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With oil prices low, ConocoPhillips slows effort on NPR-A project

  • Author: Alex DeMarban
  • Updated: July 7, 2016
  • Published January 29, 2015

Citing regulatory hurdles and the low price of oil, ConocoPhillips announced it will delay a final decision to invest in a $900 million project designed to lead to the first oil production from federal lands in an Indiana-sized reserve on Alaska's North Slope.

Work at the project known as the Greater Moose's Tooth Unit 1 in the northeastern corner of the National Petroleum Reserve-Alaska will continue this year, with additional seismic testing and engineering, said a statement from the company.

The field is considered extremely valuable to oil-dependent Alaska, with peak production estimated to one day reach 30,000 barrels of oil per day, helping boost the deficit-ridden state treasury and fight declining flow in the trans-Alaska pipeline.

"We are deferring the final investment decision for GMT1," said Trond-Erik Johansen, president of ConocoPhillips Alaska, in a statement issued Thursday morning. "The project is challenged by permitting delays and requirements, as well as the current oil price environment. In 2015, we will continue to shoot seismic over the GMT1 area and progress engineering."

The statement came after company executives announced the company's global earnings for the final quarter of 2014. During the announcement, they said the company would reduce global capital expenses by 15 percent this year, spending $11.5 billion instead of $13.5 billion.

Oil prices have fallen by more than half in recent months to less than $50 a barrel, squeezing an industry that had become accustomed to a long period of stable prices above $100.

Conoco has not announced layoffs but is conducting a global review of its employment levels, said Amy Burnett, a communications specialist in Anchorage.

"We have said we are focusing on reducing controllable costs," she said. "As part of that, and in addition to some measures announced a few weeks ago to reduce headcount in Europe, the company is reviewing workforce levels, globally, in light of a potential for an extended period of low prices. The global workforce has been informed that reductions are likely."

Meanwhile, permitting for the Greater Moose's Tooth Unit sits in regulatory limbo for now, though a final decision from federal regulators is expected soon. The U.S. Army Corps of Engineers supports Conoco's proposed plan for the project and has said it will issue a key wetlands permit, while the Bureau of Land Management, which manages the untapped oil reserve, has so far said it prefers a different, slightly costlier plan designed to provide more protection to an important subsistence area near the village of Nuiqsut.

BLM will make the final call.

Sen. Lisa Murkowski, chair of the Senate Energy Committee, has blasted the federal government for efforts she says are designed to limit development in Alaska.

But BLM may change its preference when it issues a final decision. Conoco has said it can't pursue the project unless BLM supports its plan, which the Corps says is less environmentally destructive in part because it requires the least amount of gravel fill.

Burnett said Conoco had originally expected to receive permits in October. Now, with no final permit awarded, the company will miss the chance to do construction in the next winter season.

As a result, deferring the investment decision is the right move, she said in an email.

"Deferring significant expenditures for a project that has slipped a year and does not have the permits necessary for approval makes economic sense and, given the low oil prices we are experiencing, fits within the capital constraints of the company," she said.

A spokesperson for the U.S. Interior Department said BLM understands the challenging economic climate oil companies face.

The agency is committed to working closely with Conoco to move forward with oil and gas production in the reserve that would help boost flow in the pipeline, said Jessica Kershaw, press secretary for the Interior Department.

The agency is working on "best management practices and mitigation measures" to address potential impacts and benefit affected parties, such as Alaska Natives, she said.

Burnett, with Conoco, said the company hopes BLM will select the Corps' alternative and find agreement with Conoco on the proposed mitigation measures.

The agency is also working with the Corps to come to a "unified" decision, said Kershaw. "The BLM will issue a final decision on the project in the very near future," she said.

Alaskans who supported the tax overhaul known as the More Alaska Production Act, or SB 21, designed to encourage more investment in Alaska oil projects, are watching Conoco closely, to ensure proposed projects stay on track.

Other Conoco efforts in Alaska will move forward, Johansen said.

"In 2015, ConocoPhillips will continue construction of the CD-5 and Drill Site 2S projects, both of which should reach first production at the end of this year," he said.

CD-5 is located on the western front of the state's Arctic oil patch, near Alpine and the Greater Moose's Tooth Unit. Peak production is estimated at 18,000 barrels a day. Drill Site 2S, with peak production estimated at 8,000 barrels per day, is a $500 million project, and represents the first drill site at the Kuparuk field in more than a decade.

"We also intend to sanction the first phase of the North East West Sak (NEWS) development, the NEWS 1H project, in 2015," Johansen said. "In addition, we will execute our development drilling programs across the Alpine and Kuparuk fields and continue to progress construction of a new rotary rig and new coiled tubing rig to optimize our long-term inventory of development drilling opportunities."

NEWS 1H is a $450 million project targeting viscous oil at a reservoir in the Kuparuk unit. Construction is expected to begin this year, with first oil projected in 2017 and peak production estimated at about 9,000 barrels of oil daily.

Conoco expects approval for its NEWS 1H project this quarter, said Burnett.

Burnett also said Conoco's Alaska LNG project remains on track, with the company expecting to finish a stage known as pre-FEED that involves preliminary engineering work and is expected to end this year. The $65 billion project involves Conoco, the state and other major energy companies.

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