Thursday, January 8, 2015

Slope construction season still strong amid price plunge

By Tim Bradner
Alaska Journal of Commerce

It’s a seeming paradox: Oil prices are still sliding as North Slope crude closed at about $55 per barrel Jan. 6, but this year’s winter construction season is shaping up to be one of the strongest ever.

Industry employment, the most reliable indicator of activity, set new records in October and November, according to data from the Alaska Department of Labor and Workforce Development.

There were 15,100 at work in the industry in October and 15,000 in November, although the November data is still preliminary. That’s up by about 800 compared to the same months of 2013 and by 1,000 compared to October and November of 2012.

Most of the 2014-15 winter activity has to do with projects previously launched, however, and capital spending decisions to be made by the North Slope producers in early 2015 may set a different tone.

In 2014, ConocoPhillips announced a 50 percent increase in its 2015 Alaska capital budget and BP, the other major Slope operating company, announced a 25 percent increase for 2015. Those budgets will be reviewed in early 2015, however.

For now the industry is still riding with the momentum from a surge of new activity following the Legislature’s approval of a revamped oil production tax in 2013.

Work continuing this winter includes the $4 billion Point Thomson gas and condensate project east of Prudhoe Bay, where ExxonMobil Corp. is continuing construction. The company will be moving a drill rig back to the field as soon as a 50-mile winter ice road is finished. The company will also be moving “truckable” modules to the site this spring.

The big part of the 2015 activity at Point Thomson will be the summer sealift with the planned arrival of four large production modules now being fabricated in Korea. These will have a combined weight of 10,000 tons.

Point Thomson will begin production in 2016, producing and shipping 10,000 barrels per day of liquid condensates to the Trans-Alaska Pipeline System at Prudhoe Bay.

Another big project underway is CD-5, a $1 billion new drill site near the Alpine field that is west of the Prudhoe Bay and Kuparuk River fields. ConocoPhillips has essentially completed three smaller bridges with only minor completion work to be done this winter. Meanwhile, construction of a larger span over the Nigliq Channel of the Colville River is nearing completion.

Other work this winter and spring includes installation of the drill site facilities, power lines and the pipeline. Drilling of production wells will begin in May. About 700 people will be working on CD-5 this winter and spring. “First oil” is expected in December 2015, with production estimated to peak at 16,000 barrels per day.

Another ConocoPhillips project underway is at Drill Site 2S in the southern part of Kuparuk River field, a $500 million project. This is the first new drill site built in the Kuparuk field in years. Production is also expected to start in late 2015, with an estimated peak production of 8,000 barrels per day. About 250 people will be employed on the Drill Site 2S project this winter and spring.

In another development, independent Brooks Range Petroleum has started its drilling of production wells at its Mustang field project, also west of the Kuparuk field. Nabors Alaska Drilling Rig 16E was moved to the location in December.

Brooks Range plans to award contracts for fabrication of field production facilities this spring and to have those built and moved to the Slope by late 2015.

Meanwhile, another independent, Caelus Energy, plans to begin work this winter on its new Nuna project near the Oooguruk field, which Caelus also operates, but the company is still awaiting approval on a royalty modification deal with the state of Alaska.

If Caelus proceeds on Nuna, gravel installation will take place this winter and spring, and facilities and flow-lines will be installed in 2016. Production is targeted to begin in late 2016 but under terms of the royalty modification, if it is approved, Nuna production must be underway by March 31, 2017.

Nuna has an estimated 50 million to 100 million barrels of recoverable reserves, Caelus’ senior vice president for Alaska, Pat Foley, told a state legislative committee in a Dec. 2 briefing.

Caelus expects to have about 500 contract workers employed this winter in addition to its company operations staff of about 80, Foley said. Some of the contractors will be employed on projects other than Nuna, such as at the Oooguruk field itself and a large seismic program that Caelus will have underway east of Prudhoe Bay.

That is where the company acquired new leases in the fall 2014 state areawide lease sale.

Overall North Slope capital investments are estimated at $4.45 billion this year and are expected to increase to $4.88 billion in 2016, according to figures given by companies to the state Department of Revenue. The years are in state fiscal years, with the current fiscal year 2015 starting last July 1 and fiscal year 2016 beginning this July 1.

By comparison, the industry spent $3.73 billion for capital projects in 2014, the fiscal year ending last June 30, according to the state data.

Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/January-Issue-2-2015/Slope-construction-season-still-strong-amid-price-plunge/