Monday, December 26, 2011

Conoco sees construction of CD-5 project in 2014, production in 2015

Tim Bradner
Alaska Journal of Commerce

ConocoPhillips Alaska Inc. will  seek corporate approval in the second half of 2012 to proceed with development of the long-delayed $600 million CD-5 project following the U.S. Army Corps of Engineers’ approval of a Colville River bridge permit Dec. 19.

The bridge crossing of the river will allow the company to develop the CD-5 oil accumulation in the National Petroleum Reserve-Alaska.

There were a stipulations attached to the permit.

“We will be evaluating the permit and the stipulations over the next couple of months, and we will then have to incorporate the stipulations into our CD-5 work plan,” ConocoPhillips spokeswoman Natalie Lowman said.

The company will seek corporate approval in the last half of the year, and will then spend about a year in engineering and planning, Lowman said. The schedule would have construction under way in 2014 and the first production from CD-5 – the first commercial oil production from the NPR-A since it was created in 1923 –  toward the end of 2015, she said.

CD-5 is expected to produce between 10,000 and 18,000 barrels per day. ConocoPhillips owns 78 percent of the Alpine field, including the CD-5 project, with a 22 percent minority holding by Anadarko Petroleum Co.

Although CD-5 is within NPR-A the subsurface mineral rights are owned by Arctic Slope Regional Corp., the Alaska Native regional corporation owned by Inuit people on the Arctic Slope, which would receive production royalties. Under federal law, however, those are shared 50-50 with the state of Alaska.

An important element in the Corps’ CD-5 decision is that the bridge and road infrastructure would ease the extension of road infrastructure to two other ConocoPhillips oil and gas discoveries farther west in NPR-A that are now part of the Mooth’s Tooth Unit in the reserve.

Phillips said the development of the two NPR-A discoveries farther west would depend on the state of Alaska’s modification of its oil production tax. Although the federal government owns the petroleum reserve, the state’s petroleum tax applies to production from the area.

In a statement issued Dec. 20, Alaska state U.S. Bureau of Land Management Director Bud Cribley hailed the Corps’ decision on the bridge permit, which was originally contested by Interior Department wildlife agencies and the U.S. Environmental Protection Agency, as an example of government and industry working together to find solutions to complex environmental permitting problems.

CD-5 was discovered in 2001 and an Environmental Impact Statement for its development, including the bridge, was approved in 2004. The project went on hold for several years while there were negotiations with local Inuit villagers over the location of the bridge. An agreement was eventually reached to change the bridge location so it would not affect subsistence fishing by the villagers.

The project was then delayed further by the Corps’ decision against the bridge permit, although it had been approved earlier in the EIS.

The concern expressed to the Corps by the U.S. Fish and Wildlife Service and the EPA was that the bridge would require extensive gravel placement that could impair wetlands and sensitive regional waterfowl habitat.

Also, the environmental agencies worried that an east-west road configuration that would result in further NPR-A development west of CD-5 would cut laterally across the northward flow of water in the wetland area, further impairing habitat.

At the urging of the two agencies, the Corps blocked the bridge permit and suggested ConocoPhillips build an underground river crossing for a pipeline and to provide support for CD-5 development by ice road in winter and by air in summer, similar to the way ConocoPhillips has developed other drillsites in the region that are cut off from road access by river channels.

ConocoPhillips and state of Alaska agencies protested the Corps’ decision, arguing that an underground pipeline crossing would create more potential hazard because of the three-phase flow through the pipeline of raw crude, gas and water could create corrosion. Above-ground pipeline on a bridge would be easier to inspect and maintain, it was argued.

After a lengthy review, the Corps agreed with that argument, along with the EPA and U.S. Fish and Wildlife Service.

Among conditions attached to the permit is a requirement that other companies be able to use the bridge for NPR-A development.

“Over the long term, the bridge at CD-5 will minimize environmental impacts in the area because it allows other companies that develop leases in the NPR-A to use the same crossing, rather than seek approval for additional channel crossings in the area,” BLM Director Cribley said in his statement.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

This article appears in the AJOC December 25 2011 issue of Alaska Journal of Commerce

Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/AJOC-December-25-2011/Conoco-sees-construction-of-CD-5-project-in-2014-production-in-2015/#ixzz1hg9ks2He