Providing coverage of Alaska and northern Canada's oil and gas industry
May 2020

Vol. 25, No.19 Week of May 10, 2020

AK bright spots

ConocoPhillips can bring oil back online quickly; local employment stable

Kay Cashman

Petroleum News

The bright spots for Alaska in the current low oil price environment have largely come from the state’s biggest spender, ConocoPhillips, with its comparatively small North Slope budget cuts; Hilcorp with its continued North Slope and Kenai Peninsula drilling programs; and Oil Search with its relatively small North Slope employment reductions. This has all occurred in the face of a disconnect between the price of Alaska North Slope crude from the benchmark Brent price, when ANS oil dropped below Brent instead of tracking slightly above it.

Even the May 5 price rally did not correct the divide, with Brent at $30.97 a barrel and ANS at $18.55. But Don Wallette, ConocoPhillips executive VP & CFO, said April 30 that the relationship between ANS and Brent will return to normal “once demand picks up in California and the rest of the West Coast,” the primary market for North Slope oil.

Furthermore, a few days after the company said it was cutting its North Slope oil output by 100,000 barrels a day because it understandably didn’t like the price, ConocoPhillips Alaska spokeswoman Natalie Lowman told Petroleum News: “The actions we announced April 30 did not include layoffs or retirement packages. The employee numbers today - ~1,100 - have not changed since March,” she said May 5.

Getting oil back online

At the top of the list of recent positive news is the ease and short amount of time it will take ConocoPhillips to put its 100,000 barrels of crude back online when oil prices increase.

In the company’s first quarter earnings webcast ConocoPhillips Executive VP & COO Matt Fox explained: “We can bring the production back across the Lower 48, Canada, and Alaska within a few weeks. … But to get to full production in a matter of weeks, we are making sure that we’re not doing anything that’s going to take any risk either from a reservoir or wells or facilities perspective.”

That’s why, he said, in Alaska, “we’re not shutting in completely. We’re getting down to a rate that’s a minimum sort of operating level that we can consistently operate at for a period of time. … There’s no risk of reservoir damage … so we can come back in a couple of weeks.”

Good exploration results

Since mature North Slope fields such as Prudhoe Bay and Kuparuk are in a slow but steady decline, new oilfield developments like ConocoPhillips’ Willow project are important.

Although the company shortened this past winter’s exploration season because of concerns for worker safety connected to the coronavirus, results from its Tinmiaq appraisal wells near Willow and rank exploration well in the Harpoon prospect appear promising.

According to Fox the Tinmiaq results were what was “expected,” and the Willow project is on track.

“We’re working through Willow, and we’re in the concept selection stage just now. We have a timeline that would get us to the end of this year with the opportunity to select the concept. And by that, I mean, how big a facility do we build, how many drill centers do we have and so on,” Fox said, noting no decision has been made to defer Willow.

“And we expect permits here this summer supporting the development at Willow, both at the federal and state levels,” added Ryan Lance, ConocoPhillips chairman and CEO.

It appears, Fox said, in the Harpoon well they “clipped the edge of the topset based on its log response. … We won’t know that for sure until we get a chance to drill the second well,” a reminder that ConocoPhillips executive Michael Hatfield said in November that 3D seismic imaging indicates Harpoon has “high-potential Brookian topset targets with stacked plays.”

When asked about encountering hydrocarbon fluids in the Harpoon well, Fox said: “Yes, we did encounter hydrocarbons. … it looks from a lithological perspective similar to other lithological signatures we’re seeing on the edge of these topsets.”

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