Providing coverage of Alaska and northern Canada's oil and gas industry
May 2019

Vol. 24, No.18 Week of May 05, 2019

A production increase

ConocoPhillips reports an uptick in its rate of Alaska oil production in Q1

Alan Bailey

Petroleum News

In its Securities and Exchange Commission filing for the first quarter of 2019, ConocoPhillips reported an increase in its Alaska oil production, a reflection presumably of the company’s active development program in the state. According to the SEC filing, the company produced an average of 210,000 barrels per day in the first quarter, compared with an average daily rate of 171,000 barrels for the whole of 2018. Production in the first quarter of 2018 was 174,000 bpd.

By comparison, the company’s production in the Lower 48 was 229,000 bpd in 2018 and 245,000 bpd in the first quarter of this year

The company’s adjusted earnings in Alaska in Q1 2019 were $384 million, compared with $445 million in Q1 2018 - quarterly earnings in 2018 ranged from $347 million to $445 million.

Curiously, full year earnings in Alaska for 2018 came in almost identical to those in the Lower 48, at around $1.6 billion. North Slope crude tends to obtain a price similar to Brent crude, which is normally higher that the West Texas Intermediate benchmark that typifies Lower 48 oil pricing.

Alaska exploration and appraisal

And ConocoPhillips is moving ahead with further oil exploration and appraisal on the North Slope. Company spokeswoman Natalie Lowman told Petroleum News that the company has drilled eight wells, including two re-entries of previously drilled wells, during this winter’s exploration season.

According to the company’s plan for the season, the expectation was to drill and test two exploration wells from existing drilling pads to the east of the Colville River, and to conduct appraisal drilling in the company’s Willow prospect in the National Petroleum Reserve-Alaska. One of the exploration wells was to test a prospect in the Narwhal trend, the trend that includes the major Nanushuk discovery that Oil Search and partners are developing. The Willow appraisal drilling was to include the drilling and testing of four new wells, including two horizontal wells, and the re-completion and testing of two existing wells.

ConocoPhillips has previously indicated that Willow could be brought into production in the mid-2020s, with production peaking at around 100,000 barrels per day.

During the winter the company also laid gravel for the drilling pad for the Greater Mooses Tooth 2 development in the NPR-A, Lowman said.

A continuing strategy

During an earnings call on April 30 for the company’s Q1 2019 results, Ryan Lance, ConocoPhillips chairman and CEO, commented that the company is continuing a strategy that it established in 2015, to maintain profitability at relatively low oil price levels while using cash earned during periods of high prices as a buffer against the impact of price downturns. The company has seen annual capital expenditure average just under $7 billion, to fund exploration and development projects such as those in Alaska. Matthew Fox, the company’s chief operating officer, said that the company anticipates continued capital expenditure at around the same level, to fund projects such as the Willow project in Alaska.

“We can certainly do all of that within the average of less than $7 billion, and we can do that comfortably,” Fox said.

Adequate cash flow

Lance said that his company’s plan anticipates free cash flow at a West Texas Intermediate oil price less than $40 per barrel. And, in generating strong cash flow, the company is following a strategy of attracting investors back to the energy industry. ConocoPhillips has a 16 billion barrel resource base with an average cost of supply below $30 per barrel, he said.

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