Oil company interest in Alaska continues to rise, but the outlook for industry players is clouded by uncertainty, according to Mark Oberstoetter, Wood Mackenzie head of upstream Americas.
“The range of uncertainty for a long-term decision is at an all-time high,” Oberstoetter said in a presentation to the Meet Alaska 2023 conference March 17 in Anchorage.
“If you drill an exploration well today it might or might not be producing 15 years from now, yet some economists are telling you demand will be cut in half by then, yet some tell you it’s going to grow,” he said. “There’s a lot of moving policy parts that you believe somewhere in the middle could be realistic.”
The base case holds that oil demand will continue to grow for a few years, then enter a steady decline, he said. The industry is not necessarily investing enough today to meet a growing demand scenario, he said.
Reinvestment rates are still up in the air, Oberstoetter said. Companies are under an investor-led resolve not to outspend cash flow, to be responsible to shareholders.
“We’re starting to see 40% reinvestment,” he said “Will it be enough for the next decade?”
In all the regions around the world, spending will get back to $500 billion this year in the upstream, he said. WoodMac expects capital discipline to remain the big open question, as production continues to increase most years, through survival periods and capital discipline periods.
There is a lot of growth coming from the Middle East, he said.
“Look at OPEC, who is able to deliver on the targets they’ve made now, or who is able to flex up more if that demand does continue to grow - it’s not a pretty picture,” he said. “Saudi and UAE stand out; Russia was fine, but they’ve moved themselves into the red; the other countries are going to have issues in continuing to grow.”
The WoodMac long standing view is that OPEC is not enough on its own, he added.
Alaska has a unique relationship with deepwater drilling, Oberstoetter said.
“Globally deepwater has been interesting to watch over the decades and quite frankly, it’s probably something that competes more with Alaska in terms of the investors and types of companies that want to build projects in conventional regimes - most of their other opportunities are in deepwater.”
Beyond the next few years, deepwater outpaces tight oil in terms of the production growth rate and more countries such as Guyana and Bolivia are being added, he said. WoodMac is looking to 30 countries in deepwater production in the next few years.
Production from some countries will shrink, he said. In Brazil and the Gulf of Mexico, the next few years look good, but after that, replacement volumes are in question.
For forward visibility, WoodMac looks at what companies are doing, besides what they’re saying.
“Gives me a bit of confidence that the Euro majors or other companies still are investing and looking out to a world that needs oil and gas 10 or 15 years from now,” he said. “They continue to spend exploration dollars - not as many as they used to, but they’re also putting some investment dollars into some frontier regions which we know will be a 10- to 15-year type of payback.”
“We do think the 2020s will see price volatility in a wild way, but the overall kind of price view we’ve got is in the $80s - we think that’s enough to continue tight oil growth, to continue to keep the governments of OPEC fiscally stable, but as well will incentivize investment for the level of production we need to meet demand,” he said. “We do have a view that policies are changing; EV demand is picking up, oil demand will change, but there’s a lot of moving parts to that.”
Alaska exploration looks solid
Compared to exploration activity around the world, Alaska is looking solid, Oberstoetter said. WoodMac saw a COVID factor in Alaska, but Alaska has recovered back to nine rigs operating.
Exploration wise, there was “not a ton of wells drilled,” with two exploration campaigns on North Slope for this year, he said, adding, “But if they’re the right wells, they can do some tremendous things.”
“In 2016 thru 2022, most volumes were discovered offshore, even when you factor in the Middle East and Russia, but Alaska kind of stands out being an onshore regime which has concession terms and has a viable place for lots of companies to do business,” Oberstoetter said. “In terms of the ranking, Alaska’s eighth in terms of discovered volumes in that period.”
In 2022, one of the top single discoveries was in Alaska: Pantheon’s Theta West, he added.
“Discoveries don’t necessarily mean anything for jobs or royalties or company cash flows, we need to move these discoveries to development,” he said.
Leasing in Alaska was “fairly subdued” last year, but corporations that are core to Alaska did show up and are “still committed and working their portfolios” both on the North Slope and Cook Inlet, he said.
2021 and 2022 saw flat production, but it was positive to see that not only Milne Point but also Greater Mooses Tooth, Prudhoe Bay, and the outlook for production in existing fields is quite good, he said, adding, “Many basins of this maturity level are in fairly steep decline; you’ve got innovative service companies and operators here that are really working to keep production possible.”
The Pikka and Willow projects are important not only to maintain production but to bring in a new era of growth, Oberstoetter said.
“We see production comes back to 700,000 barrels per day,” he said. “There’s a more aggressive outlook to 2030 - 800,000 to 900,000, but in terms of a conservative view, that march back to 700,000 bpd looks more likely now than a while ago.”
In terms of Alaska’s corporate landscape, there are not a lot of deals to speak of, but that doesn’t mean there won’t be any in the future, Oberstoetter said.
“There are two dominant operators; Santos will join the crowd here soon, but you’re really concentrated on who is making decisions and developing fields,” he said. “There are smaller exploring companies and there some dynamic twists, but there are not many medium size companies or other ones to push a vibrant corporate landscape.”
