ConocoPhillips Alaska’s Westward Expansion

Traditional drilling on the North Slope sees a drill bit boring to a certain depth before it’s removed and a metal lining is run to the bottom of the hole. Once the steel casing is run to the bottom, cement is pumped down the inside of the steel tube, out the bottom, and back up the annular space between the steel and formation. The cement combined with steel creates a stable well. As drilling progresses deeper, the process is repeated using smaller bits and steel tubes, nesting the cylinders until the desired depth is reached.

However, at GMT1, the unstable earth masses would fall in before the team had a chance to install the steel casing.

“We had similar issues with the second well,” Robinson says. “But we also saw there was oil worth chasing, and we knew it was going to be challenging from a drilling perspective.”

The steerable drilling liner developed with Baker Hughes—a full stream provider of integrated oilfield products, services, and digital solutions—allowed ConocoPhillips to drill and run the casing down at the same time.

Once at the target depth, workers are able to release the drilling gear and pull it back out, while leaving the casing in place.

Though ConocoPhillips needed to rely on the new, more expensive method of drilling at GMT1, the company managed to come in about $175 million under their initial estimate for the cost of development.

When the original budget was drawn up prior to the oil price downturn several years ago, it carried a $900 million price tag for the development of GMT1, chasing an estimated $1 billion in gross.

“So, we had to sharpen our pencils and the project manager basically said, ‘We have to execute that project really successfully to try and keep costs down.’ The construction and logistics work had to be almost perfect,” says Natalie Lowman, director of communications for ConocoPhillips Alaska.

“And then, the costs actually went down for labor and materials by the time we were under construction. Everybody took a haircut when oil prices went to the $30s and $40s. So, basically, we were managing the project more efficiently and implementing more successful drilling techniques.”

The project ended up coming in at about $725 million.

However, without the infrastructure built during the development of ConocoPhillips Alaska’s CD5 site, which provides capacity to run everything back to the Alpine processing facility, GMT1 would have never gotten off the ground.

“After finishing the wells at GMT1 in 2019, we’re turning our focus on CD5, to which it’s connected,” Lowman says. “CD5 has been extremely prolific, way above what we anticipated in production. So, we want to capitalize on how well it’s doing and we announced funding for ten additional wells there in 2017.”

While GMT1 was the first development on federal lands in the NPR-A, CD5 was the first on Alaska Native lands.

Expected peak gross production from CD5 was 16,000 barrels of oil per day, but as of mid-2018 the field was producing about 37,000 barrels of oil per day.

“Cost efficiencies from advances in drilling and operational practices will require the right kind of operator expertise,” says Kareemah Mohamed, associate director of plays and basins research at IHS Markit. “For example, ConocoPhillips has employed learnings from its Lower 48 unconventional assets to lateral drilling in their Alaska North Slope CD5 development located in the NPR-A.”

In April, ConocoPhillips set three drilling records at CD5: the North American record for longest horizontal lateral at 21,748 feet and Alaska records for total combined lateral length at 34,211 feet and total combined footage for a well at 42,993 feet.

Extending past CD5 and GMT1, Conoco­Phillips is looking to move forward with the development of GMT2, following a Record of Decision issued by BLM on October 15. With a first oil target in the fourth quarter of 2021, the company is tagging more than $1 billion in costs. GMT2 is slated to host forty-eight wells, with thirty-six initial wells being drilled. Peak estimated monthly production is set at 35,000 to 40,000 barrels per day—more than GMT1.

“We see a lot of prospectivity out there [west]. Other companies have a different focus on the kind of work they want to do. But we’ve seen a lot of success out there. We’ve announced a new, very significant discovery in Willow,” Lowman says. “As we build out these drill sites like GMT1, they’re all going to be connected as we move west into the Willow development.”

ConocoPhillips announced in July that four exploration/appraisal wells drilled in its Willow prospect increased its earlier estimate of 300 million barrels of oil equivalent of gross resource to 400 million to 750 million barrels of oil equivalent.

“Preliminarily, the company estimates first oil can be achieved by 2024-2025 for approximately $2 billion to $3 billion spent over the course of four to five years after final investment decision [in Greater Willow Area],” according to a ConocoPhillips’ release. “Once first oil is achieved, the company anticipates ramping quickly to full production. Thereafter, the company estimates that an additional $2 billion to $3 billion of cumulative drilling capital will be executed over multiple years to maintain production at this facility.”

“We expect development in the basin to continue to be driven by commercial masters ConocoPhillips and Exxon­Mobil, but also by challengers Oil Search and Hilcorp,” Mohamed says. “We anticipate increased bidding activity and farm-ins as established operators expand their presence and new entrants seek to gain early mover advantage by leveraging low acreage prices to enter newly opened areas.”

At a Resource Development Council meeting in October, Marushack said that ConocoPhillips Alaska’s future outlook is strong.

In 2013, the outlook was a steady decline in production to about 100 million barrels of oil per day by 2028. However, a number of factors, including various technological advancements such as those put in place at GMT1, have flipped the trend. The company now estimates that number will climb to well over 300 million barrels of oil per day by 2028.

Other factors that Marushack said are having a significant impact on the economic turnaround are Senate Bill 21, which improved fiscal framework; comprehensive efforts to capture value from legacy fields and infrastructure; a renewed focus on exploration yielding early success; and that a company-wide focus on lowering the cost of supply has made Alaska competitive within the portfolio.

The oil production levels at GMT1 make it a profitable stepping stone in ConocoPhillips’ westward expansion, bringing more jobs to the North Slope as estimates predict a 40 percent increase in oil production from the region over the next eight years.

“We believe that the company’s Alaska plan aligns with our disciplined, returns-focused strategy, supports Alaska’s economy, and creates significant value for shareholders,” Ryan Lance, Conoco­Phillips chairman and CEO, says in a release. “Alaska provides competitive investment opportunities and will generate profitable growth from diversified investments with significant exploration upside… Our shareholders realize the advantages of ANS-priced oil, competitive cash and earnings margins from our operations, and our years of expertise and sound stewardship. We plan to continue to strive to safely unlock the energy potential of this world-class oil province for years to come and play an active role in Alaska’s economic future.”