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THE EXPLORERS 2004: ConocoPhillips dominates Alaska exploration Has drilled or participated in 47 Alaska exploration wells in 6 years, acquired 1 million-plus exploration acres Kristen Nelson Petroleum News
In the last six years — 1999 to 2004 — ConocoPhillips Alaska drilled 47 exploration wells in Alaska. Rick Mott, the company’s vice president of exploration and land, said that number, which includes wildcats and step-outs, “is a very significant proportion” of all such wells drilled in the state during this period.
In addition, ConocoPhillips shot some 3,400 square miles of 3-D seismic from 1999 through March 2004.
“And we’ve leased over 1 million acres of exploration acreage,” Mott said of the same period. “There’s no one else in the industry that comes close in my opinion to that sort of commitment to Alaska.”
Well count can be misleading Mott noted that some people track the company by the number of exploration wells it drills.
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 2004 was “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 2004’s wells, however, ConocoPhillips had a 78 percent working interest.
Because of the higher working interest, Mott said, one of the company’s wells in 2004 was 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, Mott said.
“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.
Competition strong for company dollars 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.”
Alaska is a sanctioned exploration play for ConocoPhillips, Mott said, but that doesn’t mean cost isn’t a factor.
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.”
Next drilling season In the 2004-2005 winter drilling season ConocoPhillips Alaska has told state and federal agencies it is looking at drilling four to nine exploration wells on the North Slope, including an 85-mile ice road to the Kokoda prospect in NPR-A.
As of Oct. 25, 2004, ConocoPhillips had interests in 1.9 million acres in NPR-A – 1.2 million acres if you look at just ConocoPhillips’ share of the leases. Its other federal acreage was on the outer continental shelf, some 100,000 net acres, “almost all Beaufort Sea,” with just some 5,000 net acres in Cook Inlet, company spokeswoman Dawn Patience told Petroleum News.
The company’s interest in state exploration acreage as of Oct. 25, 2004, was approximately 560,000 net acres, 110,000 net acres of which are offshore, Patience said.
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