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Conoco: Imagine a day without investment Future production on North Slope dependent on today’s investment, at risk because of tax change, Jim Bowles tells Alliance Kristen Nelson Petroleum News Editor-in-Chief
In response to Gov. Frank Murkowski’s change in the Prudhoe Bay tax regime, Jim Bowles, president of ConocoPhillips Alaska, asked the Alaska Support Industry Alliance “Meet Alaska” conference Jan. 27 to consider the importance of investment to Alaska.
A stable tax regime is crucial for investment, Bowles said, and investment is critical if oil is to continue flowing from Alaska’s North Slope. Bowles titled his presentation “A day without investment,” a title he borrowed from the movie “A day without a Mexican,” based on the premise that when Los Angeles woke up one morning, there wasn’t a single Hispanic in the city.
Bowles showed a map of the North Slope in 2008, with some 950,000 barrels per day of production — production dependent on investment. Those 950,000 bpd, he said, include 35,000 bpd from Alpine satellite development at Fiord and Nanuq, 100,000 bpd from Kuparuk, “tied to heavy oil production,” and 80,000 bpd from Prudhoe satellites.
Without investment, he said, North Slope production in 2008 could be down around 750,000 bpd.
And it isn’t just production, he said, satellite development over a 10-year period would deliver some $3 billion to the state in revenues and taxes, some $1.3 billion from Prudhoe Bay satellite fields alone.
But even though ConocoPhillips wants to see these developments take place, the governor’s Jan. 12 decision to change the way the economic limit factor, the ELF, is applied to Prudhoe Bay satellite fields threatens the investment needed, Bowles said. Projects are challenged “Even at today’s oil prices, many of these projects have lots of challenges in front of them,” he said.
The $500 million Alpine satellites project has been approved and is moving forward, but there are challenges, Bowles said: the first road-less drill site at Fiord and a complex reservoir, difficult to drill and with larger, and more diverse groups of stakeholders involved. The result will be some 35,000 bpd peaking in 2008, and some 550 associated jobs.
West Sak development at Kuparuk is also moving ahead, he said, but this investment, another $500 million, is also challenged: multi-lateral wells into this viscous formation cost as much as three times what a standard well costs. And once the wells are drilled, the formation produces sand along with the well, “on the order of 10,000 cubic feet per month that we’re presently having to haul over to Prudhoe to grind and inject…” Orion not economic One Prudhoe satellite project, Orion, has not been approved. The project has “small reserves, very viscous oil” and the economics can be difficult, Bowles said. The project has had a lot of owner attention and the plan was to move ahead this winter with a key well.
But, he said, “we’re now faced with a different tax regime” than on the Alpine satellite and West Sak projects.
“We’re faced with a decision: can we go ahead with this project? And our position is that this project does not stand the test to go ahead: it doesn’t compete with other projects that we have within the company. This is a hugely unfortunate outcome.”
Orion was a $600 million to $700 million project, he said, with some 45,000 bpd of peak production associated with Orion and Polaris combined.
The I-100 well, planned to prove up reserves at Orion this winter, is now at risk, he said. Discussions planned with the governor The only “positive takeaway,” Bowles s aid, is that “we are encouraged that the governor has said that if he’s made an error in some of his thinking on how this is going to apply or what the effects would be, he’s willing to talk to us and you can rest assured that we will be talking with him on projects like this.”
Beyond Polaris and Orion, Bowles said, “there are any number of other small developments that BP continues to study and look at within the Prudhoe field” that will have the same kinds of challenges as Orion.
Like Orion, those small developments will need “the right framework in place so that we’re motivated to make those investments,” Bowles said, “and we certainly plan to discuss further with the governor how we’d get back to this more stable fiscal framework that we’ve had at least over the last 15 years.”
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