Development shows no signs of slowing on Alaska’s North Slope

By Margaret Kriz Hobson | 01/16/2015 08:07 AM EST

At a time when rig counts are declining in much of the nation, oil development on Alaska’s North Slope is thriving this winter thanks in large part to tax relief that state voters endorsed in a referendum last year.

At a time when rig counts are declining in much of the nation, oil development on Alaska’s North Slope is thriving this winter thanks in large part to tax relief that state voters endorsed in a referendum last year.

Three major oil companies and a growing number of independents are taking advantage of this winter’s drilling season to build ice roads to their North Slope operations and expand exploration and development work on state and federal leases.

ConocoPhillips Alaska President Trond-Erik Johansen said the tax benefits are attracting increased oil development from a wide range of energy companies and could help curb declining oil production on the North Slope.


"I’m pretty confident that if we do all things right, with all these new kids that we have coming into Alaska, that decline is going to actually reverse and become an increase," Johansen said at a November conference of the Resource Development Council for Alaska.

Energy production on Alaska’s oil-rich North Slope has been declining since 1988, when it peaked at 2 million barrels per day. Last year, the Trans-Alaska Pipeline System carried an average of only 513,441 barrels per day.

To attract new development, the Alaska Legislature cut the state fees that energy companies pay on crude extracted from the North Slope. Adopted in 2013, the new tax system was endorsed by state voters in an August primary referendum (EnergyWire, Aug. 18, 2014).

Now ConocoPhillips is leading the charge in expanding operations on the North Slope, bringing additional rigs to increase oil production at its Kuparuk River unit field and developing new projects at its satellite sites.

This winter, ConocoPhillips is beginning a second winter construction season at its Colville River Delta exploration site on Native lands in the 23-million-acre National Petroleum Reserve-Alaska.

The Houston-based oil giant is installing power lines and production facilities at the Colville River project. Production at the site, which the company signed off on before the new state tax laws were adopted, is expected to begin late this year and peak at 16,000 barrels per day a year later.

If the project is successful, that crude would represent the first commercial hydrocarbons ever extracted from the NPR-A.

ConocoPhillips is also moving forward with new development at its Shark Tooth drill site in the southwest corner of the Kuparuk River oil field. Production at the site is expected to peak at 8,000 bpd late this year.

Meanwhile, ConocoPhillips is awaiting federal permits for its Greater Mooses Tooth field, located on federal lands in the NPR-A.

The Bureau of Land Management issued a final environmental impact statement for the project in October, and the company is hoping to receive final federal approval in the coming weeks (E&ENews PM, Oct. 29, 2014).

If ConocoPhillips moves forward with Greater Mooses Tooth, the field is expected to produce up to 30,000 bpd by 2017. If federal permits are delayed, however, production would be set back by a year.

Early this year, the company also expects to decide whether to move forward with its West Sak oil development site at the Kuparuk field. The viscous oil project is projected to begin production in 2017, with output peaking at 8,000 bpd.

Last year, the company spent $6 billion on its North Slope development projects, 50 percent more than in 2013.

But with world oil prices plummeting, some industry analysts predict ConocoPhillips’ Alaska operation may take a hit at the company’s fourth-quarter investor meeting Jan. 29.

Gas works

Along with ConocoPhillips, oil majors Exxon Mobil Corp. and BP PLC are also taking advantage of this winter’s ice-road season to move forward with their North Slope operations.

Exxon Mobil is continuing construction at its Point Thomson site, located along the Beaufort Sea just outside the Arctic National Wildlife Refuge. The Irving, Texas-based oil major is moving a drill rig to the site this winter, with the aim of producing 10,000 bpd of natural gas condensate by early next year.

During this summer’s open water season, the company also anticipates delivery of several critical barge-loads of new equipment (EnergyWire, Sept. 2, 2014).

Exxon Mobil’s long-term goal, however, is to commercialize the 8 trillion cubic feet of natural gas available at the Point Thomson site.

By the end of 2014, the company had invested more than $2.6 billion on the Point Thomson project and expects to spend a total of $4 billion on the initial production unit at the site. Exxon Mobil officials see the condensates operation as the critical first step in a multibillion-dollar plan to sell Alaskan natural gas to energy-hungry Asian consumers.

Exxon Mobil is working with BP, ConocoPhillips, TransCanada Corp. and the state of Alaska on a proposed multibillion-dollar project to pipe natural gas from the North Slope to a liquefied natural gas export terminal along the state’s southern coast (EnergyWire, Nov. 6, 2014).

For its part, BP plans to add two additional rigs to work its Prudhoe Bay fields over the course of the next two years. That move is projected to increase the company’s rig activity by 40 percent by 2017.

Late last year, the British firm sold several smaller leases to Hilcorp, which BP Alaska President Janet Weiss said will allow the company "to do operationally what we do best: giant fields like Prudhoe Bay and moving forward with the major Alaska LNG export project."

Indies stake their claim

Hilcorp is one of a growing list of independent oil companies that are moving into the remote North Slope, a region once considered the sole territory of multinational corporations with deep pockets and experience in extreme conditions.

In November, Hilcorp finalized its purchase of BP’s majority interest in the Endicott and Northstar oil fields, as well as a 50 percent interest in each of the Liberty and Milne Point fields.

Since then, Hilcorp filed a development and production plan to explore for crude at the Liberty site, which is located in federal waters in the Beaufort Sea (EnergyWire, Jan. 8).

At the Alaska industry conference, Hilcorp President Greg Lalicker said the company is already reworking wells and expanding operations at the Endicott, Northstar and Milne Point fields. The company also plans to move forward with heavy oil development and deeper, tighter oil projects at its North Slope properties.

Another independent company, Caelus Energy LLC, is beginning seismic work this winter on leases the company gained in the state’s November land sale.

The Dallas-based company was the high bidder on more than a quarter of a million acres of state leases on the North Slope and an additional 60,000 acres offshore on state lands in the Beaufort Sea.

Caelus has applied for state royalty relief to develop hydrocarbons at its Nuna field, with a decision on that petition due from the Alaska Division of Oil and Gas before the end of January.

Repsol SA, the second-largest North Slope leaseholder, is continuing drilling and 3-D seismic work this winter on its lands. The Spanish oil company also owns federal leases in the Beaufort and Chukchi seas.

Meanwhile, Great Bear Petroleum LLC is returning to the North Slope this winter to expand the shale oil drilling and seismic operations the company began in 2012.

This time around, Great Bear is studying the leases’ unconventional resource potential, while also targeting conventional prospects identified in the company’s previous 3-D seismic surveys, according to company Vice President Pat Galvin.