Explorers Preview: ConocoPhillips
resetting from COVID-19 pandemic
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COVID-19 curtailed big plans for 2020 on Alaska North Slope; focus on leases west of Colville River; has also explored to south
Eric Lidji for Petroleum News
If you look at a chart of ConocoPhillips’ exploration activity on the North Slope over the past two decades, it echoes the average ANS West Coast spot prices over the same time.
ConocoPhillips has been the most prolific explorer in Alaska in the 21st century and also the most consistent. It is the only explorer from the mid-1990s still actively exploring in the region. And yet, on three occasions over the past two decades, it has had multi-year down cycles: 2010 and 2011, 2015 and 2017, and the present: last year and this year.
The first followed the bust of late 2008, when prices fell from a high above $130 to a low below $40 between June and December. The second followed the bust of 2014 through 2016, when prices fell from a high above $110 to a low around $30. The third and current follows the bust of early 2020, when prices fell from a high above $65 to a low of $16.
So what does that mean for ConocoPhillips in the near term?
One takeaway: ConocoPhillips always bounces back.
Between 2011 and 2015, it undertook crucial early exploration at the Greater Mooses Tooth unit. Between 2017 and 2020, it made its Willow discovery at Greater Mooses Tooth, and explored the Putu and Stony Hill prospects south of the Colville River unit.
Another takeaway: the current situation is unusual and awkward, and therefore hard to use for prediction. Oil prices fell due to the global shutdown at the start of the pandemic, a one-in-a-century event. With economies opening, oil prices are now rising again.
That should signal a return to exploration. But the “relatively high” prices of January and February 2022 were the same as the “relatively low” average prices from late 2014, when ConocoPhillips was last slowing its exploration activities. The bounce in oil prices following the Russian invasion of Ukraine only complicated things further: does it represent a short-term response to geopolitics or a sustained change in the market?
Whenever exploration activities resume, ConocoPhillips will be in the envious position of having to choose among many favorable options for where to begin investing. The company has promising plays to the north, south and west of its existing developments.
‘Hitting reset’ In a presentation at Meet Alaska in late March 2021, ConocoPhillips Alaska President Erec Isaacson described 2021 as “hitting reset.” The company would focus on lowering costs and engaging stakeholders and would also resume regular development drilling, as well as progress on $1.1 billion in projects across the North Slope: Greater Mooses Tooth No. 2 construction, Alpine expansion, Willow permitting, Nuna development and ongoing work at the Eastern NEWS (North East West Sak) at the Kuparuk River unit.
But prior to the pandemic, ConocoPhillips had been expanding exploration activities.
In addition to its long-standing movement to the west, it was pursing emerging opportunities closer to its existing units at the western edge of the central North Slope, most notably in the Torok and Nanushuk formations around the Kuparuk River unit.
ConocoPhillips was planning a seven-well exploration program for 2020, but it had only completed three wells when the pandemic forced companies to curtail their activities.
Even when restrictions eased, the company suspended some drilling activity, pending the results of the Nov. 3 ballot initiative to increase oil production taxes in the state. After the ballot measure was defeated, ConocoPhillips resumed development work at the Kuparuk River, Colville River and Greater Mooses Tooth units but made no exploration plans.
Willow and Harpoon The undrilled wells from 2020 were associated with the Willow development.
With its initial developments at the Greater Mooses Tooth unit underway, ConocoPhillips began pursuing exploration targets to the west. The two-well Tinmiaq program in early 2016 led to a major discovery announcement in early 2017: the Willow prospect was estimated to contain as much as 300 million barrels of recoverable oil in the Nanushuk formation and could potentially produce as much as 100,000 barrels per day at its peak.
ConocoPhillips returned with a four-well program in 2018 (Tinmiaq No. 7, No. 8 and No. 9 and West Willow No. 1) and a five-well program in 2019 (Tinmiaq No. 10, No. 11, No. 13, No. 15 and No. 16, along with re-entry of Tinmiaq No. 2 and Tinmiaq No. 9).
The company announced a six-well program for 2020 but was only able to complete two wells (Tinmiaq No. 18 and No. 20) before coronavirus restrictions interceded. The company still holds permits for the un-drilled Tinmiaq No. 19 and Tinmiaq No. 24 wells.
Seismic activity had also identified an anomaly at the Harpoon prospect, southwest of Willow. Before launching an exploration program, ConocoPhillips Executive Vice President of Exploration and Production Matt Fox said, it “looks like there could be … quite substantial resources. Now it could be gas and it could be water. It’s almost certainly a reservoir, because we’re pretty sure that’s what the seismic signature’s telling us … but it doesn’t have to be huge for it to be a tieback to the Willow hub.”
In addition to the six Tinmiaq wells, the company planned four “rank exploration” wells at Harpoon - 10 well locations intended to support a seven-well drilling program.
ConocoPhillips completed the Harpoon No. 2 well before the pandemic shutdown in early 2020, leaving Harpoon No. 1, Harpoon No. 3 and Harpoon No. 4 undrilled.
ConocoPhillips later announced that Harpoon No. 2 had been a dry hole. In a subsequent earnings call, Fox said that the company intended to return to the area. He described a larger “Harpoon Complex” containing Harpoon, Lower Harpoon and West Harpoon.
Narwhal For years, ConocoPhillips focused the bulk of its onshore exploration energy on its leases west of the Colville River unit. But in recent years, it has also explored to the south.
Earlier this year, the company began sustained production from the Narwhal participating area in the southeast corner of the Colville River unit, adjacent to the Pikka unit. The company is currently utilizing the existing CD4 pad and plans to build a new CD8 pad.
The news was a major milestone for the stubborn prospect.
ConocoPhillips began pursuing the so-called Titania prospect in 2002, but the state terminated the leases in 2004 after the company failed to meet drilling commitments.
A few years later, a joint venture operated by Brooks Range Petroleum Corp. pursued the acreage as the Tofkat prospect. The company encountered hydrocarbons in early 2008 with the Tofkat No. 1 well and two sidetracks. It formed the Tofkat unit in October 2011. The state terminated the unit in March 2016, when BRPC missed work commitments.
ConocoPhillips acquired the acreage again and asked to incorporate the leases into the Colville River unit. The state approved the request with conditions, including drilling commitments. The company drilled the Putu No. 2 and Putu No. 2A wells in early 2018 and later announced a 100 million to 350 million barrel discovery at Narwhal.
With that announcement, ConocoPhillips shifted to development at Narwhal. The existing infrastructure in the area allowed the company to quickly bring it online.
Stony Hill As part of the original exploration campaign in the area in 2018, ConocoPhillips also explored the Stony Hill prospect in the NPR-A, south of the village of Nuiqsut.
The Stony Hill No. 1 well and Stony Hill No. 1A sidetrack on federal lease AA-00093131 encountered oil in two zones. But the company felt that the prospect required additional appraisal drilling and analysis - similar to its early evaluations of Putu.
The Putu wells were closer to infrastructure and came first, suggesting that Stony Hill could be a higher priority whenever ConocoPhillips resumes exploration activities.
ConocoPhillips described Stony Hill as a prospect similar to Willow and estimated that it contained at least 300 million barrels of recoverable oil in the Nanushuk formation. In November 2017, ConocoPhillips executive Matt Fox said the company had identified “a lot” of Willow lookalikes in the Nanushuk and “every one of them we’ve drilled so far has had oil in it, so we’re hopeful that several of these Willow lookalikes will deliver.”
Nuna ConocoPhillips also expanded its onshore exploration north of the Kuparuk River unit in 2019, when it acquired the Nuna prospect from Caelus Natural Resources Alaska LLC.
Pioneer Natural Resources drilled the Nuna No. 2 discovery well during the 2012-13 winter drilling season, estimating ultimate oil recovery between 75 million and 100 million barrels of oil from the Torok formation of the Brookian sequence. Caelus later estimated that Nuna could produce 25,000 barrels of oil per day over 20-30 years.
Caelus Natural Resources sanctioned a $1.4 billion development in 2015 and received a royalty modification from the state. But the company paused work a few years later over concerns about the economic climate and ultimately left the state in 2019. It sold the Oooguruk unit to minority partner Eni and sold the Nuna satellite to ConocoPhillips.
ConocoPhillips has yet to announce its plans for Nuna, but the prospect fits within the company’s stated goals. It can be pursued using existing infrastructure, and it sits within a formation where ConocoPhillips has been accumulating information for nearly a decade.
In mid-2021, ConocoPhillips announced the Coyote discovery east of Nuna. At the time, ConocoPhillips Alaska President Erec Isaacson said Coyote was in the Brookian topset above the Nuna Torok discovery, describing Coyote as shallow: i.e. a Nanushuk play.
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