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ConocoPhillips starts drilling in petroleum reserve

With a global oil glut driving prices to their lowest levels in six years, ConocoPhillips announced on Thursday that it has started the first oil development to occur within the National Petroleum Reserve-Alaska since its establishment in 1923.

Oil prices this week dropped to $40.80 a barrel for benchmark West Texas Intermediate, but the Houston-based company chose to move ahead on the project, an extension of the Alpine field that has been in the works for more than a decade known as Colville Delta 5.

"It's good for our company because in Alaska, more production is a good thing," said ConocoPhillips spokeswoman Natalie Lowman. "The infrastructure we installed will help enable future development in the NPR-A."

Lowman also said the company has a legal obligation to produce or risk termination of its state leases on the field, whose subsurface mineral rights are owned by the state of Alaska and Arctic Slope Regional Corporation, an Alaska Native corporation based in the North Slope Borough.

ConocoPhillips expects production to begin in the fourth quarter of 2015.

While total U.S. oil production has increased year-on-year since the end of 2011, helping to lower the price, North Slope output has not. Since June 2014, the volumes coming through the trans-Alaska oil pipeline have fallen each month on a year-on-year basis, according to the U.S. Energy Information Administration.

Lowman could not say whether the new activity would be able to fully reverse the downward production trend. ConocoPhillips is one of three major oil companies operating on the North Slope.

"This is an effort to help mitigate the decline," she said. The site has the potential to produce up to 16,000 barrels a day, depending on when the wells come on line, she said.

As owners of the mineral rights, the majority of royalties would go to ASRC and the state of Alaska, said Lesli Ellis-Wouters, a spokeswoman for the federal Bureau of Land Management. Kuukpik Corp., the corporation for the nearby Alaska Native village of Nuiqsut, owns the land.

Several Nuiqsut residents, including the president of the tribal government, mounted a lawsuit challenging the U.S. Army Corps of Engineers over permitting for the drilling project. The residents were concerned that infrastructure such as bridges and a 6-mile-long road from the existing Alpine development would hurt subsistence hunting and fishing in the Colville River delta.

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