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AK gets big slice
Conoco spends $700M of $3.4B capex on Slope; active exploration season ahead Kay Cashman Petroleum News
Out of a company-wide capital budget of $3.4 billion, ConocoPhillips has already spent approximately $700 million of its year-to-date capital expenditures in Alaska, which excludes planned and completed acquisitions.
During a conference call on July 30 that followed the release of the company’s second quarter financial results, Conoco executives said the company was in the process of planning another aggressive exploration and appraisal season on the North Slope for the coming winter, with more focus on exploration versus the appraisal drilling that was largely the emphasis this past winter.
Sizing Willow facilities now “We’re going to be drilling in Willow and the primary focus is on understanding the extent of Willow, so that we can fully size the facilities. We’re also going to be drilling a prospect to the southwest called Harpoon. We’ll drill several wells in Harpoon,” said Michael D. Hatfield, Conoco’s president for Alaska, Canada and Europe.
“As far as the timing of Willow … from an exploration and appraisal perspective, we’re very encouraged by that. We’re actually sizing facilities now and expect to get to FID in 2021. We … see first oil from Willow probably in the 2025-2026 timeframe,” he later said.
FID stands for final investment decision and triggers project execution. It’s sometimes called the engineering, procurement and construction, or EPC, phase.
Willow and West Willow are in the National Petroleum Reserve-Alaska and at the western end of the current chain of Conoco’s planned developments. The company has said it expects Willow’s peak oil production to be about 100,000 barrels per day.
Alaska overview from Fox Matt J. Fox, executive vice president and chief operating officer of the company, provided a brief overview of Conoco’s year-to-date operations, as well as the outlook for the remainder of 2019 and into early 2020.
“In Alaska, we wrapped up our winter appraisal season in the Greater Willow area and Narwhal in the second quarter,” Fox said, referring to the Putu prospect, which is in what Conoco dubbed the Narwhal trend, an informal, not geologic term. (It is the same trend as the big Pikka and Horseshoe Nanushuk formation discoveries first found by Armstrong Energy and Repsol and now being appraised and developed by Oil Search.)
“During the first half of the year,” Fox said, “we drilled seven successful appraisal wells and conducted a series of horizontal production well injectivity and interference tests. (On June 3, Natalie Lowman, spokeswoman for Conoco in Alaska, told Petroleum News that only six of the wells had been tested due to “end of winter season timing constraints,” meaning they had to get off the ice, per government regulation.)
“The results have been encouraging for both Willow and the Narwhal trends.” Fox said. “Based on these positive results, we’re also taking the opportunity to drill an additional unbudgeted horizontal well from an existing Alpine drill site into the Narwhal trend later this year.”
Also in the second quarter, he said the company announced the “high-value bolt-on to our Alaska position. We acquired discovered resource acreage called Nuna, directly adjacent to our Kuparuk field, and we expect that transaction to close in the third quarter.”
Finally, “in June, planned maintenance was completed at Prudhoe Bay and turnarounds will continue in the third quarter of Prudhoe, the Western North Slope, and Kuparuk,” Fox said.
In the Q&A session, Fox added more information about the unbudgeted well, saying the company would be conducting a “long-term test” to help them “understand the long-term deliverability. … We also can drill an offset injection well to this producer from the same drill site. So, we’re going to take the opportunity to do that as well. And that will give us further information on the Narwhal trend. But it’s really driven by encouragement and what we saw in the initial well in the Narwhal, the Putu appraisal well we call that. We’re feeling good about that.”
Nuna cost, first oil 2022 Later in the conference call Hatfield added more details on Nuna, including a rough idea of what Conoco paid Caelus Natural Resources for the prospect.
“At Nuna, just to provide a little bit of color on that. It’s a discovered resource on 21,000 acres that’s in our backyard. It’s immediately adjacent to Kuparuk. … It’s $100 million for a 100 million barrels. It’s something we’re very pleased about. It will be developed from pads both that exist at Kuparuk and a pad at Nuna where there is … already a gravel … road to that pad in place,” Hatfield said.
“The remaining facilities at Nuna can be built in a single ice road season. So, we’ll have appraisal over the next couple years and target first oil in the 2022 timeframe,” he said. “The development will be using existing drilling and completion technology and then the development itself will be incorporated as part of our Kuparuk program, so it won’t be incremental to that.”
Willow, Putu, then West Willow “A question on Alaska. I’m kind of curious around the timing of developments or sort of pre-FID developments,” Robert Brackett, an analyst with AllianceBernstein Holding L.P. asked during the Q&A segment of the conference call. “Mentally we sort of thought about Willow being 2021 FID and then maybe Narwhal (Putu) and West Willow. Does that still make sense?”
Hatfield replied, “You’re right,” and then elaborated on the timing of Willow and Nuna, expecting to get to FID for Willow in 2021 and first oil in the 2025-26, with first oil from Nuna around 2022.
GMT-1 challenge, GMT-2 plans Other specifics offered by Conoco executives about Alaska included an update on the GMT, or Greater Mooses Tooth, projects in NPR-A. They are satellites of the Alpine oil field in the Conoco-operated Colville River unit.
In responding to a question about GMT-1, which went online in October, and GMT-2, which is under construction, Hatfield said, “We’ve had underperformance at GMT-1. The development was brought online last year and ramped up to the plateau rate. It’s a smaller development. There are only four producers that are in this development. So any one producer that underperforms ends up significantly impacting the overall development, and that’s been the case here,” he said, adding “I should mention that despite this underperformance, with the capital reductions that we had while we were executing the project, we actually delivered the project for what we had expected in terms of cost of supply.”
Hatfield does not anticipate remediating the situation at GMT-1 “at this point, but we are continuing with our GMT-2 plans where we’ve taken the learnings from GMT-1 and applied those to this different reservoir at GMT-2.”
Joe Marushack, president of ConocoPhillips Alaska, said in an October presentation that new technologies brought down the cost of GMT-1 to $725 million from an original estimate of $900 million to $1 billion.
GMT-1 involves an 11.8-acre drilling pad with a 7.6-mile gravel road to the CD-5 pad in the Colville unit. The GMT-1 pad can support up to 33 wells, although initially it will only have nine wells.
As previously reported, GMT-1 came online with two wells and a production average of 7,754 bpd. The field’s May production averaged 11,335 bpd from three wells, down 7.5%, 918 bpd, from an April average of 12,253 bpd. per Alaska Oil and Conservation Commission records.
Initially, output from GMT-1 was expected to peak at 25,000 to 30,000 barrels of oil per day from the upper Jurassic Alpine C sandstone.
Because GMT-2 would have more wells than GMT-1, Conoco had previously estimated its cost at more than $1 billion. However, the GMT-2’s anticipated peak production was anticipated to be 35,000 to 40,000 barrels per day.
More in November, Alaska earnings Intermittently in the conference call Hatfield and Fox said they would be revealing more, and firmer, drilling and development plans for Alaska in a November conference call.
“We’re firming up our plans for 2020, and we’re going to have another quite aggressive appraisal and exploration season in 2020. This year it was really focused just on appraisal and so there are some long lead items. … Once we get to November, we’ll give you some details on exactly what we’ve concluded from the appraisal program this year, but it’s encouraging, and that’s what’s led to trying to accelerate some of this learning,” Fox said.
Adjusted earnings in the first and second quarter were $1.6 billion each, Conoco said, with Alaska contributing approximately $725 million of that.
In second quarter 2018, Alaska contributed $418 million to the company’s bottom-line versus $381 million in this year’s second quarter.
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