North Slope oil: Reasons for optimism

Community Perspective

ConocoPhillips recently gave a presentation to the Alaska Legislature about the significant increase in North Slope activity. Being former DNR employees that closely track the oil industry, we tried to place those words in context of what we’ve observed.

When Conoco testified that its exploration activity last winter was successful, and that it was doubling the amount of oil it believed was found, it reinforced what we had been hearing. And when Conoco said it had made two additional discoveries and have several more exploration targets in the hopper, it confirmed what we already knew: Alaska’s North Slope is experiencing a resurgence.

Dermot Cole had a different reaction to Conoco’s testimony. He submitted an column suggesting that Conoco is simply playing election year politics and the good news should not be trusted. Given the billions of dollars pouring into the state, the increased production and the findings of leading scientists at the U.S. Geological Survey and Department of Natural Resources, it is difficult to find a sound basis for Mr. Cole’s conclusions.

Here are the facts on the ground: Conoco recently made a $1 billion investment to bring CD5 online. That project is putting more than 35,000 barrels per day in the trans-Alaska oil pipeline system. Conoco also just finished spending more than $1 billion preparing GMT1 for drilling. That project is progressing and will start sending oil down the pipeline this winter.

But Conoco isn’t the only one that has been investing in real projects on the North Slope. Other operators have done a tremendous amount of work inside existing oil fields. The result has been an impressive achievement, turning a 6 percent annual decline into a 1 percent increase in production during the past few years. These aren’t hypothetical future developments that can be used in political gamesmanship. These are real projects that have occurred.

And it’s not over. Conoco recently spent millions of dollars to build a customized, extended-reach drilling rig to develop new fields. That rig is being constructed and will start drilling in Alaska within the next 18 months.

Conoco is also are spending millions of dollars permitting and preparing the GMT2 project, which should add more than 30,000 barrels per day within the next three years. But it’s the Willow and Pikka projects that have Alaskans the most excited. After last winter’s drilling season at Willow, Conoco increased its estimate from 300 million to as much as 750 million barrels of recoverable oil. Conoco’s discovery followed the Armstrong discovery at Pikka field, which may hold 1 billion barrels of oil. After reviewing the drilling logs, former DNR Commissioner Mark Myers testified before the Legislature that that the Armstrong discovery may be the second largest field discovered in Alaska. Mark Myers went on to say that what is happening on the North Slope is “amazing.”

Indeed, these discoveries are why IHS Markit (a global leader in oil industry analytics) reclassified the North Slope as a “Super Basin” and they explained why the USGS increased its assessment of undiscovered oil in the region by 600 percent.

Meanwhile, we know that BP, Exxon, Hilcorp, ENI, Brooks Range, Oil Search and others are currently spending billions more moving new projects into production. All this activity is pulling Alaska out of a recession and will supply good paying jobs for Alaskans and contribute billions of dollars to the state treasury and the Alaska Permanent Fund for years to come.

Simply put, Alaska’s North Slope is experiencing a real resurgence, and almost everyone who follows the oil industry is excited about it. That is, unless you spent the past five years talking about how the North Slope can never be revived. Or if you said you would eat your hat if oil tax reform would lead to one more barrel.

If you’re one of those people, you’re probably looking for ways to dismiss the production increases and are looking to diminish the optimism that everyone else is feeling about the future.

Yes, Dermot is correct that some of these projects may run into challenges. Oil prices are one of those factors. And other factors could change the economics of these projects, such as the Stand for Salmon initiative or new taxes. We therefore agree with Dermot that we should not start spending those new revenues just yet. Nonetheless, the pronouncements of DNR and USGS’s leading geologists, along with the increased production and new money flowing into Alaska, should give us more reasons for cautious optimism than hostile pessimism.

Ed King was formerly employed as a commercial analyst for the Division of Oil and Gas and as a special adviser to the commissioner of Natural Resources. He is the principal economist for King Economics and resides in Juneau. Jon Katchen was formerly employed as special assistant to Dan Sullivan, then-commissioner of the Department of Natural Resources. He works as an attorney in private practice with a focus on project development.

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