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What facilities owners can, can’t do for new entrants on North Slope ConocoPhillips Alaska's Rick Mott says company has worked with new players on the North Slope and wants to share risks and facilities, but only with responsible parties; those using facilities will have to pay their fair share Kristen Nelson PNA Editor-in-Chief
ConocoPhillips Alaska Inc. — and its predecessor companies — have worked with and encouraged independents to come to the North Slope in the past and are continuing to do so, Rick Mott, the company's vice president of exploration Alaska, told the Resource Development Council's annual conference Nov. 21.
New companies share fixed costs of exploration and production, he said. They “bring increased activity and therefore support a larger and more robust service industry.”
And they can bring new revenues to the state, new jobs, charitable contributions, “creating a favorable environment for the oil industry at large.”
But, he said, there are some hurdles a new company must meet.
“They must be a company that protects the environment, ensures the safety of Alaskans and respects the culture of Alaska Natives,” Mott said.
“They must be an explorer and a producer, not just a land speculator.
“And they must be financially sound with enough financial strength to actually execute an E&P program.”
Working with new companies “During the past year,” Mott said, “ConocoPhillips has had informal discussions with more than 20 companies concerning their entry into the E&P business in Alaska.”
Last summer, he said, ConocoPhillips sold 66 square miles of three-dimensional seismic to Armstrong Oil & Gas of Denver, Colo., at less than 25 percent of the original acquisition and processing cost, which “probably gave that project a two-year cycle time advantage in addition to receiving the data at a pretty low cost.”
Last winter, he said, ConocoPhillips shared ice roads with an independent working on a prospect in which ConocoPhillips had no interest, provided equipment and staging areas and grind and inject facilities. “In all, more than a dozen agreements were put together that helped make this independent's project possible.”
For the upcoming season, ConocoPhillips is negotiating with AVCG, Armstrong, Pioneer and Winstar on potential drilling projects.
At McCovey, EnCana took over as operator after farming into ConocoPhillips-Chevron leases. “EnCana and ConocoPhillips have shared best practices on drilling, environmental protection and emergency response,” he said.
Anadarko and Alpine Alpine is probably the most complete example of ConocoPhillips (then ARCO Alaska) working with a new entrant, Mott said. Back in 1994, before discovery of the 429 million barrel field, “what was then ARCO Alaska had dropped to a one-rig exploration program in the Alpine area.” The company wanted a partner to share the risk and cost, and Anadarko Petroleum Corp. of Houston joined the project.
“In March of 1994,” Mott said, “Anadarko farmed into and earned an interest in the Alpine area by participating in the drilling of the Bergschrund No. 1 well. At that time we were targeting a shallower horizon, however in collaborating with our independent co-venturers (Anadarko and Union Texas Petroleum), we decided to drill a little deeper, and the rest is history.”
The things ConocoPhillips can do, Mott said, include sharing environmental and safety best practices, environmental programs and geological and engineering understanding; making seismic and subsurface data available; sharing seismic crews and drilling rigs; offering non-aligned E&P assets and projects; offering low-priority leases or returning leases early; providing field services and equipment as available; and offering access to production facilities.
He said that some of these things are available for free but on others the company will expect to recover its costs or receive a fair market value.
Things ConocoPhillips can't do There are also, Mott said, some things that ConocoPhillips, “as a fiscally responsible operator,” cannot do.
“ConocoPhillips will not support unsafe or environmentally hazardous operations. … ConocoPhillips should not be required to interrupt its operations to address safety and environmental incidents of other brought about by any substandard or risky health, environmental and safety practices,” he said.
The company cannot provide “recently acquired proprietary data which we consider important to pending lease sales.”
And, he said, the company “probably cannot makes services available to the detriment of our own operations.” Think of a grocery store, Mott said. “If an item is on the shelf, the grocer will sell it to you, but the grocer does not make a guarantee that if he doesn't have it on the shelf that he'll get it and make it available to you.”
ConocoPhillips also “cannot operate facilities that are uneconomic just to support the production of other companies… And lastly, we cannot subsidize other company's production costs.”
Total facility costs Total facility costs, he said, is “probably the most contentious issue for new entrants.”
ConocoPhillips wants “companies utilizing our production facilities just to pay their fair share of total costs,” Mott said.
Total costs have three elements: the historic investment and the money invested since to maintain the facilities. “There's some desire on our part to get economic recognition of these investments when future new entrants want to use the Kuparuk production facilities.” Second is the ongoing operating cost.
Think of your own home, Mott suggested to the audience. You built it and paid for it and now your children are gone and their bedrooms are empty.
“A stranger wants to come to your home and move into your spare bedrooms. Will you rent him those spare bedrooms for free? Would you rent them to him for just the cost of the electricity he uses? I really doubt it. I don't think you'd be that magnanimous. I know I wouldn't and I doubt that my shareholders would be that magnanimous, either.”
On the issue of production backed out by new fields, Mott said that the Kuparuk processing facilities are water-constrained and gas-constrained.
There is room to process more oil, but no room for more water or more gas. “Although additional oil handling capacity may be available as excess capacity,” he said, “if your oil is accompanied by any water or even possibly gas — which it most likely will be — then the existing Kuparuk oil production would have to be cut back to accommodate the new oil volume.”
Existing field owners will want “some financial recognition of lost production,” he said.
And, he said, while facilities may be at some sort of capacity limit, “I want to point out that there's no case today that I'm aware of that any company has oil production waiting to be processed through the North Slope facilities.”
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