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Part 2: Jepsen says 1 dark cloud on North Slope’s bright future
Kay Cashman Petroleum News
Part 1 of this story, which ran in the Dec. 8 issue, covered Scott Jepsen’s presentation at the Resource Development Council in Anchorage in November. While most of the ConocoPhillips Alaska senior vice president’s information had been reported earlier, Jepsen took a different approach to the North Slope’s reemergence as an oil province.
Jepsen expanded the renaissance, which began with the big new Brookian oil discoveries at Pikka and Willow, to include the North Slope’s three major producing, or core, fields - Prudhoe Bay, Kuparuk and Alpine/Colville River.
As reported in Part 1, Jepsen said that the capital investment planned for the three producing fields in the next 10 years rivals that slated for new discoveries - $11 billion versus $13 billion, respectively.
Furthermore, he said the three core fields currently yield “80% of the oil production that’s coming from the North Slope.” It is, he said, “critical that the infrastructure that these fields support stays healthy,” because “the economics of the new fields are reliant” on the continued health of the core fields.
Finally, Part 1 covered how ConocoPhillips plans to spend the $11 billion in the core fields in the next 10 years and the additional “380 million barrels” the company expects the Colville, Prudhoe and Kuparuk units to produce in that same timeframe.
“Of course,” Jepsen noted, “we’ll have more production beyond that. This is just the production through 2029.”
Greater Mooses Tooth 2 Last winter ConocoPhillips laid gravel for the new Greater Mooses Tooth 2 development.
This winter and next, Jepsen said, the company has “a lot of work planned” to hit its target of first oil in late 2021.
Last winter, this winter and next winter work involves approximately 700 people on the North Slope working on the project, which has a price tag of around $1 billion.
“It’s going to be a pretty big project. It is a single drill site, but it is a new field we are developing - this is not connected to the Alpine field. It is a standalone reservoir,” Jepsen said.
“We’re anticipating about 40,000 barrels of oil a day gross when it comes onstream at peak from 48 wells,” he said.
On the list of work for this winter season are pipeline installation, complete module and fabrication, and begin heavy haul.
Next winter the to-do list includes: Finish pipeline installation; install production facilities; drilling begins; commission and startup.
What could go wrong? Jepsen also provided updates to other new developments such as Willow, but that information was covered in Petroleum News shortly before and after his RDC appearance.
What has not been covered is his answer to the question, what could go wrong? What could happen that would reduce the $24 billion Jepsen said will be spent on new discoveries and three core fields in the next 10 years?
First and foremost, he said, an increase in oil taxes “could put a big damper on activity.”
“There is a group out there that is proposing a ballot measure that would significantly increase the tax take on the three core fields,” Jepsen said. “It’s aimed … at the Kuparuk, Alpine/Colville and Prudhoe Bay fields. It would make changes to SB21 and increase the tax take on those three fields by a billion to a billion a half per year.”
So, “if you stop to think about that, I said we estimate spending about $11 billion over the next 10 years for these (core field) capital programs that is going to add 150,000 barrels per day. Their plan is to take at least $10 billion to $11 billion of cash flow out of those fields. That’s going to have a big impact on our plans,” Jepsen said.
“We will absolutely go back and take a hard look at everything we have planned in those core fields. It has more insidious impact than that just that of course.
“Companies like ConocoPhillips that have fields we want to develop outside of the core fields and require billions of dollars of investment, if we don’t have the cash flow coming from our corporation - and these three core fields are a big part of that – then those new projects are in jeopardy,” he said.
Don’t get comfortable One message of the proponents of the ballot measure is “we’re just targeting these three big fields. No one else has anything to worry about.”
“Well I don’t think anyone should get comfortable because they are not targeted in this particular round of tax hikes. I’m pretty sure that once this group … sees where the other profitable fields are, they’ll take their aim over there as well,” Jepsen said.
A “myth” that he said the proponents of the ballot measure talk about is that “since SB21 was passed there’s really been no change in activity. No bump in production.”
“I really can’t figure that out from the data,” he said, adding that he and his team went back and took a hard look at the numbers- at all the activity and investment since SB21 was passed.
The proposed ballot initiative is “definitely a dark cloud” and if it does pass, “no one should have any doubt that it is going to have a significant impact on investment plans for the North Slope. Not just the core fields but it’s going to have a chilling effect on any new investment,” Jepsen said.
“So, I am going to go forward and hope that if it does get on the ballot we will succeed as we have in the past. Alaska voters by and large have understood the importance of a healthy economy and have voted to make sure we have competitive laws and taxes,” he said.
ConocoPhillips is “assuming we are going to stay on this trajectory with billions of dollars of new investment that are going to be good for Alaskan for jobs. It’s going to be good for production going down TAPS and it’s going to be good for long-term revenue for the state,” Jepsen said.
- KAY CASHMAN
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