2003 RDC Annual Meeting: Elevating Expectations:
Current & Future Development Opportunities
Kevin Meyers, President,
ConocoPhillips Alaska, Inc.
Thank you.
It’s my pleasure to be here today to share my thoughts about the future of oil and gas development on the North Slope.
Predicting the future is always a risky endeavor, especially in the oil and gas industry, but I’ll pull out my crystal ball and outline several trends that I see playing out on the North Slope over the next 10 to 15 years:
First and foremost, is continuous improvement in safety. Bottom-line: nothing we do is worth injuring our employees or our contractors.
At ConocoPhillips Alaska, 2002 was our best year – ever for safety. Our Lost-Workday Incident Rate for our employees and contractors was down 34% from 2001, and we’ve witnessed an 80% reduction from 2000. Our Total Recordable-Incident Rate was also down.
We are proud of these improvements, but we won’t rest until all of our operations are accident free.
Our future E&P operations will also be more environmentally friendly as new innovations and technologies evolve. This will be continuous improvement on an already great track record.
In the 70’s, we needed to lay 65 acres of gravel to develop 2,000 acres of the subsurface. That’s disturbing only 3% of the tundra.
In the 80’s, this number decreased to 24 acres of gravel to develop 4,500 acres of the subsurface. Less than 0.6% of the tundra is disturbed.
At the Alpine field, we are developing a 40,000-acre oil field from less than 100 acres of gravel. Less than 0.25% of the tundra disturbed. Over 100,000 BOPD, or approximately 10% of Alaska’s total oil production, comes from the Alpine field.
Future production on the North Slope will come from smaller fields that will be more economically challenged.
In 1990, 7% of the North Slope production came from fields smaller than 100,000 BPD. In fact, 93% of the production on the North Slope came from just two fields – Prudhoe and Kuparuk.
Today, 40% of our production comes from these smaller fields. By 2010, almost 60% of the North Slope production will come from smaller fields (AK DOR Fall Forecast 2002). Shy of ANWR being opened, it is likely that this trend will continue.
Smaller fields are challenged by a lack of economic scale and generally face more marginal economics. It will take a combination of technical innovation, cost reductions, and good fiscal policy to ensure that these developments become reality.
The future of the North Slope will also include increased production of heavy oil. There are literally billions of barrels of heavy oil in place underneath the existing infrastructure at Prudhoe Bay, Kuparuk, and Milne Point. The challenge is to get the thick, cold, heavy oil in fields such as West Sak, Schrader Bluff, Orion, and Polaris to flow at economic rates.
In 1990 we only produced a few thousand barrels of heavy oil per day on the North Slope. Today, we produce 30,000 BPD. By 2010, we could to be producing over 150,000 BPD. New technologies and favorable fiscal policy will be the keys to achieving these rates.
Future oil and gas operations will extend to more and more remote regions of the North Slope. As we get further from infrastructure, the cost and technical challenges of exploration will increase. A good example of this is ConocoPhillips and Anadarko’s recent Puviaq well.
The Puviaq well is located 145 miles west of the Kuparuk field, with no gravel or ice road. The rig and supplies were moved to the location in 130 rolligon loads, which in total traveled over 20,000 miles, all at 10 miles an hour. The total weight moved was over 6 million pounds.
The drilling rig itself was moved onto location in the winter of 2002. A small thick ice pad was built to protect the tundra, and it was covered in insulating materials. This pad in essence became the world’s largest Coleman cooler.
The well was drilled this winter. During the drilling, the rig was supplied by rolligons, and to provide for crew changes, Puviaq had its own airfield paved in ice.
The logistics for the Puviaq well were very challenging. ConocoPhillips and its partner Anadarko made significant commitments and investments to make this well happen.
Fiscal incentives like the recently passed exploration incentive credit could make a difference to companies willing to explore in more remote areas of Alaska.
Probably the greatest single change for the oil and gas industry in Alaska will be the shift in the industry from oil toward gas. The construction and start up of a gas export pipeline from the North Slope will be equivalent to the start-up of a 600,000 – 700,000 bpd oil field. It will open up a whole new business for Alaska.
The proposed ANS Gas pipeline will be the largest, most expensive domestic energy project ever constructed. It is projected to cost approximately $20 billion and will require 25,000 man-years of construction. Needless to say, a project of this magnitude has substantial risk.
The prize is available if we can bring industry and government together to create an economic environment where the pipeline can become a reality.
ConocoPhillips believes that federal enabling legislation and fiscal legislation are needed to move this project forward. The enabling legislation will bring certainty and expediency to the regulatory permitting process in the US. The federal fiscal legislation is needed to mitigate the substantial risks that may result from fluctuations in future natural gas prices and potential cost overruns.
At the state level, the re-authorized Alaska Stranded Gas Development Act has provided the tool for the producers and the State to enter into negotiations regarding fiscal certainty and clarity for the Alaska Gas Pipeline project. We are anxious to start working with the state.
So in summary, I see the future for the oil and gas industry on the North Slope as being:Safer,
- Even lower environmental impact than today,
- Smaller fields, remote from existing infrastructure,
- Extensive heavy oil development,
- And the biggest change of all – both and an oil and a gas industry.
Of course, the $64,000 question is:
What we as Alaskans can do to make this future the brightest one possible. I’ve already spoken on what’s needed for gas. I’d like to finish up by talking about what we need to do on oil. The recipe for success includes three key ingredients.
One - Access to acreage
Acreage is the lifeblood of our industry. Lease sales are critical to sustain production and ensure Alaska’s fiscal health. It’s important to realize that it is not only offering leases -- it is offering the right leases which matters.
Since 1988, 61 prospects have been drilled within 40 miles of the crest of the Barrow Arch. These have yielded 34 discoveries and 26 commercially viable fields.
Since 1949, there have been 53 prospects drilled over 40 miles south of the Barrow arch which have yielded 1 discovery of oil and no commercial developments.
Geology and geography do matter. Elimination of key portions of the main exploration fairway by non-leasing or overly restrictive lease stipulations will deprive Alaska of future production, jobs and revenues.
Two - Reasonable and cost-effective regulations and permitting
This past legislative session, the Governor introduced several bills that protect the environment, while streamlining the permitting process.
&Mac183; The Alaska Coastal Management program
&Mac183; The extension of oil discharge and contingency plans from three to five years
&Mac183; And revisions to the emission control program–
-- All positive bills, which the legislature passed.
These bills protect the environment, while promoting responsible development of Alaska’s resources.
And finally, a stable fiscal environment.
To maintain our Alaskan production, the industry must continue to invest and explore. But these Alaska exploration and development projects must compete worldwide for investment dollars.
The State must foster an investment climate that is positive for oil and gas investment. First and foremost, this includes a stable tax environment. The Governor and the legislature worked together this session to prevent new taxes on the industry.
I also want to thank the Governor for the courage he has displayed in trying to address the fiscal gap. Balancing the budget is a difficult, and generally thankless task that must be done.
What we do as Alaskans in the next few years will dictate the future of oil and gas development in this state for the next decade. It will determine whether the future is one of new discoveries, new jobs and new state revenue…. Or one of managing a mature oil province as it continues to decline. ConocoPhillips is committed to working with our fellow Alaskans to make it the former not the latter.
I’ll now put away my crystal ball and introduce our keynote speaker.
Patty Morrison became Deputy Assistant Secretary for the Department of the Interior Land and Minerals Management in April 2002. In this position, she helps to oversee the Minerals Management Service, the Office of Surface Mining and the Bureau of Land Management.
Ms. Morrison is an attorney who is licensed to practice in both Texas and Oklahoma. She began her career in private litigation practice in Dallas, but later spent over twelve years as in-house counsel for The Williams Companies in Tulsa, Oklahoma. While with Williams, Ms. Morrison represented the company both in its oil, gas and pipeline businesses, and in its telecommunications business, serving for a time as its Manager of Regulatory Affairs.
Ms. Morrison has extensive expertise in oil and gas exploration and production, including offshore production and transportation, in petroleum product and natural gas pipeline construction and operation, and in right-of-way, environmental, and other private and public land management issues.
Ms. Morrison graduated from Baylor University in Waco, Texas where she earned a Bachelor of Business Administration Degree (Accounting), and a Juris Doctor.
Ms. Morrison, a Kaw and an Osage Indian, was born in Beaumont, Texas, and grew up in San Antonio, Texas, and Stillwater, Oklahoma. She has been active in her church and in various civic organizations, such as the Tulsa Junior League.
Please join me in welcoming Patty Morrison.
