ConocoPhillips starts new oil project on slope

ConocoPhillips started production at its GMT-2 oil project in the National Petroleum Reserve-Alaska last week. The project is expected to produce 30,000 barrels per day at peak, increasing North Slope production and bringing new revenues to the state treasury.

Two Alaska Native corporations on the North Slope will share in the oil royalties along with the federal and state governments, and the state’s royalty share will go to support public services in several mostly-Native communities in the region.

“The GMT2 team safely executed this project in an environmentally responsible manner marking another successful milestone for the NPR-A,” said Erec Isaacson, president of ConocoPhillips’ Alaska unit.

GMT-2 development costs were $1.4 billion and it was completed under budget and on schedule, the company said in an announcement.

It is the third oil project to be developed commercially by ConocoPhillips in the petroleum reserve, a large 23-million-acre federal land enclave west of the major producing fields of the North Slope, which are on state-owned lands.

GMT-2 and two other, nearby projects, GMT-1 and CD-5, are considered “satellites” of the larger producing Alpine field, also owned and operated by ConocoPhillips, because they are tied by pipelines the Alpine oil processing facilities.

Raw crude oil, a mixture of oil, water and natural gas, are shipped by pipeline to the Alpine field where the water and gas are separated. The Alpine field is on state lands in the Colville River delta. The river is the eastern boundary of the NPR-A.

GMT-2 is eight miles southwest of GMT-1, a similar project now producing, which itself is about 8 miles west of CD-5, which is near the Colville River and the Alpine field.

The new project has a 14-acre drill pad, en eight-mile gravel road and pipeline facilities connecting it to the existing Alpine field infrastructure. The pad will have 36 wells initially with a plan for expansion to 48 wells.

While the current production estimate for GMT-2 Is 30,000 barrels per day at peak ConocoPhillips has said in the past that it believed the project to be capable of 35,000 barrels per day to 40,000 barrels per day. The current, more conservative estimate may be based on the company’s experience with the nearby GMT-1, where some wells performed below expectations.

In contrast, CD-5, a few miles east, has been consistently producing above predictions since it began production. ConocoPhillips said it has carried out extensive production tests at GMT-2 to confirm its modeling for the new project.

A new, larger ConocoPhillips project, Willow, is about 10 miles further west of GMT-2 and will have its own oil proceeding plant at the location. Willow is at an advanced stage of engineering but it currently delayed by lawsuits filed by conservation and tribal groups.

Planning and permitting for GMT-2 has been underway since 2015 with the U.S. Bureau of Land Management, which administers the federal reserve.

A federal law passed by Congress in 1976 as well as the 1971 Alaska Native Claims Settlement Act, or ANCSA, sets out how the mineral rights and royalties are shared between the federal government and two Alaska Native corporations of the North Slope, Arctic Slope Regional Corp., of Utkiagvik (formerly Barrow) and Kuukpik Corp., which is owned by the Inupiat residents in the nearby village of Nuiqsut.

The two Native corporations secured rights to minerals in NPR-A under ANCSA. Besides GMT-2, which just began production, ASRC and Kuupik also own royalty rights in GMT-1 and CD-5, the two other producing projects in NPR-A.

Also, five other Inupiat villages on the North Slope share indirectly in the NPR-A under the 1976 law, and separate from ANCSA mineral and royalty rights. In the 1976 law the state of Alaska is to receives 50 percent of the federal royalty but the state distribute the money to support public services in the villages.

NPR-A was created in 1923 as a potential oil reserve for the U.S. Navy. It was then Naval Petroleum Reserve No. 4, or NPR-4. However, there were no significant discoveries in the reserve despite decades of exploration, initially by the Navy and then the U.S. Geological Survey.

It was only in more recent years that the government allowed private oil and gas companies to own leases and to explore. Even more recently the exploration came to be done with modern technologies like “3-d” seismic and horizontal drilling.

It was because of those that discoveries capable of commercial production were made, leading to the recent development and production.

Isaacson, ConocoPhillips’ head in Alaska, said the new projects will bring multiple benefits to the state of Alaska and nearby Inupiat communities. “Projects like these continue to create hundreds of jobs in Alaska and contribute to a stable Alaska economy,” which has been stressed by pandemic-related cutbacks in oil employment.

“Our continuous investment in projects on the North Slope benefits Alaska’s future,” he said.