In ConocoPhillips’ second round of spending cuts announced April 16, Alaska once again lucked out with only $200 million of the company-wide $1.6 billion capex reduction coming from the state. Alaska spending for 2020 spending was reduced March 18 from approximately $3.4 billion to $3.2 billion; the most recent announcement brings it down to about $3 billion.
Some of the reductions will come from drilling - cutting short the exploration season, such as drilling only one well at Harpoon (Harpoon 2) instead of three this winter and not starting up Doyon 26, the big extended reach drilling rig that just arrived at the CD2 pad for assembly and testing.
ConocoPhillips said it was voluntarily reducing oil production in May in the Lower 48 and Canada by about 225,000 barrels a day gross but was not curtailing output in Alaska. But that could change in future months, per company executives CEO Ryan Lance, COO Matt Fox and CFOs Don Wallette Jr., who participated in the April 16 webcast.
They said production curtailment decisions would be made on a month by month basis, subject to operating agreements and contractual obligations,
The reason the Alaska North Slope didn’t see any production reductions in May was because trading for ANS crude begins a little earlier than it does for Lower 48 and Canadian crude, and the ANS price at the time was acceptable.
A Petroleum News source in the company said there will be natural attrition in production from the North Slope due to the reduction in development drilling that was previously announced, although ConocoPhillips expects output to stay relatively flat for 2020.
Thomson condensate production rising
Perhaps Point Thomson can help to mitigate some of the future decline from ConocoPhillips operated fields.
According to a Petroleum News source close to ExxonMobil “two trains are now operating” at the company’s eastern North Slope Point Thomson unit. The company, he said, will soon see an increase in daily production of condensate from around 5,000 barrels per day to 10,000, as each train is supposed to be capable of 5,000-6,000 bpd.
Since the term train is usually associated with future LNG production from Point Thomson, it likely means the company is keeping two compressors working - over the years ExxonMobil has told the state that production has been impacted by gas injection compressor availability and reliability.
Each compressor allows the field to produce 5,000-6,000 barrels a day. In its most recent plan of development for Point Thomson, ExxonMobil told the state that it is addressing issues in its gas injection equipment, has begun installing upgraded components and expects to receive and install the remaining equipment during the 2020-21 period.
The source also said much of that equipment “has been installed and is running really well.”
Responding to falling prices, demand
The actions ConocoPhillips is taking on the North Slope and elsewhere are in response to the global oil market downturn.
ExxonMobil recently announced 15% cuts in operations spending worldwide, including Alaska.
Lance said ConocoPhillips was deferring production “where we have a compelling economic reason to do so. These actions reflect our view that near-term oil prices will remain weak, largely due to demand impacts from COVID-19 and continued oil oversupply. We are well-positioned with flexibility to take actions that we believe maintain our relative competitive advantages, as well as our ability to resume programs depending on the timing and path of a recovery.”
At Surmont, the company is currently cutting back production due to low Western Canada Select prices. By May, it expects to reduce production by approximately 100,000 barrels of oil per day gross to 35,000 barrels a day gross.
In the Lower 48 beginning in May, ConocoPhillips plans to begin curtailing oil production across the region, initially cutting about 125,000 barrels a day gross.
Significant flexibility
“Over the past few years, we worked very hard to position our company with significant flexibility across our capital, operating, distribution and balance sheet channels,” Lance said. “We entered this downturn with several competitive advantages, including a very strong balance sheet with over $14 billion of liquidity, a diverse portfolio with low capital intensity, and significant financial and operating flexibility. We believe this puts us in an advantaged position to take rational, economic actions, including voluntary curtailments that align with reasoned views of the market.”
With the actions announced April 16, “we have exercised a total of over $5 billion of flexibility compared to our 2020 plan, while retaining additional flexibility, if needed. We’re doing the right things to protect shareholder value during this downturn, while maintaining our ability to create long-term value for shareholders when market conditions recover,” he said.
“Importantly, I want to recognize our employees, contractors and other stakeholders for their continued support,” Lance added. “The combination of COVID-19 and the oil market downturn has been difficult on industry and on stakeholders everywhere. As we manage through this unprecedented event, ConocoPhillips’ priorities are to protect the health and safety of our stakeholders, help mitigate the spread of COVID-19, and safely execute our business plans.”
