|
3 factors boosting oil
Conoco’s Marushack lists tax regime, technology, cost control in Slope production
Alan Bailey Petroleum News
A competitive oil tax system, the use of new technologies and the effective management of production costs are all helping fuel a resurgence in oil exploration, development and production in Alaska, Joe Marushack, president of ConocoPhillips Alaska, told the Anchorage Chamber of Commerce on Oct. 15. Recent years have seen an upsurge in new oil discoveries in the state, new oil developments moving forward, and intense efforts to slow production declines from established oil fields.
Greater Mooses Tooth 1, ConocoPhillips’ new drill site in the northeastern National Petroleum Reserve-Alaska, has just gone into operation; development of the environmental impact statement for another NPR-A drill site, Greater Mooses Tooth 2, is underway; and ConocoPhillips is planning the development of Willow, a major new oil field, also in northeastern NPR-A. Elsewhere on the North Slope, Oil Search is planning the development of Pikka, another major new oil field; Brooks Range Petroleum is moving ahead with the development of the Mustang field; and Hilcorp Alaska is progressing plans to develop the Liberty field in the Beaufort Sea.
Other possibilities include Caelus Energy Alaska’s proposed Nuna development and potential new oil resulting from Eni’s exploratory drilling at Nikaitchuq. At the same time, the legacy fields, Alpine, Kuparuk and Prudhoe Bay, “the life blood of the region” that underpin new developments, continue to do well, Marushack said.
Marushack emphasized that ConocoPhillips supports all of the new developments, regardless of which company is involved.
“All oil is good oil for ConocoPhillips and for the state,” Marushack said, “so everything that we can do to bring other folks’ developments on, we’re all for that.”
Impact of SB 21 Marushack particularly cited changes to the Alaska oil production tax system under Senate Bill 21, passed in 2013, as the prime factor behind the renaissance in the Alaska oil industry. Prior to the passage of that legislation, ConocoPhillips’ long-range forecast for its North Slope oil production looked dire: a continuing, extended downward trend. Caught in an uncompetitive tax structure, the company was in maintenance mode, taking care of existing facilities and riding out the field decline curve, with little exploration or development, Marushack said.
“We had an uncompetitive tax structure. We had very, very high costs. We had very limited investment goals versus what we saw in the Lower 48, where the opportunities were much more robust,” he said.
But SB 21 changed that, he said. And with the company having cut its costs to supply oil from its Alaska fields, the company now thinks that its Alaska operations can be very competitive with the rest of the company’s portfolio of operations in the Lower 48, Europe, the Middle East and Southeast Asia.
From decline to growth The consequence is that the company’s long-term production forecast for its Alaska operations has reversed from a decline to growth, with production five years from now projected to be about double what the company had envisaged in 2013.
“We really believe that with our focus on low cost of supply, Alaska’s got a great future for us here,” Marushack said.
Marushack also commented that, beginning in 2015, ConocoPhillips had started working on how to acquire partners’ ownership interests in leases, to enable the company to control its own destiny on the North Slope. That resulted in the purchase of all of Anadarko’s interests in leases co-owned with ConocoPhillips in the western North Slope, and the acquisition of BP’s interests in the Kuparuk River unit.
In answer to a question about production costs in Alaska, Marushack commented that his company’s objective is to achieve a cost of supply at around $40, a figure that enables Alaska to compete with the Lower 48.
Asked about ConocoPhillips employment levels in Alaska, Marushack commented that 2015, following the 2014 oil price crash, had been a particularly difficult year in which the company had lowered its workforce by about 20 percent, with the contractor workforce being cut by more than that. Since then, the company has found ways of being highly efficient, enabling the company’s CD-5 and GMT-1 developments to be carried out without additional staff. However, the scale of the Willow development is causing the company to add new staff and contractor jobs, as the engineering and permitting work begins to ramp up, Marushack said.
New technologies New and evolving technologies are creating the new development opportunities that have been emerging, making otherwise marginal developments viable. Drilling technology in the early days of the Prudhoe Bay and Kuparuk fields, for example, involved the drilling of near vertical wells, accessing perhaps three square miles of the subsurface from a 65-acre drilling pad. The development of advanced directional drilling has subsequently enabled access to about 55 square miles from a 12-acre pad. A new extended reach rig that ConocoPhillips has commissioned from Doyon Drilling will be able to access up to 154 square miles from a similar sized pad.
ConocoPhillips plans to use the new rig to develop the Fiord West prospect, on the Beaufort Sea coast, in 2020.
“This is a game changer for us, in terms of what we are able to do with the technology,” Marushack said.
Advanced data analytics also form an emerging, game changing technology, with major impacts on efficiency, he commented.
New technologies brought down the cost of the GMT-1 development to $725 million from an original estimate in the range $900 million to $1 billion, Marushack said. The project also came in two months ahead of schedule. At the time of Marushack’s talk, the company was waiting for the Bureau of Land Management to issue its record of decision for the GMT-1 development.
“Once we get the record of decision, we will move forward with this project,” Marushack said.
BLM has since issued the record of decision, agreeing that the GMT-1 project can proceed.
A chain of projects The chain of projects planned or being conducted by ConocoPhillips and other companies should add significant volumes of oil to the throughput of the trans-Alaska pipeline, although different projects will come on line and peak at different times.
GMT-1, which has just come on line, should peak with production rates around 25,000 to 30,000 barrels per day. GMT-2, with first oil expected in late 2021, should peak at 35,000 to 40,000 barrels per day. GMT-2, sized for up to 48 wells but starting with around 33 wells, is expected to cost about $1.3 billion and create about 700 construction jobs.
Willow could see production begin through its own production facilities in late 2024 or early 2025. Production could peak at around 100,000 barrels per day. This will be the biggest development project on the North Slope since the Alpine field development in the early 2000s and is the biggest project in ConocoPhillips’ current portfolio, Marushack said. Initial development is expected to cost $2 billion to $3 billion, with a further $2 billion to $3 billion required for full development.
Other development possibilities ConocoPhillips also sees other development possibilities in its North Slope acreage: The company has a significant number of untested prospects in addition to discoveries that are still under evaluation. During a six-well exploration season last winter the company discovered oil in the Putu wells near the village of Nuiqsut and the Stony Hill well to the south. The company plans a six- to eight-well program with two drilling rigs for the coming winter. Two exploration wells, including a well further testing the Narwhal trend where the Putu drilling discovered oil, are planned for November, with the drilling to be done from surface locations on existing gravel drilling pads. The Narwhal trend is the same prospect trend in which Oil Search is developing the Pikka discovery, primarily in the Nanushuk formation.
The remaining four to six wells that ConocoPhillips plans for this winter will conduct further tests in the Willow discovery, a discovery that also involves the Nanushuk formation. Marushack said that ConocoPhillips plans to conduct “interference testing,” evaluating the interactions between wells as a result of injection and production. The idea is to determine what size of facility the field will need, he said.
All told, developments being lined up across the North Slope, with potentially several hundred thousands of barrels per day of additional oil production coming on line at various time over the next five to 10 years, represent perhaps $13 billion to $15 billion of new investment, Marushack said.
However, he said that the Stand for Salmon ballot measure in the upcoming election presents a major threat to ConocoPhillips’ plans. The company has to renew 85 percent of its operating permits at intervals of five years or less - passage of the initiative would potentially allow anyone from anywhere to challenge the renewal of any of those permits, Marushack said. He also commented that the maintenance of a stable tax environment in the state remains a major concern.
|
