ConocoPhillips accepts state terms to obtain leases

ConocoPhillips has agreed to comply with a long list contingencies demanded by Natural Resources Commissioner Andy Mack to allow the company to control a prized parcel of North Slope oil acreage.

ConocoPhillips Alaska Land Manager John Schell Jr. wrote to Mack in a brief Aug. 11 letter that the company accepts DNR’s terms to expand the Colville River Unit to include 9,100 acres of the now-defunct Tofkat Unit.

Mack sent a 21-page decision to the company Aug. 1, which lays out a strict drilling and payment schedule the oil major must meet in order to retain control of the area. In it, he required ConocoPhillips to drill an oil exploration well into the Nanushuk geologic formation by May 31, 2018, and make a total of $7 million in payments to DNR.

The $7 million is in lieu of the money the department could expect to receive in winning bids if the area were to be put up for bid in the state’s annual North Slope lease sale.

Further, ConocoPhillips must also decide by Aug. 15, 2018, if it wants to continue exploration and commit to drilling another well by June 2020.

It operates the large Colville River oil field, commonly known as Alpine.

While a relatively small area in North Slope terms, the 22 former Tofkat leases are adjacent to the southern edge of the Colville Unit and also close to the Armstrong Energy’s massive Nanushuk oil discovery in the Pikka Unit just to the east.

It’s a highly prospective area.

ConocoPhillips held the acreage in the early 2000s but had to give it back to the state after failing to meet drilling requirements.

If the company misses any of the benchmarks or decides to give up on exploring the area it will immediately relinquish the leases back to the state, according to Mack’s ruling.

The decision, with the hefty legal title of, “Colville River Unit: Reconsideration of the Denial of the Fifth Expansion of the Unit Area with Modifications Under Which Approval will be Granted,” gave ConocoPhillips until Aug. 14 to decide whether or not it would comply; it was made public Aug. 3.

Schell wrote that the company doesn’t agree with all of Mack’s assertions and therefore accepts only the drilling and payment requirement portion of the decision, but continued that, “it is not necessary to resolve or address those disagreements at this time and CPAI (ConocoPhillips Alaska Inc.) reserves its rights accordingly. The important thing is that CPAI agrees to the modifications in the decision and is prepared to move forward consistent with those modifications.

“CPAI appreciates you taking time to reconsider your prior decision. In CPAI’s view this outcome will benefit all stakeholders and represents the best opportunity for this area to be timely developed in a safe and environmentally responsible manner. CPAI looks forward to proceeding towards this goal in collaboration with the State of Alaska, Arctic Slope Regional Corp., local communities and other interested stakeholders.”

In prior correspondence ConocoPhillips accused Mack of violating the company’s due process and making decisions based on an incomplete record. Mack, in his Aug. 1 decision, roundly dismissed the allegations, calling them “troubling” and “unfounded.”

ConocoPhillips spokeswoman Natalie Lowman wrote in an email to the Journal that the company plans to “work with the State, ASRC, Kuukpik Corp. and the community of Nuiqsut to drill an exploration well in 2018.”

ASRC is a joint holder in subsurface rights to the leases with the state, while Kuukpik Corp., the Native corporation for the Village of Nuiqsut, holds surface access rights.

Nuiqsut is located in the contested area.

Mack’s most recent decision came after ConocoPhillips requested he reconsider a February order to require the company drill an exploration well in the area and make a $2.5 million payment before June or relinquish it back to the state; a tight timeline particularly considering any well would have to be drilled on an ice pad.

The challenging schedule was the result of the company telling DNR last December it would not be drilling an exploration well in the area because residents of Nuiqsut — less than three miles downwind from the proposed drill site — were concerned exhaust from the diesel-powered drilling rig would make its way into the community during the several weeks of continuous drilling.

Last November, Mack overturned a prior 2016 decision by former Division of Oil and Gas Director Corri Feige denying Brooks Range Petroleum Corp.’s attempt to transfer the former Tofkat leases to ConocoPhillips.

Feige believed it was in the state’s best interest to put them back up for bid, as Brooks Range’s title to the leases was about to expire.

Mack allowed ConocoPhillips to obtain the area after the company told DNR it would drill last winter.

ASRC has supported ConocoPhillips gaining control of the area and a spokesman for the North Slope Native regional corporation told the Journal while ConocoPhillips was deliberating that ASRC will be discussing any potential concerns with the residents of the village, who are its shareholders as well.

Kuukpik CEO Lanston Chinn said his company, in representing Nuiqsut, continues to seek a balanced approach towards all oil and gas activities.

Mack said in an interview that any residual issues between the ConocoPhillips and the Native corporations were matters between private parties that the state would not be involved in.

Drilling NEWS

Unrelated to the high drama over the Colville River Unit, ConocoPhillips announced Aug. 11 that it had commenced drilling at its 1H NEWS project in the Kuparuk River oil field.

The project is a nine-acre addition to the existing Kuparuk 1H drill site and includes four lateral production wells to access previously challenging viscous oil and another 15 injection wells. NEWS is an acronym for Northeast West Sak; the company is drilling into the West Sak oil reservoir in the greater Kuparuk field.

According to ConocoPhillips, the $460 million 1H NEWS project should produce up to 8,000 barrels per day at peak and first oil is expected later this year.

ConocoPhillips is also progressing its Greater Moose’s Tooth greenfield oil projects in the National Petroleum Reserve-Alaska to the east of Kuparuk. The two GMT projects are expected to each produce up to about 30,000 barrels of oil per day at peak production in the next few years.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
08/17/2017 - 10:09am

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