Friday, November 8, 2013

C-P may add 55K barrels/day by 2018

Tim Bradner
Alaska Journal of Commerce

Two ConocoPhillips employees overlook pipelines on the West Sak oil field on Alaska’s North Slope. Projects now in development for ConocoPhillips on the Slope could add 55,000 barrels of production per day by 2018, according to company estimates.

ConocoPhillips is pushing ahead with projects that could add about 55,000 barrels per day of new North Slope oil production by 2018, the company said. This will help dent the current decline in production, which averages about 6 percent yearly, from existing North Slope fields.

The 55,000 barrels per day estimate includes 16,000 barrels per day expected from the new CD-5 project; 8,000 barrels per day from a new drill site in the Kuparuk River field, and 30,000 barrels per day anticipated from a new production site in the National Petroleum Reserve-Alaska.

In addition, a new drill rig put into service in the Kuparuk River field earlier this year has resulted in about 1,800 barrels per day of new production, ConocoPhillips said.

The CD-5 project has been long-planned but work on the other projects was accelerated after the Legislature approved Senate Bill 21, which modified state oil production taxes, ConocoPhillips has said.

BP Exploration, which operates the large Prudhoe Bay field, is also planning new projects in that field.

Construction will begin this winter on the CD-5 project, with Anadarko Petroleum Corp. is a minority owner. Preliminary placement of gravel will also be done this winter for the new drill-site Kuparuk 2-S in the Kuparuk field, ConocoPhillips spokeswoman Natalie Lowman said.

The CD5 construction will span two years, with ice road building, hauling of gravel and bridge construction this winter and completion of the bridge and construction of pipelines and production facilities the following year.

Some additions to infrastructure at the Alpine Central Facility, for the processing of additional oil and gas, will also be required.

The company must still give final approval for construction of the drill site and its related infrastructure. That will be requested of ConocoPhillips’ board in late 2014, Lowman said. BP is also an owner in the Kuparuk field and is a partner in the new project.

At CD-5, contractors will begin mobilizing for construction late this fall. The project involves a bridge over the Colville River, a production pad in the west side of the river as well as related roads, pipelines and utilities.

“Construction of CD-5 is planned to begin in January 2014 and continue in winter 2014-2015. First production is expected in late 2015 and the initial gross production rate is estimated in the range of 16,000 barrels per day,” of oil, Lowman wrote in an email.

CD-5 will be the first commercial oil production from the NPR-A. The small field is west of the producing Alpine field, which is on state of Alaska lands, but because CD-5 is on the west side of the Colville River it is within the federally-owned NPR-A.

ConocoPhillips has also released cost and production estimates for the Kuparuk 2S drill site which is in the southern part of the Kuparuk River field, and the GMT-1 project in the National Petroleum Reserve-Alaska.

Kuparuk 2S is planned for construction in late 2014 with first production is expected in 2015. Costs are estimated at $595 million and peak production is expected to be 8,000 barrels per day.

The GMT-1 project in the petroleum reserve is estimated to cost $890 million to develop and is expected to produce 30,000 barrels per day with first production in 2017, Lowman said.

GMT-1 is within the Greater Moose’s Tooth Unit a few miles further west in NPR-A, and would be the second oil producing project within the reserve.

ConocoPhillips is the operator and majority owner of GMT-1 and CD-5 with 78 percent interest, with Anadarko owning a 22 percent interest.

The 30,000 barrels-per-day estimate for GMT-1 represents an increase over earlier estimates of its potential production. In a 2011 presentation to financial analysts in New York the company had put the production estimate at 15,000 barrels per day to 20,000 barrels per day.

Lowman would not comment on the revised estimate but said 30,000 barrels per day is the number the company is now working with.

CD-5 and GMT-1 will provide the first oil produced on a commercial basis from NPR-A but gas has been produced for several years at Barrow, in the far northern part of NPR-A. The gas field there is owned and operated by the North Slope Borough, the regional municipality.

It supplies Barrow Utilities, the local electric and gas co-op, which serves the Inupiat community of Barrow.

The 23-million-acre NPR-A covers the western part of the North Slope. It was created as a naval petroleum reserve in 1923 but did not see exploration until the 1950s and 1960s, which resulted in the gas discovery at Barrow and an oil discovery at Umiat, in the southeast part of the reserve.

The Umiat discovery was not economic when it was found but Australian independent Linc Energy began drilling last winter to delineate the field and will continue this winter. Linc hope to eventually produce 50,000 b/d from Umiat.

Meanwhile, CD-5, near the Alpine field, is within the federal reserve but the subsurface mineral rights are owned by Arctic Slope Regional Corp. of Barrow. That means ASRC will receive royalties from production at CD-5. Under terms of the Alaska Native Claims Settlement Act of 1971, the federal law under which ASRC onbtained the mineral holdings, 70 percent of the royalties must be shared with other Alaska Native corporations.

Also, Kuukpik Corp., the village corporation for Nuiqsut, the nearest Inupiaq community, is reported to hold a small overriding royalty interest in ASRC’s royalty share of the CD-5 subsurface, but the details of that are confidential.

ASRC also owns some mineral rights on state of Alaska leases on the Alpine field, which in the Colville River delta east of the NPR-A.

Third quarter earnings down vs. 2012

ConocoPhillips earned $494 million from its Alaska oil and gas production in the third quarter of 2013, the company announced Oct. 31. This is down from $585 million in earnings in the second quarter, mainly due to lower oil production.

The company’s Alaska production was down about 20,000 barrels per day during the quarter, much of its due planned turnarounds at its Prudhoe Bay and Kuparuk River fields and the natural decline of aging oil fields.

Production averaged 178,000 barrels per day in the third quarter, down from 197,000 barrels per day in the second quarter. However, ConocoPhillips’ third quarter production was roughly on par with third quarter 2012 with 176,000 barrels per day in production. Its net income for Alaska was down 7.6 percent, from $535 million to $494 million, compared to the 2012 third quarter while its overall net income as a company increased 7 percent in the same period.

ConocoPhillips is the only Alaska oil and gas producer that breaks out its Alaska earnings separately when it issues a financial report for worldwide activities.

As has been the case in previous quarters the company paid nearly twice as much in government taxes and royalties than it earned. Total taxes and royalties were about $900 million in the third quarter, with about two-thirds of this, or $652 million, paid to the State of Alaska during the third quarter.

“As we have reported historically, under the ACES production tax regime we pay almost twice as much in taxes and royalties as we keep,” said Bob Heinrich, ConocoPhillips’ Alaska vice president for finance.

“The recent oil tax change passed by the Legislature, with Senate Bill 21, improves the business climate in Alaska. As a result of these improvements we are now looking forward to increasing our North Slope investment.”

Alaska is a significant source of income for ConocoPhillips because most of the company’s earnings in the state are from crude oil, while in the Lower 48 states a good portion of income is from natural gas, which has experienced low prices.

Still, the company’s Lower 48 oil producing fields have seen significant increases in production, up 54 percent in the third quarter, compared with a 15 percent decline in Alaska oil production.

The figures are from ConocoPhillips’ presentation to financial analysts on Oct. 31.