2020 Forecast: BP, Hilcorp to seal deal, CP keeps drilling, taxes on the table again

  • A drilling rig works on an exploration well at the Nuna prospect on the North Slope. ConocoPhillips purchased the asset from Caelus Energy in a deal announced June 17, 2019. ConocoPhillips is targeting first oil from the field for 2022 and will employ about 400 workers there this winter. (Photo/Courtesy/Caelus Energy)

By all accounts 2020 is going to be a busy year on the North Slope. In boardrooms, campaign offices and around dinner tables elsewhere in Alaska, it is likely to be another year of examining the state’s oft-debated oil tax system.

BP and Hilcorp will spend the first months of the year working to close the $5.6 billion deal agreed to last August to transfer all of BP’s North Slope assets — including the operator position at Prudhoe Bay — to Hilcorp. Alaska leaders for the companies have said they hope to clear the requisite regulatory hurdles and finalize the deal in the second quarter of the year.

According to Hilcorp, the Houston-based producer had offered jobs to more than 800 of BP’s roughly 1,500 Alaska employees as of Dec. 19. Hilcorp expects to offer another 150 positions over the coming months, according to a formal statement from the company, and current BP employees not moving to Hilcorp as a part of the deal are either taking severance packages from the company or moving elsewhere to continue work with the London-based oil giant.

While Alaska bids farewell to BP following a 60-year relationship, ConocoPhillips is doubling down on the state. ConocoPhillips executives said in November that they are looking for an investment partner to take up to a 25 percent share of the company’s Alaska operations, a move Alaska President Joe Marushack said is simply to get back to the common practice of partnering to fund its large projects.

The company expects to drill seven more exploration wells in the National Petroleum Reserve-Alaska this winter work season to hunt for oil in green field areas and further evaluate its large Willow prospect for one more year.

The drilling work will necessitate ConocoPhillips’ biggest single season of ice roads; the company expects to build about 165 miles of ice roads on the Slope this winter.

As winter turns to spring ConocoPhillips will also be moving a new extended-reach drilling rig to its long-term home at the Alpine field, where the rig — owned by Doyon Drilling and dubbed “the beast” — will help access oil in Fiord West pool previously unreachable from an existing drill site.

ConocoPhillips will also continue work on its $1 billion-plus Greater Mooses Tooth-2 oil project in the NPR-A. First oil is expected from GMT-2 in late 2021 at a projected peak production of up to 40,000 barrels per day. At the Nuna project purchased this year from Caelus, ConocoPhillips expects to employ about 400 workers with first oil targeted for 2022.

The Bureau of Land Management is also expected to hold a long-anticipated, or dreaded, oil and gas lease sale for the coastal plain of the Arctic National Wildlife Refuge early next year barring legal challenges. The sale was once tentatively scheduled for late this year but timing issues pushed it into 2020.

On the policy side of the oil industry, Alaskans could have another choice to voice their position on the state’s oil tax system known as SB 21.

The sponsors of the Fair Share Act, who aim to increase Alaska’s oil tax collections by upwards of $1 billion per year, are currently collecting signatures. If they gather the roughly 28,000 signatures they need before the Jan. 21 start of the legislative session, the initiative, which faces strong opposition from many Republican lawmakers and business groups, the oil tax initiative will be on 2020 election ballots.

The Fair Share Act sponsors contend SB 21 gives Alaska one of the most industry-favored oil tax regimes on Earth and provides a slew of loopholes that producers use to reduce their annual production tax payments well below industry norms.

Opponents argue that Alaska current oil tax rates account for the unavoidably high cost of doing business in the state and overhauling a policy as complex and impactful as the state’s oil taxes should not be done via ballot initiative.

A prior attempt to repeal SB 21 shortly after it took effect in 2014 failed by a 5.4 percent margin.

On the regulatory front, BLM should release its final NPR-A Integrated Activity Plan in 2020, with the aim of increasing the acreage available for leasing. The agency is also expected to rule on ConocoPhillips’ master plan for the Willow project.

Finally, the Federal Energy Regulatory Commission should issue its decision on the Alaska LNG Project environmental impact statement in the middle of next year.

If no private investors pick it up, the major regulatory milestone is likely to be the unceremonious end of Alaska LNG and the Alaska Gasline Development Corp. given Gov. Mike Dunleavy’s aversion to the state continuing to pursue the project.

Between the state and the three major Slope producers, some $800 million was spent on AK LNG on engineering, permitting and acquiring the interests of TransCanada in the project.

The state share of spending between the Alaska Stand Alone Pipeline project and AK LNG was at least $450 million since 2013.

12/24/2019 - 1:23pm