Pandemic price slump pushes production to lowest level since TAPS startup

  • Tugs escort the Polar Alaska owned by ConocoPhillips out of Prince William Sound in this file photo. The biggest oil producer in Alaska is reversing its massive production cuts, but the state is still on track for its lowest fiscal year output since the Trans-Alaska Pipeline System started up in 1977. (Photo/File/AJOC)

Suffice it to say the first half of 2020 has been exceptionally challenging on a host of fronts and Alaska’s oil production figures illustrate well the hardships facing one of the state’s premier industries and primary revenue sources.

Through June 22, North Slope producers had extracted an average of 474,919 barrels of oil per day through the 2020 state fiscal year, which ends June 30, at an average price of $52.28 per barrel, according to Department of Revenue data.

While the production and price figures are generally in line with Revenue’s most recent predictions for fiscal year-end averages — the realized production to-date is 2.4 percent below expectations and the price is 1.2 percent more than was predicted — those estimates were made in early April when it was clear what the COVID-19 pandemic and a Saudi-Russian price war were going to do to Alaska’s oil industry.

Revenue’s fall 2019 oil production forecast called for an average of 492,063 barrels per day at an average sale price of $63.54 per barrel of Alaska North Slope crude in fiscal 2020.

North Slope production averaged about 496,900 barrels in fiscal 2019, meaning the current rate of 474,919 barrels per day would result in a year-over-year decline of 4.4 percent, versus the original forecast of less than 1 percent production decline.

Additionally, the actual price and production averages are likely to drop a little more before the final tally for the fiscal year at the end of June as North Slope production has been in the 430,000 barrels per day range of late and the price of Alaska oil remains in the low $40s per barrel.

At current averages, the $52.28 per barrel price would be the lowest since Alaska North Slope crude sold for $49.43 in 2017 and oil production would be at its lowest level since the startup of the Trans-Alaska Pipeline System in 1977 when the first few days of North Slope production averaged 10,500 barrels per day, according to Revenue Department figures.

It jumped to 789,600 barrels per day in 1978 and peaked at 2.1 million per day in 1988.

The 387,782 barrels per day average through June 22 would also be the lowest monthly North Slope production since TAPS started as well, largely due to ConocoPhillips cutting its North Slope production by roughly 100,000 barrels per day, or half of its normal production, in response to collapsed oil markets.

Revenue officials expect the price for Alaska North Slope crude to average $37 per barrel in fiscal 2021 and North Slope production to average 486,500 barrels per day, according to the spring revenue forecast.

It all adds up to less oil tax and royalty revenue in the state’s coffers and ever-more difficult choices for lawmakers who will attempt to close the widening budget gap when they convene in Juneau next January.

Legislative Finance Division officials said in late April following an announcement by Alyeska Pipeline Service Co. that the oil flow through TAPS would temporarily be reduced by 50,000 barrels per day in response to a supply glut during the peak of the global economic shutdown that the price and production drops would likely balloon the state’s deficit to $1.3 billion in 2020.

The state started 2020 with a small budget surplus before paying Permanent Fund dividends and appropriating additional funds to combat the impacts of COVID-19.

On the bright side, ConocoPhillips Alaska officials have said they plan to resume normal Slope production operations in July with improving market conditions and Alyeska has stopped constraining TAPS throughput.

ConocoPhillips spokeswoman Natalie Lowman wrote via email that further decisions on curtailing production with be made month-to-month.

However, the major producer will not be resuming drilling on the Slope for the rest of the year, which was cut as part of approximately $400 million in capital spending reductions announced in March and April, according to Lowman, so it’s unclear what the ultimate impact to future production will be.

Lowman said ConocoPhillips still plans to start production in late 2021 at its Greater Mooses Tooth-2 oil project in the National Petroleum Reserve-Alaska. The $1.4 billion project is expected to produce up to 40,000 barrels per day at its peak.

State Division of Oil and Gas officials on June 4 authorized Savant Alaska LLC, a subsidiary of Anchorage-based independent Glacier Oil and Gas, to suspend its production at the North Slope Badami Unit through July 15, 2021, or at least until market conditions improve. Savant applied for state approval to suspend production at Badami May 28. Savant produced about 1,300 barrels of oil per day from the field in April, according to Alaska Oil and Gas Conservation Commission records.

Elwood Brehmer can be reached at [email protected].

06/25/2020 - 10:44am