Anchorage — ConocoPhillips says it plans to spend $2.5 billion in Alaska over the next five years using innovative drilling technologies to mitigate declining production on the North Slope.
Conoco, the largest oil producer in Alaska, believes it can get 35,000 barrels a day of incremental production from its three legacy North Slope oil fields by using 4-D seismic, coiled-tubing drilling and casing drilling to lower costs and reach additional deposits. However, as with any discussion of investments, the company insists it could do more if Alaska policymakers would lower oil taxes.
The 35,000 barrels a day would cut production declines to about 3 percent a year by 2017, Matthew Fox, the company's executive vice president of exploration and production, told analysts on Feb. 28. And, Fox said, if ConocoPhillips brings the Alpine West/CD-5 satellite into production as scheduled in 2015-16, the annual decline could drop to about 2 percent.
The goal of the $2.5 billion program is to use newly perfected techniques to suck additional oil out of Prudhoe Bay, Kuparuk River and Alpine.
The program involves two techniques "honed" in Alaska.
The first brings down the cost of developing smaller oil pockets. With it, ConocoPhillips uses time-lapse 3-D seismic (or "4-D" seismic) to "illuminate pockets of oil that are in separate fault blocks or for whatever reason are not producing into an existing well bore," according to Executive Vice President of Technology and Projects Alan Hirshberg. It's too expensive to reach such pockets with conventional drilling, he said.
With a small tool at the end of coiled tubing equipment, ConocoPhillips can "twist and turn through the rock." This tool can turn more than 60 degrees over a 100-foot stretch of well, which "allows us to go right to these pockets that we found with the 4-D," he said.
Using this technique, ConocoPhillips recently drilled an "octolateral" well at Kuparuk. The well is a vertical hole with eight horizontal wells snaking out in different directions to target bypassed deposits. "We've actually found eight different zones near this well bore that we could go and hook up using coil-tubing drilling. ... That's a very cost-effective way to get at those zones that weren't producing before," Hirshberg said.
The second technique allows ConocoPhillips to access deposits once thought unreachable. Using "steerable drilling liners," the company can drill through unstable reservoirs or low-pressure formations to reach deeper targets. "Normally when you have these well-bore instabilities, if you try to drill and then come back and run casing, you can't do it fast enough because the well bore collapses. So here, we're actually using the casing to drill," Hirshberg said. "And so the casings are already in place as we drill the hole."
It's unclear whether the investment plan differs from normal fieldwork.
Earlier this year, ConocoPhillips said it planned to spend "about $1 billion" in Alaska in 2013 -- a slight increase over 2012 -- to accommodate CD-5 development.
"When you look at the base development speed and pace in the legacy fields, it's the same (budget) as 2006," ConocoPhillips Alaska President Trond-Erik Johansen said.
Between 2005 and 2011, ConocoPhillips spent $733 million a year in Alaska, on average, with a low of $666 million in 2007 and a high of $1.4 billion in 2008. At $2.5 billion, the announced five-year plan amounts to $500 million a year, in addition to other activities in the portfolio, such as CD-5 and Chukchi Sea exploration.
ConocoPhillips says it believes legacy fields are the key to stemming production declines, but it can't justify the necessary investment under the existing tax system. The company says tax law revisions proposed so far do not "contain sufficient investment incentives for legacy fields to offset Alaska's high cost environment."
Meanwhile, ConocoPhillips is exporting its Alaska technology.
The $2.5 billion Alaska program is part of a larger effort by ConocoPhillips to increase production across its portfolio by 600,000 barrels of "oil equivalent" a day by 2017.
"Of the growth that we're talking about, about half of it is going to come from oil production. ... About 70 percent of that oil production comes from the Lower 48 and the rest of it is coming from Malaysia and projects in Europe," Chief Financial Officer Jeffrey Sheets told analysts. "And so where it's not coming from is places (where) we've had relatively higher tax rates, like Alaska."