The Only Oil Major Betting Big On Alaska

While other oil majors have left Alaska due to high capital costs and regulatory hurdles, one U.S. oil firm is pushing ahead with oil development in the state, betting on a new project that could pump crude for decades.

ConocoPhillips has just seen the Biden Administration approve the Willow oil project in the National Petroleum Reserve-Alaska (NPR-A), allowing three out of five proposed drill sites. Even the scaled-down project will be profitable and will work, the company and analysts say.

One of the reasons why ConocoPhillips is betting on Alaska while others are leaving is that ConocoPhillips’ chief executive, Ryan Lance, has worked in the state for over a decade and knows the energy and political landscape there, The Wall Street Journal notes.

Lance, who began his career in Alaska and has worked there for 14 years, believes that Alaska can still yield a lot of oil, for a long period of time, as the world will need oil and gas for the foreseeable future.

At the same time, Lance expects U.S. crude oil production to plateau this decade.

“The plateau is on the horizon,” he said at CERAWeek earlier this month, as carried by the Financial Times.

“The world is going back to what we had in the ‘70s and the ‘80s unless we do something to change that trajectory,” Lance said, referring to the time when OPEC had a tight grip over the global oil market.

According to the executive, OPEC’s market share will jump from around 30% now to close to 50% in the future, in which additional supply comes from OPEC and U.S. shale growth plateaus. 

ConocoPhillips bets on its newest plan in Alaska to boost production by 180,000 barrels per day (bpd). This could nearly double the company’s output in Alaska— ConocoPhillips’ current production there is just below 200,000 bpd.  

ConocoPhillips is Alaska’s largest crude oil producer and the largest owner of exploration leases, with around 1.6 million net undeveloped acres at year-end 2021.

With other majors leaving, ConocoPhillips could further strengthen its position in the state. BP, for example, sold its upstream business in Alaska to Hilcorp for $5.6 billion three years ago.   

ConocoPhillips has yet to progress the Willow project to a final investment decision. Willow is set to deliver between $8 billion to $17 billion in new revenue for the federal government, the state of Alaska, and North Slope Borough communities, the company says.

But environmentalists – who slammed the Biden Administration for “carbon-bombing” its environmental progress and legacy by approving Willow – have already started filing lawsuits to stop the project.

Raena Garcia, Fossil Fuels and Lands Campaigner for Friends of the Earth, said that “President Biden’s approval of the Willow project is a colossal and reprehensible stain on his environmental legacy.”  

In the days following Willow’s approval, two separate lawsuits by environmental groups were filed. Alaska Wilderness League was among six groups that filed a lawsuit in U.S. District Court challenging the Biden administration’s approval of the Willow project, seeking a preliminary injunction in the case. Another group of campaigners also filed a lawsuit to stop the project, saying, “We can only hope that the court sees this for what it is: another unlawful, faulty, and disastrous decision that must be stopped.”

Meanwhile, consultancy Wood Mackenzie says that even with a three-well pad development instead of the five-pad project ConocoPhillips had sought, Willow would be economically viable.

“With Willow joining other projects like Pikka, new pads at Milne Point, Narwhal, Nuna and Coyote, we see production returning to 700,000 b/d by 2030, levels last seen in 2008,” said Mark Oberstoetter, head of Americas (non-L48) upstream for Wood Mackenzie.

Last year, Alaska’s field production of crude oil averaged 437,000 bpd, according to EIA data. Alaska saw a record production of over 2 million bpd in the late 1980s.  

“Without production from Willow and these other new projects, the Trans Alaska Pipeline System (“TAPS”) would eventually run into low flow issues, jeopardising all production coming from the North Slope,” WoodMac’s Oberstoetter added.

In addition, Wood Mackenzie projections suggest Willow’s Scope 1 and 2 emissions intensity would be lower than other Alaska projects, and lower than many of the current sources of U.S. oil imports.