower oil prices.

He said it puts planned investment for both new developments and drilling in existing fields at risk: Nuna, further West Sak development and Putu would all be subject to a higher tax rate.

- KRISTEN NELSON



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