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ConocoPhillips approves its GMT-2 oil project in Alaska; will start construction this winter

Anchorage, Alaska — ConocoPhillips has approved its GMT-2 oil project on the North Slope and construction will begin this winter, a company official said Monday.

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The project is expected to produce 35,000-40,000 b/d beginning in 2021.

"We have approved GMT-2 for funding. The decision was announced in ConocoPhillips' earnings call," with investment analysts last Thursday, company spokeswoman Natalie Lowman said.

"We are planning to lay gravel for the project during the first quarter of 2019 and to order long-lead time materials," or components that take time to manufacture, Lowman said in an email.

Final engineering is complete and detailed engineering is underway, she said.

GMT-2 is in the northeastern part of the National Petroleum-Reserve Alaska and is 8 miles west of GMT-1, ConocoPhillips' second project in the NPR-A, which recently started production. The first project, CD-5, located near the Colville River boundary with state-owned lands, began production in late 2015.

At GMT-2, ConocoPhillips will build a 14-acre production pad and an access road and pipeline, both about 8 miles in length, connecting GMT-2 and GMT-1.

GMT-1 itself is connected by road and pipeline to CD-5, which is connected by pipeline to the Alpine oil field on state lands east of the Colville River.

Meanwhile, ConocoPhillips is having good luck so far with production rates at its NPR-A projects. CD-5 is now producing 37,000 b/d, substantially more than the 16,000 b/d originally projected. GMT-1 has been in production for only a few days, but the two wells in operation so far are producing over 3,000 b/d each, a good rate for North Slope wells.

GMT-2 production royalties will be split between the federal government and the state of Alaska, with a small portion going to Arctic Slope Regional Corp., which owns a portion of the mineral rights. ASRC is the Alaska Native development corporation for the North Slope.

In contrast, most of the GMT-1 and CD-5 production royalties are going to ASRC because the corporation's land selection rights under the 1971 Alaska Native Claims Settlement Act, or ANCSA, allowed it to select much of the subsurface rights.

ANCSA requires ASRC to share 70% of its royalty revenue with the other 11 Alaska Native regional corporations and about 200 smaller village corporations.

With work on GMT-2 underway and GMT-1 and CD-5 in production, ConocoPhillips is now engaged in planning and permitting for Willow, a fourth and larger NPR-A project that is about 8 miles west.

Willow is expected produce about 100,000 b/d and will require standalone oil and gas processing facilities in the field, in contrast to GMT-1 and GMT-2, as well as CD-5, where unprocessed fluids, mixtures of oil, gas and water, are shipped to the Alpine field process plants.

Each of these projects represents major extensions of infrastructure extending west in increments into the petroleum reserve. Each extension helps make other oil discoveries economic to develop.

The National Petroleum Reserve is a large, 23 million-acre federal land tract that covers much of the western North Slope. It was created in 1923 as a potential oil reserve for the US Navy, although exploration did not begin until after World War II.

Over several decades, the exploration, done by federal agencies, was mostly unsuccessful. Commercial-scale discoveries were made only in recent years, and after the federal government began leasing to private companies. These are now the three projects being developed by ConocoPhillips.

-- Tim Bradner, newsdesk@spglobal.com

-- Edited by Annie Siebert, newsdesk@spglobal.com