Busy season on North Slope seen with decision on Willow

ConocoPhillips is now gearing up for its big Willow project on the North Slope, while Santos Ltd, an Australian company, already has construction underway on its Pikka project, also on the slope.

It’s shaping up to be a busy winter on the slope.

In a third new development, an ambitious exploration program on the eastern North Slope, led by Colorado-based oil explorer Bill Armstrong, will see three exploration wells drilled this winter, 2023-2024, according to plans filed with the state.

Three more wells in the area are planned for the following winter, 2024-2025. Each season of work will require an ice road of about 40 miles and support camps at each of the exploration sites.

Armstrong led the discovery of Pikka and other Alaska oil finds in recent years. Apache Corp., a major U.S. independent oil company, is helping back Armstrong’s initiative.

On Willow, ConocoPhillips was fairly confident that District Court Judge Sharon Gleason would give a green light on the $7 billion-plus Willow project, which is in the National Petroleum Reserve-Alaska west of the large producing fields.

In a Nov. 2 third quarter earnings call company officials told investors they feel confident that Gleason will give a green light and have started certain construction activity.

Andy O’Brien, ConocoPhillips’ Senior Vice President of Global Operations, told the analysts that preliminary rulings in April were favorable, and the U.S. Bureau of Land Management, which administers NPR-A, has done a good job satisfying issues raised in lawsuits by conservation groups.

On work now under way, O’Brien said the first phase of module fabrication has started on the U.S. gulf coast, and a new gravel mine has been opened on the North Slope in preparation for the 2024-2025 winter construction season. The company is also confident in its cost estimates to first production in 2029. “This is the kind of project that is right in our wheel-house. We’ve got no first-of-a-kind risk here. It’s three drill sites and one new processing facility,” and ConocoPhillips has a good track record on delivering these kind of projects on time and on budget, O’Brien said.

But while ConocoPhillips is bullish on how Judge Gleason will rule, there are always things that could cause a derailment. Because of that the contracts signed on Willow have an “out” clause, O’Brien said. About half of the construction for Willow is now under contract and three-quarters of this is on a “lump-sum basis or unit rate,” he said.

Because of that the company feels confident in its $7 billion to $7.5 billion projected cost, even with inflation.

Willow is expected to produce 180,000 barrels per day at its peak starting in 2029 and Pikka is projected to produce 80,000 barrels per day at its peak of its planned phase one, starting in 2026, and ramp up to 120,000 barrels per day if Santos proceeds to a phase two at Pikka, of which the company now feels confident.

Peak production for new oil projects typically occurs after a quick ramp-up and then extends for several years in a plateau before a gradual decline sets in.

While the two projects by themselves won’t get Alaska back to producing one million barrels per day, long a goal for state leaders, it will push production above current rates of below half a million barrels per day where it has been for some time.

In fact, the North Slope is now well under the half-a-million-barrel mark and production is actually falling again, and a dip in production in September, year over year, continued through November, according to data published Nov. 2 by the Alaska Department of Revenue.

Total production from the North Slope averaged 468,500 barrels per day in October and 453,588 barrels per day in September, down substantially year-over-year from October and September, 2023.

Production was down 10,704 barrels per day on average between October 2023 and October 2022 and down 18,931 barrels per day for September 2023 compared with September 2022.

The decline appears to be extending into November. For the first eight days of the month the slope produced an average of 478,015 barrels per day, down from about 484,000 for the first week of the month.

Summer production from the slope is usually depressed because production facilities operate less efficiently in warmer temperatures, so a seasonal bump up is in September and October is expected as cooler autumn temperatures set in. There was a bump this year but it was smaller than in 2022 and the total production is running behind last year.

The declines year-over-year are more concerning to state and industry officials because they imply a return to the multi-year declines that extended over several decades from the 1990s until increases in drilling in 2014 and 2015 flattened the decline, at least temporarily.

Meanwhile, there are prospects for new discoveries in the exploration drilling soon to get underway east of Prudhoe Bay, but it will take several years for any successful finds to become projects under construction and several more for one or more new fields to be producing.

However, the prospects appear good if for no other reason the track record of the parties involved. Lagniappe Alaska LLC, an independent company leading the exploration, is owned by Armstrong Oil and Gas, of Denver, which is led by geologist Bill Armstrong.

Armstrong led the exploration and development for several North Slope discoveries including the Oooguruk and Nikaitchuq offshore fields near the Kuparuk River field and, most recently, the Pikka project now being developed by Santos and its partner, Repsol.

Oooguruk and Nikaitchuq were discovered by Armstrong and are now owned and operated by Eni Oil and Gas, an Italian company.

Armstrong told Petroleum News in an interview that the new prospects east of Prudhoe Bay offer geologic targets similar to those found at Pikka. There has been virtually no exploration drilling in the area, he said.

Six wells are planned to be drilled over the next two years by Lagniappe. Three drill rigs have been contracted to do the work, which will be supported by a 40-mile ice road built east from the Prudhoe Bay area.