US ELECTIONS: ConocoPhillips' Alaska project likely safe from potential Biden regulatory changes: COO

ConocoPhillips' development of its Willow discovery in Alaska appears relatively safe from any foreseen changes should Joe Biden be elected US president in November, a top company executive said Sept. 2.

If Biden, the Democratic Party candidate who has pledged to halt new oil and gas permitting on federal lands, wins over incumbent President Donald Trump, ConocoPhillips' Willow project should be in the clear from any holdup of its final permit, since last month the project's Environmental Impact Statement review was approved by the US Bureau of Land Management, company Chief Operations Officer Matt Fox said during RBC Capital Markets' online Back-To-School Energy Seminar.

The BLM's approval of the project's EIS paves the way for the final permit, Fox said.

"We expect to get a record of decision from BLM in the next month or so for Willow," he said. "Only 5% of our [Alaska] production is on federal land; the rest is on state lands."

He noted that unlike the US' Lower 48, where the bulk of oil production comes from hydraulic fracturing in plays such as the Permian and Eagle Ford Shale in Texas and the Bakken Shale in North Dakota, Willow is a conventional reservoir with conventional stimulation.

"My understanding of the Biden campaign is that they're considering not leasing any more federal lands [onshore] or offshore, not necessarily stopping activity on federal lands," Fox said. "Time will tell, of course."

Able to shift rigs

"So Willow is relatively safe from a political perspective," Fox added.

ConocoPhillips has federal lands in New Mexico and some in the Bakken Shale.

"But even an outright ban on fracking on federal lands, which nobody is talking about anymore, wouldn't affect the first 10 years of our plan, because we could put all of our rigs to work on non-federal acreage," Fox said.

In addition, the ongoing coronavirus pandemic has caused oil demand to plummet. Going forward, demand should remain depressed, but supply should also be lower, particularly in the US, he said.

In December 2019, the US was producing 8.2 million b/d of oil from tight and unconventional reservoirs, out of total oil production that approached 13 million b/d, Fox noted.

By the end of this year, tight/unconventional oil will be roughly 6.6 million, a 20% drop, he said.

But "there's a lot more drop to come, we think," Fox said. "That 20% is at the flatter end, and the underlying decline is more like 40% and it's still out there."

US supply growth challenge

The question, he said, is how supply can rise at a time of fiscal austerity by US oil companies which slashed their 2020 capital budgets by an average of 40%-50% this year.

Moreover, a relatively flat rig count is expected for the rest of this year and into first-half 2021 following a nearly 70% drop in the active domestic rigs from March to July.

Prices for WTI crude have been in the low $40s/b for the last couple of months, but strip prices for the next two years are only in the mid-$40s/b, said Fox.

"Even reinvesting 100% of cash flow from operations, it's very difficult to visualize how we sustain 6.6 million b/d from tight oil," he said.

"Pre-[coronavirus] we were on a trajectory of an average 10.7 million-11 million of tight oil by 2022," he added. "There's a huge gap from what was anticipated and what's likely to show up now."