ConocoPhillips seeking investors in North Slope projects
ConocoPhillips has a lot of work to do on the North Slope and company executives are looking for someone else to help pay for it.
They announced during a Nov. 19 analyst and investor meeting that the Houston-based oil producer plans to sell up to a 25 percent stake in the producing fields and other projects the company operates in Alaska.
A deal to sell part of its Alaska holdings is expected to take place next year, but it could be pushed to early 2021, according to ConocoPhillips Chief Operating Officer Matt Fox.
Michael Hatfield, president of the company’s Alaska, Canada and Europe operations, said ConocoPhillips plans to spend approximately $25 billion in the state over the next decade.
A large chunk of that investment is expected to go into the company’s Willow prospect in the eastern National Petroleum Reserve-Alaska, which will cost between $4 billion and $6 billion to fully develop and could produce more than 100,000 barrels of oil per day at its peak.
“These investments increase production from our fields and more than mitigate the current decline through (the Trans-Alaska Pipeline System). In fact, as a result of these investments, we believe production through TAPS will increase,” Fox said. “This will create a very economically advantaged future for the state of Alaska.”
ConocoPhillips Alaska Vice President Scott Jepsen said during the Resource Development Council for Alaska conference in Anchorage Nov. 20 that Willow is likely to require $2 billion to $3 billion of spending before the first oil is produced in the mid-2020s.
However, appraisal drilling of the very large prospect last winter indicates all of that investment could generate an additional 50 million barrels of oil beyond initial estimates; the company now says Willow holds between 450 million and 800 million barrels.
ConocoPhillips also began producing from its Greater Mooses Tooth-1 drill site in the NPR-A last fall and is in the midst of developing the similar, mid-sized Greater Mooses Tooth-2 oil project, which is expected to come on line in late 2021 at a cost of more than $1 billion.
The search for a silent partner in its Alaska work is a reversal of recent moves ConocoPhillips has made to take more control of its North Slope assets. The company announced in a February 2018 earnings call that it had spent $400 million to buy out Anadarko Petroleum’s minority position in the Alpine field and large swaths of western North Slope exploration acreage.
Anadarko for years held a 22 percent stake in Alpine and had similar interests in approximately 1.2 million acres of North Slope leases ConocoPhillips has gradually explored. ConocoPhillips currently holds 100 percent of those assets.
About 75 percent of ConocoPhillips significant holdings of prospect acreage are still untested, according to Jepsen.
The company additionally swapped North Slope and North Sea assets with BP last year in a pair of cash neutral deals that gave each producer a greater stake in the field it operates.
ConocoPhillips took BP’s 39 percent share of the Kuparuk River field in exchange for giving up a portion of its interest in the BP-operated Clair oil field in the North Sea.
The result is ConocoPhillips now holds a 93 percent stake in Kuparuk on top of the other Slope developments it owns outright.
The decision to sell a minority position in its Alaska operations is consistent with ConocoPhillips policy of not investing 100 percent equity in large-scale projects, which is a common practice in the industry, Fox said.
“We’re pretty confident we’ll have a lot of interest in Alaska. I think we’ve made the case there as one of the best exploration plays in the world just now; so I think we’re going to have significant interest there,” he said.
Company executives also briefly discussed the Fair Share Act, an initiative to raise oil production taxes on the Prudhoe Bay, Kuparuk and Alpine fields by approximately $1 billion per year, according to sponsor estimates.
Fox noted the initiative is not yet guaranteed to make it on 2020 ballots — the sponsors are currently attempting to gather the more than 28,000 signatures needed to get it on ballots next year — but said if it does make it on ballots that the company will “have a conversation with the people of Alaska about, does that make sense?”
The Fair Share Act sponsors insist the measure is aimed at Alaska’s legacy fields, which they claim are currently among the most profitable oil fields in the world, to not deter investment in new fields.
Fox said he believes Alaskans will reject the initiative if given a chance to vote on it, but if they don’t, the company will have to reevaluate its plans.
“They will see what Michael (Hatfield) said was $25 billion of capital in this plan being invested across the three assets we’re involved in, plus about the same again in operating cost,” Fox said. “They’ll see that that’s going to turn around the production in Alaska and actually make it increase again.
“So our sense is that once the whole dust has settled, then everybody understands what’s at stake, Alaskans will understand that short-term revenue gain is a risky proposition if you’re going to give up all this long-term potential.”
Elwood Brehmer can be reached at [email protected].