ConocoPhillips to curtail Slope production by 100k per day

  • ConocoPhillips will curtail production from North Slope operations by 100,000 barrels per day starting in late May as Alaska oil prices continue to be “unacceptably low,” according to the company. (Photo/Judy Patrick/ConocoPhillips)

ConocoPhillips announced Thursday morning it will cut its North Slope oil production by about 100,000 barrels per day as the price for Alaska crude continues to flounder relative to other oil benchmarks.

The announcement came as ConocoPhillips, which currently produces the most oil in Alaska, also reported a companywide first quarter loss of $1.7 billion as the global response to the COVID-19 pandemic ground economies to a halt and oil prices collapsed.

Oil production will be curtailed in June at the company’s Kuparuk River, Alpine and Greater Mooses Tooth-1 fields. The large Kuparuk and Alpine fields are primarily on state lands, while GMT-1 is in the National Petroleum Reserve-Alaska. The state production tax is applied to NPR-A oil, but the state does not receive royalty revenue from production in the federal reserve.

According to a company statement, the production curtailment will start in late May and how long it lasts will be determined month-to-month. ConocoPhillips 218,000 net equivalent barrels per day in the state during the first quarter.

“This decision was made in response to unacceptably low oil prices resulting from global oil demand destruction caused by the impacts of the COVID-19 pandemic, combined with a global oversupply of oil,” ConocoPhillips Alaska said in a statement. “The curtailment will essentially leave the oil stored in the reservoirs, available for resumption of production at a later date. The actions ConocoPhillips Alaska is taking with this production curtailment underscore the extraordinary challenges currently facing the oil and gas industry in Alaska and elsewhere.”

The cuts should not impact Trans-Alaska Pipeline System operations, according to the statement.

ConocoPhillips Alaska spokeswoman Natalie Lowman said the cuts will be enacted by shutting in wells and the 100,000 barrels per day amount is largely driven by the minimum volume of oil the company needs to continue moving through its facilities at the fields to keep them operational.

“We want to be able to respond quickly if market conditions improve,” Lowman said.

Alaska Division of Oil and Gas spokesman Sean Clifton wrote via email that ConocoPhillips informed state officials about their curtailment plan last week and has assured them that TAPS throughput will remain sufficient.

“It is likely they’ll have to bring production back up when Arctic temperatures return in fall, regardless of market conditions,” Clifton wrote.

Alyeska Pipeline Service Co., which is owned by the major North Slope producers, said April 24 it had begun “prorationing,” or reducing oil throughput in TAPS by about 10 percent, or 50,000 barrels per day, to deal with a lack of oil storage capacity projected for late May in the system.

Alyeska and the producers routinely slow TAPS throughput in summer for maintenance activities.

While oil prices are depressed worldwide, the situation has been magnified for Alaska due to market conditions on the West Coast, where the vast majority of Alaska oil is sold.

Alaska North Slope, or ANS, crude sold for $10.67 per barrel on Wednesday while West Texas Intermediate — the primary price for Lower 48 oil — sold for $15.06 per barrel and oil traded on the global Brent benchmark went for $22.54 per barrel.

The spread between the ANS and global Brent prices that is now hammering Alaska was benefiting the state just a few months ago. As recently as January ANS crude was trading at a $2 per barrel premium to Brent and in prior months Alaska oil had sold for up to nearly $4 per barrel more than Brent.

Transportation constraints limit the amount of oil produced east of the Rocky Mountains that can be sent west. That soft barrier has led to the development of ostensibly two oil markets in the U.S. West Coast refiners also purchase large amounts of Middle East oil and Saudi Arabia’s oil price war with Russia — that started in March and continued into mid-April — exacerbated the glut of oil available to West Coast buyers.

Petroleum economists have also noted that West Coast oil demand largely comes from the transportation sector, which has been hit especially hard by government-mandated travel restrictions to slow the spread of the virus.

Leaders from the world’s top oil producing nations on April 12 announced a global agreement to cut 9.7 million barrels from daily production in May, or about 10 percent of oil production worldwide. Under more normal market conditions prices would jump on the anticipation of such significant supply cuts, but the unprecedented drop in demand is overriding all other market factors.

ConocoPhillips leaders have announced $400 million of cuts to the company’s spending plan in Alaska since mid-March. In early April the company told its drilling contractor Doyon Drilling that it would be laying down its North Slope drilling rig fleet indefinitely.

On April 16, ConocoPhillips executives said they planned to curtail about 225,000 barrels per day of oil production from fields in the Lower 48 and Canada. A statement accompanying Thursday’s first quarter earnings report says companywide voluntary production curtailments in June will likely total approximately 460,000 barrels per day.

Q1 numbers

The $1.7 billion first quarter loss followed a $720 million fourth quarter and nearly $7.2 billion full-year profits.

ConocoPhillips’ total revenue for the first quarter of the year was down more than 40 percent compared to the end of 2019 to just more than $4.8 billion.

The overall loss translated to a loss of $1.60 per share. ConocoPhillips stock traded for $42.40 near the end of trading Thursday, on par with its prior closing price. The company’s per-share price bottomed out at $22.67 on March 18 when the first round of spending cuts was announced. It traded at around $60 per share for much of the winter.

The overall quarterly loss was driven by losses absorbed in the company’s Lower 48, Canada and corporate business segments. According to the earnings report, ConocoPhillips’ Alaska operations netted the company $81 million during the first quarter.

According to Lowman, ConocoPhillips paid $218 million in taxes and royalties to the State of Alaska and spent $509 million on capital projects during the quarter.

The company remains on track to start oil production at its Greater Mooses Tooth-2 project on the North Slope in late 2021, according to the earnings report statement.

ConocoPhillips realized an average price of $38.81 per barrel for its oil in the first quarter, down about 18 percent from an average of $47.01 for the fourth quarter of 2019.

ConocoPhillips ended the quarter with $13.7 billion in liquidity compared to $14.1 billion in cash and short-term investments at the end of 2019.

Elwood Brehmer can be reached at [email protected].

04/30/2020 - 1:02pm