The Explorers 2021: ConocoPhillips: ‘hitting reset’ in 2021

Alaska’s most consistent explorer resumes activities at several projects.

Eric Lidgi

for Petroleum News

ConocoPhillips Alaska Inc. is the most prolific North Slope explorer of the 21st century.

As many of its large multinational contemporaries were retreating from exploration to focus on development, ConocoPhillips continued to pursue opportunities beyond its existing North Slope units. And although many smaller independents occasionally outdid ConocoPhillips in any given exploration season, they have all lacked ConocoPhillips’ longevity, either leaving after a few seasons or selling prospects after de-risking them.

In the 19 years since the 2002 merger that created ConocoPhillips, the Alaska unit of the Houston-based multinational exploration and production company has diligently pushed westward beyond the Kuparuk River unit. Its exploration activity has now expanded the reach of North Slope oil development beyond the Colville River and into federal lands.

But for a company defined by its constancy and consistency, the past few years have been unpredictable. Some seasons were among ConocoPhillips’ most active ever. Others saw no exploration at all. Others started out strong but then were unexpectedly cut short.

ConocoPhillips conducted no exploration activities this year, following two robust winters. In the winter season of 2018-19, the company completed nine wells listed as “exploratory” by the Alaska Oil and Gas Conservation Commission. The list included one well in the Kuparuk River unit and two wells within the Colville River unit, in addition to six traditional exploration wells in the National Petroleum Reserve-Alaska.

The company planned a seven-well exploration program for 2020 but only completed three before reducing its activities in response to the emerging coronavirus pandemic.

This year, the company delayed its decision to restart drilling activity pending the results of the Nov. 3 ballot initiative to increase oil production taxes in the state. Following the defeat of the ballot measure, and then the stabilization of oil prices around $40 per barrel, ConocoPhillips announced plans to resume drilling before the end of 2020.

The announcement covered a range of development and maintenance projects at the Kuparuk River unit, the Colville River unit and the Greater Mooses Tooth unit. But it did not include any exploration drilling for the 2020-21 season, making this year one of only a handful of exploration seasons over the past 20 years without ConocoPhillips.

The starts and stops of the past few years can make it easy to overlook the larger trend: ConocoPhillips has been undertaking a notable expansion of its exploration activities. In addition to its long-standing movement to the west, it has also been pursing emerging opportunities closer to its existing units at the western edge of the central North Slope.

In a presentation at Meet Alaska in late March 2021, ConocoPhillips Alaska President Erec Isaacson described 2021 as “hitting reset.” The company would focus on lowering costs and engaging stakeholders and would also resume regular development drilling, as well as progress on $1.1 billion in projects across the North Slope: Greater Mooses Tooth No. 2 construction, Alpine expansion, Willow permitting, Nuna development and ongoing work at the Eastern NEWS (North East West Sak) at the Kuparuk River unit.

Heading west

Through its predecessor companies, ConocoPhillips helped discover or develop the Kuparuk River unit, as well as the Alpine field and its satellites at the Colville River unit.

After the National Petroleum Reserve-Alaska was reopened for exploration in 1999, ConocoPhillips’ predecessor Phillips Petroleum Co. was one of the first companies to explore the region. In May 2001, Phillips announced three major NPR-A discoveries.

“These discoveries mark an important milestone in the Alaska oil industry,” then-president of Phillips Alaska Kevin Meyers said at the time. “Though the results are preliminary, we’re confident the discoveries will prove to be of commercial quantities.”

Anyone who follows the announcements of oil and gas companies knows to be mindful of hyperbole, but ConocoPhillips has long since justified those comments. The company has spent the last 20 years pursuing the NPR-A discoveries announced by its predecessor in May 2001, and it is only recently seeing oil production from the first of those properties.

The current push dates to 2008. That year, ConocoPhillips formed the Greater Mooses Tooth unit around the cluster of NPR-A wells and discoveries west of Nuiqsut. The move helped protect soon-to-be-expiring leases dating back to the original 1999 lease sale.

ConocoPhillips also relinquished 19 federal tracts around Intrepid 2 well south of Barrow, a sign that it was losing interest in wildcat exploration on the North Slope.

Between 2008 and 2016, ConocoPhillips gradually backed away from Alaska offshore exploration, too. The company dropped most of its Beaufort Sea leases in 2009 and spent several years pursuing Chukchi Sea opportunities before dropping those leases in 2016.

At the same time, ConocoPhillips was increasingly focusing its energies on exploration opportunities within close reach of its existing onshore infrastructure. Toward the end of 2015, ConocoPhillips CEO Ryan Lance announced, “Over the past couple of years, we’ve been able to change the profile of our Alaska business. We’ve transformed the declining production base into one that can deliver stable production for a decade.”

The U.S. Bureau of Land Management approved the formation of the Greater Mooses Tooth unit in 2008. ConocoPhillips expanded on its May 2001 discoveries in the unit area with a series of related exploration wells, including the Pioneer No. 1 and Grandview No. 1 wells in early 2009 and the Rendezvous No. 3 and Flat Top No. 1 wells in early 2014.

Through subsequent exploration, appraisal and development work, ConocoPhillips unofficially divided Greater Mooses Tooth into three regions: east, central and west.

ConocoPhillips began producing the eastern leases in October 2018, when it brought the GMT-1 pad online. The company is currently in the final stages of development work on the GMT-2 pad, which will develop the leases in the southcentral portion of the unit.

The company employed as many as 700 people on the GMT-2 project this winter, which was the third and final year of construction on the $1.4 billion project. Development drilling on the first of 36 wells was scheduled to begin in the second quarter with first oil by the end of the year. GMT-2 should produce 35,000 to 40,000 barrels per day at its peak.

Willow

ConocoPhillips began staking its first Tinmiaq wells in late 2015 and completed a two-well drilling program in the area in early 2016. The work was notable for pushing beyond previous drilling activity in the region. Way back in May 2001, when Phillips Alaska Inc. announced its initial oil discoveries in the area, the exploration activity was clustered in what would later become the center of the Greater Mooses Tooth unit. Subsequent exploration activity pushed to the south and the east - but not into the western leases.

The initial Tinmiaq exploration program came as ConocoPhillips was sanctioning its initial $900 million GMT-1 development at the eastern end of Greater Mooses Tooth and permitting its GMT-2 development on leases in the south-central section of the unit.

In early 2017, ConocoPhillips announced that the first Tinmiaq wells - Tinmiaq No. 2 and Tinmiaq No. 6 - had made a major discovery in the Nanushuk formation. The Willow prospect was estimated to contain as much as 300 million barrels of recoverable oil and could potentially produce as much as 100,000 barrels per day at its peak.

“This discovery is tremendously exciting not only for ConocoPhillips, but also for the state of Alaska,” then-ConocoPhillips Alaska President Joe Marushack said. “Willow’s proximity to existing infrastructure improves the economic viability of the discovery. Development of Willow, a potential multi-billion-dollar investment, could provide thousands of jobs during construction and could generate substantial revenue for the federal government, state, North Slope Borough, and communities in the NPR-A.”

In addition to being encouraged by resource estimates, ConocoPhillips was intrigued by Willow’s geology. Willow was one of three major North Slope oil discoveries made within a year in the Nanushuk formation or in the closely associated Torok formation - following Armstrong Energy’s Pikka and Caelus Energy’s Tulimaniq discoveries.

In late 2016, after drilling the two Tinmiaq wells but before announcing the discovery, ConocoPhillips acquired 65 tracts covering 594,972 acres in a federal lease sale and 74 tracts covering 142,280 acres in a nearby state lease sale. And in 2017, after announcing the discovery, ConocoPhillips commissioned a 3D seismic survey over the region.

That may seem like a rush of activity, but subsequent permitting documents suggested that ConocoPhillips had discovered the Willow prospect in 2002 with its Hunter A well.

ConocoPhillips returned with a four-well program in 2018 (Tinmiaq No. 7, No. 8 and No. 9 and West Willow No. 1) and a five-well program in 2019 (Tinmiaq No. 10, No. 11, No. 13, No. 15 and No. 16, along with re-entry projects on Tinmiaq No. 2 and Tinmiaq No. 9). The company planned a six-well program in 2020 but was only able to complete two wells (Tinmiaq No. 18 and No. 20) before coronavirus restrictions interceded.

One of the big questions hanging over the Willow prospect from the beginning was whether ConocoPhillips would develop it independently or as an Alpine satellite. The decision would impact the cost and design of the project, as well as its production rate.

A satellite would produce about 40% to 50% of the peak production of a standalone field, and it would be timed to accommodate the existing Alpine facilities. Production would be drawn out across a longer timeline. But a satellite would be the cheaper option.

In a proposed development plan filed with the U.S. Bureau of Land Management in early 2018, ConocoPhillips endorsed a standalone facility. “The existing processing facility at Alpine is not feasible for a tie-in of the Willow development due to geographic and technical constraints,” the company wrote. “The Willow master development plan would require construction of a new processing facility, the Willow Central Facility.”

The proposal did, however, envision using existing pipeline systems to bring seawater and diesel fuel to the proposed field and to deliver sales-quality crude from the field.

The Willow project was delayed earlier this year when the U.S. Court of Appeals for the 9th Circuit extended an injunction, banning ConocoPhillips from conducting fieldwork for its Willow oilfield development. The injunction emerged from a lawsuit by Sovereign Inupiat for a Living Arctic and several environmental organizations against the Bureau of Land Management. The case was still pending as The Explorers was going to print.

Harpoon

The company’s initial plans for the 2019-20 winter exploration season included exploration drilling at the Harpoon prospect, southwest of Willow. Before the program began, Executive Vice President of Exploration and Production Matt Fox said that seismic work had identified an anomaly worth investigating. It “looks like there could be … quite substantial resources,” he said. “Now it could be gas and it could be water. It’s almost certainly a reservoir, because we’re pretty sure that’s what the seismic signature’s telling us … but it doesn’t have to be huge for it to be a tieback to the Willow hub.”

The season was supposed to be among the largest ever for ConocoPhillips. In addition to the six Tinmiaq wells, the company planned four “rank exploration” wells at Harpoon.

ConocoPhillips hadn’t intended to complete all 10 wells, only to provide options for a seven-well program. But global circumstances made even that smaller goal impossible.

Just as the exploration season was gathering momentum, the coronavirus pandemic was suspending operations around the world, including the distant and isolated North Slope.

By the time ConocoPhillips demobilized its fleet in early April in response to the pandemic, the company had only completed one of the Harpoon wells - Harpoon No. 2.

A further disappointment came earlier this year. In its annual U.S. Security and Exchange Commission filings, ConocoPhillips announced that Harpoon No. 2 had been a dry hole. According to the company, “evaluations confirmed the well intersected sub-commercial volumes of hydrocarbons in the upper Harpoon interval which will not be developed.”

In an earnings call in early 2020, Fox said Harpoon 2 appeared to have “clipped the edge of the topset based on its log response,” adding that the company wouldn’t know for sure until it drilled a second well. Asked by analysts whether the well had encountered hydrocarbons, Fox acknowledged that it had. “It looks from a lithological perspective similar to other lithological signatures we’re seeing on the edge of these topsets,” he said.

Even so, the company said it still believed in the potential of the “Harpoon Complex,” described as Harpoon, Lower Harpoon and West Harpoon, and intended to return to it.

Narwhal

The play has a long and circular history with many names.

ConocoPhillips first asked the state to expand the Colville River unit to include acreage to the south in 2002, around the time of its merger. The prospect was known at the time as Titania. The state agreed to the Titania expansion but eventually contracted the acreage out of the unit in 2004 after ConocoPhillips had failed to meet its drilling commitments.

A joint venture operated by Brooks Range Petroleum Corp. subsequently acquired the acreage through a lease sale and began referring to the leases as the Tofkat prospect. The small independent encountered hydrocarbons on the leases in early 2008 with the Tofkat No. 1 well and two related sidetracks and later formed the Tofkat unit in October 2011.

The state terminated the unit in late March 2016, after the company missed work commitments. The termination proceedings came as ConocoPhillips was acquiring the acreage. ConocoPhillips asked the state to incorporate it into the Colville River unit.

The state was hesitant to approve the expansion, because of the atypical status of the leases and because of ConocoPhillips’ previous failure to explore the acreage. But state officials ultimately agreed to the request, pursuant to bonds, guarantees and conditions.

Under this newest effort, ConocoPhillips began referring to the project as Putu. To meet the initial set of conditions required by the state, ConocoPhillips drilled the Putu No. 2 and Putu No. 2A wells and made a $3 million bonus bid replacement. The company also drilled four appraisal wells - CD4-595PH1, CD4-595, CD4-594PH1 and CD4-594 - beyond its work commitments “to better understand the reservoir and to test the technical feasibility of extended reach drilling at shallow depth,” according to the company.

The next round of commitments required ConocoPhillips to pay $4 million to the state and submit a plan detailing efforts to bring the leases into sustained production.

Based on preliminary testing of its initial Putu exploration wells, the company announced the Narwhal discovery, estimated to contain between 100 million and 350 million barrels of oil equivalent. Like Willow, Narwhal was also in the Nanushuk formation. Willow and Narwhal are different sediments deposits within the formation, with Willow being older.

ConocoPhillips drilled a follow-up well at Narwhal in the 2019 exploration season. That summer, the company said that the results were “encouraging” enough to justify “an additional unbudgeted horizontal well from an existing Alpine drill site into the Narwhal trend” later in the year. That relatively spontaneous decision, at least by North Slope standards, reflects one of the big strategic opportunities of the prospect. It is close enough to the Colville River unit to utilize existing well pads, bringing down costs and reducing some of the most common logistical complications of off-road winter exploration.

Asked about the additional well, Fox said it would be a “long-term test” to better “understand the long-term deliverability.” He added, “We also can drill an offset injection well to this producer from the same drill site. So, we’re going to take the opportunity to do that as well. And that will give us further information on the Narwhal trend. But it’s really driven by encouragement and what we saw in the initial well in the Narwhal, the Putu appraisal well we call that. We’re feeling good about that.”

A long-term flow test conducted on the Narwhal exploration well also “exceeded expectations,” according to ConocoPhillips. The well produced at a peak rate of 4,500 barrels of oil per day, leading the company to increase its estimated ultimate recovery figure for the prospect by 150 million to 400 million barrels of oil equivalent.

The company initially envisioned a two-pronged strategy at the Narwhal prospect. It would drill about half the wells horizontally from the existing CD-4 pad at the Colville River unit and the remaining wells from a new CD-8 pad in the southern end of the unit.

Under that proposal, the company initially expected production as early as 2022 from the wells at the CD-4 pad and production from the planned CD-8 pad as early as 2025.

But by late 2020, the company was rethinking its approach. The CD4-594 and CD4-595 appraisal wells had “stretched the limits” of serviceable extended reach drilling at shallow depths, according to ConocoPhillips. And so the company shifted the project toward CD-8, which would support between 20 and 40 wells, depending on modeling.

Stony Hill

ConocoPhillips described Stony Hill as a prospect similar to Willow and estimated that it contained at least 300 million barrels of recoverable oil in the Nanushuk formation. In November 2017, ConocoPhillips executive Matt Fox said the company had identified “a lot” of Willow lookalikes in the Nanushuk and “every one of them we’ve drilled so far has had oil in it, so we’re hopeful that several of these Willow lookalikes will deliver.”

The Stony Hill wells encountered oil but required additional appraisal drilling and analysis - as did the Putu wells, which are closer to Colville River unit infrastructure.

All the ConocoPhillips projects at the Colville River unit and in the NPR-A place additional responsibilities on the Alpine infrastructure. In his Meet Alaska presentation, Isaacson described three projects underway this year to expand the gas-handling capacity and power generation and to add a slug catcher at the Alpine processing facility. The $190 million projects would allow Alpine to handle additional production coming online.

Nuna

For years, the Nuna prospect was seen as crucial to the future of the Oooguruk unit, located in the waters of Harrison Bay northwest of the Kuparuk River unit. Companies in the region had known about the prospect for years. The Nuna field is located in the shallow Torak formation, and all drilling into deeper reservoirs had passed through it.

Pioneer Natural Resources Alaska Inc. officially discovered the prospect during the 2013 winter exploration season with its Nuna No. 2 well. With the results that well, the independent increased both the aerial extent and the estimated ultimate recovery of the field - claiming it could contain between 75 million and 100 million barrels of recoverable oil, resulting in some 25,000 barrels of oil per day over 25 to 30 years.

The next operator of Oooguruk, Caelus Natural Resources Alaska Inc., sanctioned a $1.4 billion Nuna development - with $550 million for construction and the remainder for drilling - in 2015 and even received a major royalty modification from the state to make the project work. It paused work a few years over concerns about the economic climate.

Caelus ultimately left Alaska in early 2019, selling off its properties. While the company sold the Oooguruk development to its minority partner Eni, and later announced that it had sold 100% ownership in the Nuna leases to its neighbor ConocoPhillips.

The sale made sense considering that the company had intended to access the offshore Nuna leases using an onshore development at Oliktok Point, in the Kuparuk River unit.

ConocoPhillips had already been testing wells in the Torok since at least 2013. Speaking about the project during an earnings call in July 2019, ConocoPhillips executive Michael Hatfield said that the Nuna prospect could be developed mostly from existing pads and roads and that the remaining facilities could be built in a single ice road season. He estimated that the field could be developed with oil prices in the low $30 per barrel range and that the field would produce about 100 million barrels on $100 million investment.

At that time - nine months before the pandemic - ConocoPhillips was planning a few years of appraisal as part of it Kuparuk River program, leading to first oil in 2022. In his Meet Alaska presentation, Isaacson put the timeline for first oil at the “mid-2020s.”

Nuna production would be processed through Kuparuk River unit facilities, as would additional production from the NEWS project. Although not traditional exploration, the expansion of viscous oil production from the 1H NEWS drill site is a source of new oil.

Legacy

Incremental advancement is a defining feature of the North Slope. The basin contains many known oil fields that would instantly be standalone commercial properties if they existed in a less remote corner of the world. The challenge on the North Slope over the past 60 years has been building up regional infrastructure to create economies of scale.

By developing the Kuparuk River unit and then the Colville River unit, ConocoPhillips changed the characteristics of the swath of land between those two oil fields. The so-called “billion-dollar fairway” has perpetually interested smaller exploration companies.

There are currently three units in the region: the Oil Search-operated Pikka unit, the Arctic Slope Regional Corp.-operated Placer unit and the Mustang Holding LLC-operated Southern Miluveach unit, which was the first to move into development.

Pikka, Placer and Southern Miluveach all, in some fashion, rely upon the infrastructure of the Conoco-Phillips’ operated units, usually in the form of various pipeline capacity.

These partnerships are not perfect. In some cases, smaller players have chosen to pursue standalone production facilities, rather than attempt to find space with ConocoPhillips facilities.

Building standalone facilities greatly alters the economics of a project. A company would only assume the expense voluntarily if self-sufficiency provided an equivalent benefit.

But, by comparison, the lands east of Prudhoe Bay are much less crowded.

Geology is partially responsible for that imbalance. The Point Thompson unit and the neighboring Badami unit have both proven to be exceptionally challenging puzzles.

But history matters, too.

Point Thompson came online much later than the Kuparuk River unit. And whereas the Kuparuk River unit sits immediately adjacent to Prudhoe Bay, Point Thompson is some 30 miles away, creating a much larger area to traverse through that incremental advancement. The reopening of the NPR-A in 1999 created incentives to the west, while the political complications at the Arctic National Wildlife Refuge over the same time created disincentives to the east.

One can imagine an alternate history: if ANWR had been open for development, if Point Thompson had been closer to Prudhoe Bay, if geology had been more accommodating, perhaps there would also be a billion-dollar fairway to the east instead of the west.