Providing coverage of Alaska and northern Canada's oil and gas industry
May 2018

Vol. 23, No.18 Week of May 06, 2018

Conoco positive on Alaska, hints at standalone facilities for Willow

Alan Bailey

Petroleum News

In answer to a question about Alaska during the ConocoPhillips first quarter 2018 earnings call on April 26, Al Hirschberg, the company’s executive vice president of production, drilling and projects, said that positive results from appraisal drilling in the Willow prospect in the northeastern National Petroleum Reserve-Alaska suggest that a development involving a standalone production facility appears likely.

“I think we can see from the appraisal work in Willow that it’s looking more and more like it’ll be able to justify a standalone facility,” Hirschberg said.

Development options

ConocoPhillips is debating the relative merits of building new production facilities for Willow versus tying the development back to the production facilities in the Alpine field, in a similar manner to what the company is doing for the CD-5 and Greater Mooses Tooth developments. A standalone facility would be much more expensive than a tie-back but would enable significantly higher production rates. The preferred mechanism for optimizing the return on development capital expenditure would presumably depend on the scale of the Willow find: the larger the resource, the more benefit in having standalone facilities.

ConocoPhillips has also reported the discovery of a new oil pool at West Willow, in one of the outcomes of this winter’s exploration drilling program. West Willow is a relatively short distance west of the Willow discovery. Hirschberg commented that, although ConocoPhillips has yet to make any decision on what action to take relative to West Willow, a development at the new discovery could potentially tie back to facilities at Willow, a further factor that could play into a decision over the development options.

Pipeline of projects

For a number of years ConocoPhillips has been moving forward on a strategy of incremental developments, moving west from the Alpine field out into NPR-A. The CD-5 development was followed by Greater Mooses Tooth 1, which is scheduled to come on line later this year. Greater Mooses Tooth 2 is the next development in what Hirschberg characterized as “a pretty nice pipeline of … mid-sized sort of projects we’re bringing on” in Alaska. And strong well performance in ConocoPhillips’ Alaska operations made a significant contribution to ConocoPhillips overall success in exceeding its anticipated global oil production for the quarter, Hirschberg said.

In addition to West Willow, ConocoPhillips reported oil finds in its Stony River and Putu wells during this winter’s exploration season. However, Hirschberg cautioned that it would take several years to bring any of these new discoveries on line. For the Willow discovery, for example, given the time it would take to obtain all of the necessary approvals, especially the federal approvals, the earliest startup would be in 2023.

“But that’s a bit of a theoretical timing that would require more rapid federal permitting than we’ve experienced in the past. But it is possible within the rules,” Hirschberg said.

Lower 48 shale oil

ConocoPhillips has been commenting recently on competition for capital investment between Alaska and the company’s shale oil operations in the Lower 48. During the earnings call Hirschberg said that in the Eagle Ford the company has seen new well completion designs driving some dramatic improvements in production, while the company is also managing to drive down costs. Drilling times are also shortening, while new tools have doubled the number of wells that a field operator can handle, he said. The company is using data analytics to optimize its development efforts in the Eagle Ford.

“That was really the first place in the company where we built a comprehensive data warehouse,” Hirschberg said.

On the other hand, the company has been experiencing issues relating to pipeline transportation constraints from the Permian basin, although there is the longer-term prospect of more pipeline capacity opening up.

Increased earnings

The company’s Securities and Exchange Commission filing for the first quarter shows a steady increase in quarterly adjusted earnings in Alaska from $99 million in Q1 2017 to $445 million in Q1 2018.

ConocoPhillips spokeswoman Amy Burnett told Petroleum News in an April 27 email that the company’s rising Alaska earnings can be attributed to efforts to drive down costs while increasing production, as well as the increasing price of oil. The company’s realized price for Alaska oil averaged at $68 per barrel in Q1 2018, compared with $61 per barrel in Q4 2017.

Steady production

Thanks to continuing oil field development offsetting natural oil production declines in operational fields, production in Q1 2018 came in very similar to that in Q1 2017 but up by 1 percent relative to Q4 2017, Burnett said. According to the SEC filing, ConocoPhillips’ Alaska oil production averaged 173,000 barrels per day in Q1 2017, dropped to 167,000 bpd in Q4 2017 and climbed back to 174,000 bpd in Q1 2018.

Burnett also commented that Alaska’s current oil production tax system, commonly referred to as SB21, makes Alaska competitive for oil and gas investment.

“Maintaining Alaska’s competitive tax framework will be important to future investment decisions on the North Slope,” Burnett wrote.


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