|
Conoco maintains Alaska spend despite low prices, workforce drop
While commenting that the current oil price environment is extremely difficult, Joe Marushack, president of ConocoPhillips Alaska, said that his company is maintaining its capital spending program in Alaska, although the company has reduced operating costs through a cut in its workforce. In a situation like this it is important to take appropriate acts of caution, while also figuring out what can be done and what needs to be preserved, he said.
Marushack used his Resource Development Council annual conference talk Nov. 18 as an opportunity to announce funding approval by ConocoPhillips and Anadarko for the Greater Mooses Tooth 1 development in the National Petroleum Reserve-Alaska, with field startup expected around 2018 and anticipated oil production of about 30,000 barrels per day (see brief in Nov. 22 issue).
“It’s a great, great project for us, another of these projects that are going to help us continue to build out NPR-A in the Alpine area,” Marushack said, referencing the Alpine oil field in the Colville River Delta.
ConocoPhillips is also seeking partner approval for two to three wells farther west in NPR-A, and about two months ago submitted initial permits for a Greater Mooses Tooth 2 development, he said. GMT-2 sits to the west of GMT-1.
Strong Alaska program ConocoPhillips’ budget worldwide has been cut by some $4 billion or $5 billion in response to the oil price situation but, although the Alaska budget has dropped a bit, that drop reflects deflation in costs rather than a reduction in business activity, Marushack said.
“Our capital program here is strong,” he said. “The reason it is strong is because the projects we do up here are really what ConocoPhillips does really, really well.”
Currently ConocoPhillips has six drilling rigs operating on the North Slope, with some new rigs expected to be mobilized. One new rig, the Doyon 142, is already on its way to the Slope, while a new coiled tubing rig will arrive in 2016, Marushack said.
“We brought on a Nabors rig in 2013. It’s the most rig activity we’ve had since 1985,” he said.
Recent developments include the startup of Drill Site 2S on the west side of the Kuparuk River unit, and the CD5 drill site in NPR-A, which has also recently come on line. The NEWS 1H, a viscous oil development in the Kuparuk River unit, will go into production in 2017, Marushack said.
In total these project amount to a capital spend around $3 billion and new oil production of about 30,000 barrels per day, he said.
Marushack also commented on his company’s safety record.
“This will be the safest year ConocoPhillips has had in Alaska and probably the safest year that ConocoPhillips has ever had on a recordable basis,” he said, thanking the company’s employees and contractors who had made this possible.
Planned for $60 Marushack said that some time ago ConocoPhillips had planned for the possibility of an oil price drop but had planned on $60 oil, not the price level of about $43, $44 that has been seen recently. In addition, the oil price has stayed low longer than expected, he said.
In response to what he characterized as a tidal wave of low oil prices and an economic downturn, ConocoPhillips in Alaska formed what it calls its Margin Improvement Team, a team consisting of all of the company’s employees and contractors.
“Everybody rolled up their shirt sleeves, came up with new ideas, better ways of doing this stuff, even though they knew it might reduce some individuals’ jobs,” Marushack said, commenting that the state might want to consider a similar approach in addressing its economic woes.
In the event, ConocoPhillips has reduced its Alaska workforce by 120 people, with about half of these people being volunteers who were ready to retire, he said.
Marushack said that, if current economic growth continues, some of the excess oil capacity should come off the market in 2017 and 2018, although 2016 looks like proving to be really difficult. Most things that need to be done in Alaska can be done at a $70 price level, he said. However, with the possibility of cranking Lower 48 shale oil production up and down, it is necessary to plan for oil price volatility, even although prices may go higher, he suggested.
The AKLNG project Marushack also commented on the need to take a long term view of the AKLNG project, the project targeting the construction of a gas treatment plant, gas pipeline and Cook Inlet liquefied natural gas facility for the export of North Slope gas. The linkage between LNG prices and oil prices is currently leading to an LNG price of $7 per thousand cubic feet, a price at which not too many LNG projects will work, he commented. So, a current focus of AKLNG, which is in the pre-front-end engineering and design phase, is to bring costs down, he said.
However, with a final investment decision not expected until about 2020 and the project not expected to go on line until 2025, there is time for the global LNG market to absorb excess LNG production from places such as Australia. And a future rebound in the oil price would help the Alaska project.
“It’s an important project for ConocoPhillips,” Marushack said. “This would be the equivalent of around 120,000 barrels a day of production on a BOE (barrels of oil equivalent) basis … there aren’t many projects of that size in our portfolio.”
But the huge $60 billion scale of the project brings new areas of risk. ConocoPhillips is currently considering a number of issues, including Gov. Bill Walker’s question about building a 48-inch line, rather than a 42-inch line; and alignment on commercial agreements, Marushack said, adding that it is necessary to move forward with confidence with a fiscal security package that makes sense.
And everyone in the AKLNG project needs to pull in the same direction.
“We need to stay the course with AKLNG. … I absolutely support the state having participation,” Marushack said, adding that it is critical that the state knows how the project works and how the market works.
Marushack commented that, while his company does not tell governments how to carry out tax policies, his company does comment on the impacts of those policies. There needs to be a rational discussion on the state’s fiscal challenges, with an understanding that, with oil prices where they are, the oil companies cannot provide a solution, he said.
“We need a stable investment climate,” Marushack said.
Marushack also commented on the need for more alignment with the federal government, with the need for regulatory rules that make sense and that would enable the various projects in NPR-A to move forward faster.
- ALAN BAILEY
|
