Those big new oil projects for the North Slope appear to be on track. Both ConocoPhillips and Oil Search, a Papua, New Guinea company, are in advanced planning and engineering for ConocoPhillips’ Willow and Pikka, which is led by Oil Search. The two projects could eventually be putting over 200,000 barrels per day of new oil into the Trans Alaska Pipeline.
Final decisions by the companies for these new projects, which will spur several billion dollars of new investment and construction, have not been made, but so far there appear to be no show stoppers.
However, hiccups do occur. One new project by ConocoPhillips that is now in production, GMT-1 in the National Petroleum Reserve-Alaska, is not meeting expectations in production. One of three production wells at GMT-1 is performing below expectations, company officials said in their most recent quarterly briefing to analysts.The problem is related to the complex reservoir at GMT-1, ConocoPhillips spokesperson Natalie Lowman said in an interview. GMT-1’s reservoir is relatively small with three wells now producing, and the problems are not expected to occur at GMT-2, a nearby, larger deposit now being developed by the company, she said.
GMT-1 was expected to produce about 30,000 barrels per day at peak but may actually produce less. The reservoir problems were unexpected after ConocoPhillips’ stellar success at CD-5, another smaller field in NPR-A that is nearby, where production has far exceeded initial predictions. GMT-2, which is also nearby, is still predicted to reach its target at 40,000 barrels per day at peak.
A bright spot is at another new project can pick up some of the slack from GMT-1. It is Moose Pad in the Milne Point field, operated by Hilcorp Energy, which has shown production increases after starting up in April. Production averaged 3,368 barrels per day in May and 4,900 barrels per day in June, according to data from the Alaska Oil and Gas Conservation Commission.
Meanwhile, GMT-2 is in construction and is expected to begin operations in 2021. Another, smaller ConocoPhillips project is Fiord West, an undeveloped deposit within the larger Kuparuk River field that the company will develop with long, “extended-reach” horizontal production wells from existing surface facilities several miles away, an example of advanced technologies being applied. Fiord West is expected to be in operation in 2021 or 2022, producing 20,000 barrels per day. One other smaller project that could be producing relatively soon is Nuna, a discovery by Caelus Energy that was recently sold to ConocoPhillips. Nuna is partly-built and could be producing in 2022, ConocoPhillips said in its most recent quarterly call to analysts. No figure for expected production was given, however.
While the future looks good for the North Slope, current production overall is lagging, which has implications for near-term state revenues and Gov. Mike Dunleavy’s efforts to close a state budget gap. North Slope production is running 10,963 barrels per day lower, on average, for the six-month period from February through July, raising concerns again about long-term declines at the large “legacy” fields on the slope that are now 40 years old or more.
In May, the most recent month where production totals were not affected by scheduled maintenance at facilities, total production from the slope averaged 502,380 barrels per day, compared with 528,710 barrels per day in May 2018, according to Alaska Department of Revenue production data.
Production was down each month from February through May compared with the same months of 2018. Some of the declines were due to a temporary shutdown of facilities at the small Nikaitchuq field, which is operated by Eni Oil and Gas.
Output picked up again in June, however, and was 3,831 barrels per day higher than June, 2018. July showed a gain of 5,571 barrels per day of monthly average production. However, theapparent gains in June and July, over the same months of 2018, are more reflective of scheduled maintenance shutdowns of field production facilities in June and July 2018, which depressed production for those months, rather than significant gains in field output this year. The overall trend in slope output, for now, appears to be a return to long term declines from large, older producing fields that have averaged 5 percent to 6 percent over the years.
There was a flattening in the decline due to state tax changes in 2013, producers say, which prompted a surge of new development activity along with deployment of new production technologies like horizontal wells. The burst of activity brought new production that offset the underlying decline enough to stabilize overall output even slightly increase production in some years.
The benefit of those post-2013 projects may be wearing thin, however, and while Moose Pad and GMT-1 will pick up some of the slack, there may be several years of slow decline until benefits of the larger Pikka and Willow projects are seen after 2025.
In the longer term, a federal lease sale is expected late this year in the coastal plain of the Arctic National Wildlife Refuge east of Prudhoe Bay. The area has potential for significant discoveries, state and federal geologists say, but whether that will happen depends on exploration drilling, which could take several years. There will also be lawsuits by conservation groups, which could delay the lease sale and any exploration drilling.