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Doyon inks five-year deal with ConocoPhillips for $100 million drill rig

Dermot Cole
Orie Williams, chairman of the Doyon Ltd. board of directors, speaks about a contract for a new Doyon Drilling rig, to operate in the Kuparuk oil field starting in 2016, as Doyon President Aaron Schutt and ConocoPhillips executive Mike Wheatall listen Monday in Fairbanks. Dermot Cole photo

FAIRBANKS -- ConocoPhillips and Doyon Drilling announced a five-year deal Monday for a new $100 million drill rig that is to operate in the Kuparuk oil field starting in 2016.

Officials of both companies linked the investment to the oil tax cut approved by the Legislature a year ago, though they said the timing of the announcement was not based on the repeal election in August but on the signing of a contract in July. 

“This is the third rig we’ve picked up since (passage of Senate Bill 21, which altered the tax structure for the oil industry in Alaska) so there’s undoubtedly a tie between SB 21 and the fact that we’re picking up rigs,” said Mike Wheatall, manager of drilling and wells for ConocoPhillips in Alaska.

“We’re making the announcements shortly after the contracts are signed,” he said, adding that he hopes there will be more announcements in the next year.

“The contracting of a brand new rig is another significant step we are taking to increase production and create jobs on the North Slope,” he said. “We’re encouraged enough by the More Alaska Production Act, SB 21, to invest in projects like this."

Doyon Drilling, a subsidiary of the Fairbanks-based Native regional corporation, already has seven oil and gas drill rigs and a work force of about 430 employees. It will operate the rig for at least five years for ConocoPhillips, though the contract has options for extension, Wheatall said.

The engineering on the new rig is 98 percent complete and fabrication is about 23 percent complete in a construction yard in Edmonton, Alberta, where most of the Doyon drill rigs have been built.

Construction is expected to be finished next summer, with delivery to the North Slope the following winter, the companies said at a morning news conference. A Doyon official said a new North Slope drill rig costs more than $100 million but the company did not provide an exact number.

Wheatall said ConocoPhillips has six drill rigs under contract and expects to have seven working in 2016, once the new Doyon rig is operating.

“We’ve been trying to move as quickly as we can in response to SB 21 to bring rigs on line,” Wheatall said. “So we’ve made some engineering and commitments up front in the hope that we can progress projects that will eventually become sanctioned.”

Doyon President and CEO Aaron Schutt said the new rig is expected to employ about 80 people directly with a payroll of $8 million a year, while an additional $7 million payroll can be expected from other firms related to its operation.

He said that after the rig is finished, it would probably take 150 truckloads to move the pieces of the rig to the North Slope, where they will be reassembled. He said the project is in line with Doyon's mission of making a profit and employing shareholders, adding that about 50 percent of Doyon Drilling’s workers are shareholders and Alaska Natives and that it generates the most profits among the company subsidiaries.

Orie Williams, chairman of the Doyon board of directors, praised the agreement.

“It does prove that the oil companies are investing and trying to produce more oil and Doyon’s board of directors are certainly proud to be part of that process,” he said.

The ConocoPhillips and Doyon officials spoke in the lobby of the Doyon offices next to a placard advocating a no vote on the repeal of SB 21. Schutt said the company is not shy about its opposition to the repeal effort and its board voted unanimously to take that position.

Regarding the timing of the announcement and the election, he said, "There are a lot of cynics in Alaska and I grew up in Tok where everyone's a cynic, so you can look at it from that point of view" or you can look at it from the point of view that the contract had just been signed.

"This type of investment is the type of investment that's coming to us in part because of SB 21," he said.