Alaska producers announce cutbacks, delay drilling

Anchorage — Alaska North Slope operators have announced spending cuts and delayed drilling as turmoil continued in world crude oil markets.

ConocoPhillips will curtail 2020 Alaska capital spending by $200 million and delay development drilling in the Kuparuk River and Alpine fields. The action will result in two drill rigs being laid off.

Oil Search Alaska, a Papua, New Guinea company engaged in developing Pikka, a new discovery, along with its partner Repsol, will delay work on an early Pikka production project although work on gravel roads and pads for the project that are now underway will continue.

"Limited engineering work on the Pikka Unit full field development will continue, so that the project is ready to move promptly toward a Final Investment Decision when market developments improve," Oil Search said in a statement.

ConocoPhillips's CEO Ryan Lance told analysts in a briefing Wednesday that his company's $200 million reduction in Alaska is part of a $700 million cut in North America capital spending.

ConocoPhillips is cutting $400 million in its continental US operations, much of it in shale oil operations in the Eagle Ford basin, with another $100 million spread across other Lower 48 state operations.

"Our industry is clearly experiencing an unprecedented event brought about by simultaneous supply and demand shocks," Lance said in a statement.

"The actions we are taking reflect an acknowledgement of current events as well as uncertainty around the timing and path of a recovery," he said.

The company is in good shape to weather the crisis, with $14 billion in liquid assets at the end of 2019, Lance told the analysts.

In a statement, Keiran Wulff, Oil Search's managing director, said "While Oil Search is fortunate to have world class assets, these unprecedented times require us to take immediate and decisive steps to position us for a potentially extended period of lower oil prices and business uncertainty."

Oil Search and Repsol are engaged in developing Pikka as a potential billion-barrel discovery, with an early production project that had been planned for 2021 and full production at over 120,000 b/d in 2024.

ConocoPhillips is working on several new discoveries in the National Petroleum Reserve-Alaska, a large federal land unit west of the Alpine field. One project, Willow, has estimated resources approaching 800 million barrels, with an expectation of producing over 100,000 b/d. A smaller project, GMT-2, is now in construction and is expected to begin production in late 2021 with peak production at 40,000 b/d.

So far work on GMT-2 and Willow appear to be proceeding.

Lance told the analysts that ConocoPhillips is working on scenarios for an extended low-price period of 12-18 months, but markets could also show a lift in a shorter period of six to eight months.

In briefings to analysts last fall, ConocoPhillips said it believes it can develop some of its new Alaska discoveries at prices in the mid-$40/b range because of lower costs delivered with new technologies like horizontal drilling.

In the Lower 48 some of the company's projects appear to be viable at $30/b, analysts were told in the Wednesday briefing.