ConocoPhillips dominates Alaska exploration

Company has drilled or participated in 43 exploration wells in six years, acquired more than a million acres of exploration acreage

Kristen Nelson

Petroleum News Editor-in-Chief

ConocoPhillips Alaska plans as many as four exploration wells on Alaska’s North Slope this winter. Three wells have spud — Carbon and Scout No. 1 in the National Petroleum Reserve-Alaska — and Placer on the western edge of the Kuparuk River unit. A third NPR-A well is planned, using one of the two rigs already drilling there, Rick Mott, ConocoPhillips Alaska’s vice president of exploration and land, told Petroleum News March 4, and a second well at Placer has been permitted as a contingency, depending on results from the first Placer well.

Mott said ConocoPhillips has drilled or participated in 43 exploration wells in Alaska in the last six years, “which is just a very significant proportion of the total number of wells.” The 43 include the wells being drilled this winter season.

In addition the company has shot some 3,400 square miles of 3-D seismic in those six years, including this winter’s work.

“And we’ve leased over 1 million acres of exploration acreage,” he said.

“There’s no one else in the industry that comes close in my opinion to that sort of commitment to Alaska.”

In NPR-A, Mott said, ConocoPhillips has interests in 1.1 million acres, 750,000 acres if you look at just ConocoPhillips’ share of the leases. Its other federal acreage is Minerals Management Service leases on the outer continental shelf, some 99,000 acres, Mott said, “almost all Beaufort Sea,” with just some 2,000 acres in Cook Inlet.

The company’s interest in state exploration acreage is approximately 446,000 acres, 88,000 acres of which is offshore.

Well count can be misleading

But, he said, that’s misleading, because the number of wells is not a measure of what the company is spending on exploration.

Mott said the company does not release its exploration budget for Alaska, but “this is a fairly typical year, with respect to budget years for Alaska. What changes from year to year, though, is what our working interest is in wells and where they’re located.”

For example, a few years back, he said, the company had a 20 percent interest in the Trailblazer well in NPR-A, with partners Chevron and BP. In this winter’s wells, however, ConocoPhillips has a 78 percent working interest.

Because of the higher working interest, Mott said, one of the company’s wells this year would be the equivalent of its cost to participate in four Trailblazer wells.

The company’s exploration investment in Alaska is not down, he said, “it’s our working interest that varies from year to year.”

Location is also an important cost factor.

Compared to a well within a field, a well “maybe five miles away” will cost twice as much.

“If you go more than 20 miles away, you’re probably talking about four times as expensive.”

At 50 miles away, he said, the cost can be 10 times that of a well within a field.

“And if you go offshore you’re talking about 20 times as expensive.”

People who want to play the well-count game, Mott said, “should look at where the wells are located.”

For instance at Puviaq, in northwestern NPR-A, the company moved equipment by rolligon from both Deadhorse and Barrow, driving “over 26,000 miles in rolligons at 10 miles an hour,” he said.

Mott said what really drives Alaska costs home to him is a comparison with costs at the company’s prospects worldwide.

Offshore West Africa, ConocoPhillips can drill a well “in 2,000 feet of water depth less expensively than we can drill a well, say, 50 miles out in the NPR-A. Significantly less expensively — like two-thirds the cost.”

Costs a concern

The company looks “at the opportunities in plays and basins” and does “screening-level evaluations of those basins and those plays.”

There are only a handful of sanctioned plays in the world.

“It’s not like Alaska is number 28 out of 50,” he said, there are “only a few in the world.”

“So Alaska’s very important to ConocoPhillips in its exploration program.”

“And in essence that gives us a hunting license, if you will, that we can go out and look for opportunities in those plays because we think they have economic potential to be interesting to us.”

But the expense of drilling in Alaska should be of concern to Alaskans, Mott said, because once prospects are identified, ConocoPhillips looks at reserve size, risk and “the value per barrel and the cost.”

We can’t impact the reserve size, we “have to take what the basin gives us.”

Technology and the skill of its people enable the company “to try and understand the risk … and reduce it to the irreducible point.”

Then there is the element of cost. ConocoPhillips’ engineering and drilling staff work on the most cost-effective way to go after a prospect.

But, Mott said, “the attractiveness of the basin will also be driven by the natural logistics problems of Alaska and … by the cost of our contractors.”

The bottom line, he said, is that “we all have a stake in cost” and ConocoPhillips needs the “help and assistance and cooperation” of its contractors in the cost area.

When the value per barrel is evaluated, engineering has a role to play, but “we do have a natural challenge” — an 800-mile pipeline and “then a several-thousand mile boat trip to get to market.” And both contractors and state government have a role there.

ConocoPhillips will “continue to try to be creative and we’ll work on our job part and try and find significant reserves and minimize the risk, and we’ll try and be smart in our engineering approaches to drive down cost, but we need the help of our contractors and certainly state government.”

Because, Mott said, “If costs go up … or value goes down, value per barrel goes down (and) it makes Alaska less attractive.”

“It sounds like a political statement,” he said, “but it’s not a political statement — it’s reality.”

Right now Alaska is still one of ConocoPhillips’ “favorite plays and favorite localities in the world. And we hope everyone will work with us to keep it that way.”

Mott, state differ on tundra access

Kristen Nelson

Petroleum News editor-in-chief

This winter, Mott said, the Bureau of Land Management let ConocoPhillips onto the tundra in the National Petroleum Reserve-Alaska Dec. 12, “but the state still held us back until Jan. 8, and we’re working with the state to try to get out onto NPR-A sooner.”

He said on average over the last 20 years the companies were able to get out onto the tundra “at least around December first, so we saw kind of a step change … about 1995” in when the tundra was opened.

The state has a study under way on the North Slope in collaboration with industry, the U.S. Department of Energy, Yale University and the University of British Columbia (see story in Feb. 22 issue of Petroleum News) to generate models to assist decision makers who determine when to open the tundra. Harry Bader said in a Feb. 11 update on the program that the goal “is to give industry consistently 130 days for a winter work season.” There were 200 days of tundra access in the 1970s and only 100 days recently. Bader is the northern district land manager for the Alaska Department of Natural Resources’ Division of Mining, Land and Water.

Why BLM’s date different

Bob Loeffler, director of the Division of Mining, Land and Water, told Petroleum News March 17 that the state has two types of openings: “project-specific openings for ice roads” and then the general tundra opening “which is more important for seismic.”

On the project side, ConocoPhillips had approval to pre-pack the snow for ice roads at the end of October, Loeffler said, although they didn’t pre-pack until early December, “and we gave them a mid-December approval to build the ice roads,” so they could get equipment into NPR-A.

“In addition,” he said, “for the first time we gave them a temporary water-use permit to actually pull water out of the Colville” for the ice bridge necessary to cross the river. “We haven’t been giving water use permits out of rivers,” Loeffler said, but both his department and the Department of Fish and Game “were very comfortable that that would work in this location, and so that way they could start building the … bridge over the Colville.”

State opens tundra by area

As for opening later than BLM on the western side, some of that may be due to varying weather patterns across the North Slope, “and part of it I expect … we will be addressing through the model” the state is developing.

As for changes over time, Loeffler said it’s possible the state may have gotten stricter over the years, although with changing weather through the years, “there’s no way to prove it.”

Loeffler said the western area could possibly have been opened a day earlier, “but in fact, we were not aware that anybody was awaiting us.” ConocoPhillips was doing seismic around the Prudhoe Bay area, which was already open, and “were then ready to transition to western Prudhoe Bay … but I don’t believe we held them up.

“I just don’t believe we held anybody up,” Loeffler said.