Conoco moving ahead at CD-5; Kuparuk gets another drilling rig

ConocoPhillips Alaska President Trond-Erik Johansen told the Resource Development Council’s annual conference in Anchorage Nov. 20 that work on the new Colville River unit drill site, CD-5, is on schedule and on budget.

CD-5, which will develop the Alpine West satellite, was an investment decision made before the passage of Senate Bill 21, he said. That production oil tax change, passed last spring, is being challenged by voter initiative.

Johansen said under the previous tax regime, ACES, Alaska’s Clear and Equitable Share, marginal government take in Alaska, including royalties, at $100-a-barrel oil, was 79 percent, compared to Texas at 53 percent and North Dakota at 57 percent.

ConocoPhillips has said the ACES Alaska tax rate was too high, Johansen said, and at that rate investment goes elsewhere. The passage of SB 21 last year, removing progressivity, was a “huge improvement,” he said.

And while the SB 21 tax change has been called a giveaway, looked at competitively it’s still 10-15 percent higher than Texas and North Dakota, both of which have growing production rates, while Alaska’s production continues to decline, Johansen said.

He described the relationship between Alaska and the oil industry as symbiotic: for industry to be successful, the state needs to be successful; for the state to be successful, industry needs to be successful.

Stepping west

Both CD-5 and Mooses Tooth are in the National Petroleum Reserve-Alaska, but CD-5 sits on Native land, so Mooses Tooth will be the first production from federal lands in NPR-A.

CD-5 development was a must for development farther west at Mooses Tooth, Johansen said.

The importance of CD-5 for Mooses Tooth is that it takes infrastructure across the Nigliq Channel of the Colville River, he said, essential for development farther west.

Johansen earlier in his remarks said health, safety, environment and sustainability are the basis of investment decisions for oil companies.

A bridge across the Nigliq Channel was an essential element of CD-5 development for health, safety and environmental reasons. The drill site will produce for 30 years, Johansen said, and if something goes wrong, if there is an injury or a spill, ConocoPhillips needs to be able to respond quickly in an emergency. The bridge provides that emergency response ability.

Gravel roads farther west into NPR-A are necessary for the same reason, Johansen said, adding that ConocoPhillips is having those discussions now with federal agencies.

CD-5

Long lead materials have been procured and fabrication of bridges is on schedule.

Planned activity for the winter season includes ice road building November through January and bridge construction January through April, which is also the timeframe for gravel installation.

Module and pipeline fabrication is also planned for the winter season.

First oil from CD-5 will be in late 2015. Production will peak at 16,000 barrels of oil per day, gross, and the estimated cost is about $1 billion.

Johansen said passage of SB 21 increases the likelihood of more projects moving ahead. He noted a rig was added at the Kuparuk River field, which ConocoPhillips operates, in late May, and has already resulted in 1,600 bpd of new production.

An additional rig is coming to Kuparuk in January, with that rig drilling mainly new capital wells, he said.

Planning is under way for Kuparuk Drill Site 25, development of a late 1980s ARCO Alaska discovery, appraised by ConocoPhillips in 2012 with the Shark Tooth No. 1 well. Johansen said approval for that $600 million project, with peak production estimated at 8,000 bpd and first oil in 2015, will be sought in late 2014.

Approval will also be sought in late 2014 for the Greater Mooses Tooth No. 1 NPR-A development, estimated to cost $900 million and with production, expected to begin in late 2017, to peak at 30,000 bpd.

Mooses Tooth is one of two ConocoPhillips-operated units in NPR-A; Bear Tooth lies farther west.

—Kristen Nelson