ConocoPhillips announces major Alaskan discovery

23 January 2017
20 January 2017, Issue 441, Week 2

ConocoPhillips has announced that its Willow discovery on Alaska’s North Slope could hold 300 million barrels of oil and could yield up to 100,000 bpd, writes Kevin Godier

What: ConocoPhillips has said it has made a discovery in Alaska that could yield 100,000 bpd.

Why: The Brookian Nanushuk formation had previously been overlooked by exploration firms.

What next: ConocoPhillips could begin commercial production by 2023.

ConocoPhillips has announced a new Alaskan discovery that may hold 300 million barrels of oil and could produce up to 100,000 bpd. The move comes as a boost to the company at a time when production from its once-prolific Prudhoe Bay field is on the decline. The Willow discovery on the western North Slope of Alaska could become a multi-billion dollar project that takes several years to develop fully, the Houston-based producer said in a January 13 statement.

In December, in partnership with Anadarko Petroleum, ConocoPhillips acquired 594,972 gross acres (2,408 square km) on the western North Slope in a federal lease sale. In addition, the company independently acquired 74 tracts comprising a total of 142,280 gross acres (576 square km) in a state lease sale, also on the western North Slope. These acquisitions were a “follow-up” to the find, which ConocoPhillips had kept secret since early 2016.

High hopes

Coupled with several other recent discoveries in the region, Willow could portend a new wave of oil development on the North Slope. “It’s pretty significant,” said the US Geological Survey’s (USGS) Energy Resources Program chief for Alaska, David Houseknecht. “It ranks up there with all but the top four or five oilfields in Alaska,” he was quoted as saying by Alaska Public Media on January 13.

“This discovery is tremendously exciting not only for Conoco, but also for the state of Alaska,” said ConocoPhillips Alaska’s president, Joe Marushack, in the company statement. He said the Willow discovery could take billions of dollars to develop and could generate thousands of Alaskan jobs during the construction of production facilities. It could also generate substantial state revenues for Alaska, he noted.

ConocoPhillips says the find is located 90 miles (145 km) west of the Prudhoe Bay field, in the Greater Mooses Tooth unit, in the northeast section of the federally owned, 37,000-square mile (95,830-square km) National Petroleum Reserve-Alaska (NPR-A), where it drilled two exploration wells early last year. The discovery wells, about 4 miles (6 km) apart, are named Tinmiaq 2 and 6, and encountered 72 feet and 42 feet (22 metres and 13 metres) of net pay respectively. The wells are located 28 miles (45 km) west of the Alpine Central facility, which processes crude from Conoco’s Alpine oilfield. “Willow’s proximity to existing infrastructure improves the economic viability of the discovery,” said Marushack.

ConocoPhillips owns a 78% stake in the discovery, while Anadarko holds the remaining 22%. 

Under-explored formations 

The Willow wells targeted the Brookian Nanushuk geologic formation, a relatively shallow rock layer that has been overlooked by explorers in Alaska, which have tended to focus on deeper and older accumulations of oil such as those at the giant Prudhoe Bay field. The Nanushuk and the related Torok formation were created roughly 100 million years ago as sediments from eroding mountains deposited across the North Slope, when it was an oceanic basin. Before ConocoPhillips announced its find, Caelus Energy and Armstrong Oil and Gas reported two large North Slope discoveries in the formations over the past year. 

ConocoPhillips said the Tinmiaq 2 well, which struck pay-zones containing light crude oil, was “tested and established good reservoir deliverability”. It said the well had a sustained 12-hour test rate of 3,200 bpd of 44-degree API oil, which Houseknecht described as “very good”. Light oil flows more readily through reservoirs during production, unlike heavy crude that is more difficult to tap. Importantly, light oil also fetches a higher price in the market. The purchases in the December lease sales are another sign of confidence from the company, suggesting that it expects the discovery, or similar geological finds, to extend much further across the region.

What next?

Having led the search for oil and gas in Alaska for over 50 years, ConocoPhillips appears confident of Willow’s development potential. The company believes it could begin producing commercial quantities of crude from the area in 2023, if permits are approved in a timely manner and the project is found to be economically competitive with other oil developments. ConocoPhillips is planning to begin 3D seismic evaluations this month, in an effort to gain a better understanding of the formation and firm up its initial tests, before a development plan for the reservoir is established.

“The acreage acquired in the recent state and federal lease sales gives us running room to test the concepts that led to Willow and other NPR-A discoveries,” said ConocoPhillips’ president of exploration, business development and other international, Richard Lunam. 

There are some significant challenges ahead if ConocoPhillips is to achieve its anticipated 100,000 bpd of production in a region where there is not even a year-round road from the Alpine Central facility to other infrastructure in the region. ConocoPhillips will need to build an ice road in the winter and to truck in all the supplies required for the rest of the operating year while the road is still frozen and navigable.

Meanwhile, the company is expected to continue making substantial investments in other new projects on the North Slope. ConocoPhillips recently started up the first producing field within the NPR-A’s boundaries, CD5, where roughly 20,000 bpd of output has exceeded expectations by 25%. It is beginning construction this winter 8 miles (13 km) west of CD5 at the Greater Mooses Tooth 1 drill site, with first production planned for late 2018 and peak output estimated to reach 30,000 bpd.

Permits have also have been filed for Greater Mooses Tooth 2, located about 8 miles west of Greater Mooses Tooth 1, and where gross peak production is predicted to be 25,000-30,000 bpd. The timing of first oil from Greater Mooses Tooth 2 depends on how long it takes to acquire federal permits, but is anticipated to be in 2020 or 2021. 

For Alaska, the news of the Arctic discovery is very timely, coming as the state faces forecasts of continued economic gloom, with low oil prices cutting into the state budget and leading to thousands of layoffs on the North Slope and in the Cook Inlet oilfields. 

In any oil production case, Alaska would receive half of the 16.67% federal royalty of output from federal land. The discovery is therefore expected to feature in state lawmakers’ discussions over oil production taxes as they begin to consider reducing tax benefits for the oil industry, given the pain being felt by other industries in the state. But, given that significant new production could help to fill the Trans-Alaska Pipeline System (TAPS), there are hopes among the industry that ConocoPhillips’ discovery may encourage the state to hold off from tax benefit cuts for the time being. 

The notable factor is that ConocoPhillips kept its discovery quiet, which has been interpreted as confidence that more oil will be found. While Alaskan development remains costly and challenging, the Willow discovery could mark a return of optimism among the state’s oil industry.

Edited by

Anna Kachkova

Editor

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