Corps denies Conoco permit for NPR-A access

Posted: Wednesday, February 17, 2010

ANCHORAGE - The U.S. Army Corps of Engineers has denied a key permit for ConocoPhillips' CD-5 project on the North Slope, throwing a wrench into the company's plans for developing small oil deposits near the producing Alpine oil field and producing the first oil from the National Petroleum Reserve-Alaska.

The action, announced by the corps Feb. 5, is likely to cause an extended delay in bringing the CD-5 project into production, as well as several small nearby projects, also within the NPR-A that will depend on infrastructure built for CD-5.

ConocoPhillips will appeal the decision, company spokeswoman Natalie Lowman said.

CD-5 is about six miles west of the producing Alpine field, near the Prudhoe Bay area. It would produce between 12,000 and 18,000 barrels per day at peak production if it were developed.

The project would have been in production in 2012 had the corps issued a Section 404 dredge and fill permit this winter for a bridge over the Colville River, as well as the needed production pad and roads. The bridge would have provided access to the new field location.

"The corps has determined that there are other practicable alternatives that would have less adverse impact on the aquatic ecosystem and will still meet the overall purpose," the corps said in a written release.

Technologies such as horizontal directional drilling, which the industry has been able to use in certain applications, would have less impact on the sensitive ecosystem of the Colville River delta than the bridge, roads and gravel pads associated with the CD-5 project as it is planned, the corps said.

However, the corps' decision, based on the claim of adverse impacts of the project, contradict a 2004 federal environmental impact statement, which involved multiple federal agencies and which found that the effects of the project are manageable.

ConocoPhillips was hoping to proceed with construction next year and have the project in production in 2012, but recently announced a delay in the project due to uncertainty as to whether the corps would issue the permit.

Now that the federal agency has been denied the permits, ConocoPhillips will have to decide to proceed, and if so, will have to redesign the project and apply for new federal permits, further delaying the efforts.

"We are disappointed with the Corp of Engineers' decision. We have diligently tried to permit this project for five years, and plan to exercise our right to appeal this denial," Lowman said.

The CD-5 project represents a potential $600 million investment that could employ 400 in construction and about 100 workers to operate it, Lowman said.

Its infrastructure would also have provided a way to economically develop other projects in NPR-A farther to the west.

A federal environmental impact statement concluded in 2004 that a bridge across the Colville River was the environmentally preferred option for the project, Lowman said. That conclusion has the support of the local landowners, the Nuiqsut village, and the North Slope Borough, the regional municipality, she said.

Alaska's congressional delegation was quick to criticize the corps on the decision.

"I am alarmed and amazed by this short-sighted decision, which totally ignores the economics of future energy development in all of northern Alaska," Sen. Lisa Murkowski, R-Alaska, said in a written statement. "For decades, those who oppose developing ANWR (the Arctic National Wildlife Refuge) or Alaska's offshore fields have continually cited the 23 million-acre NPR-A as the area where development should occur instead. If a producer cannot get across the Colville River, however, NPR-A's resources are effectively off-limits."

Sen. Mark Begich, D-Alaska, also expressed disappointment at the decision.

"After the parties worked together for years to get agreement on NPR-A development, I am deeply disappointed the first project just got knocked off track," Begich said.

In its press release, the corps said its guidelines for issuing a Section 404 permit do not allow it to approve the CD-5 project when there is a practical alternative, "which would have less adverse impact on the aquatic ecosystem, so long as the alternative does not have other significant adverse environmental consequences," the corps said.

The project would have allowed discharge of fill material across 62 acres of wetland tundra for the CD-5 drill pad, a 6.2-mile access road and a 1,425-foot bridge across the Nigliq channel of the Colville River.

The Colville delta is the largest and most complex delta on the Arctic coastal plain, draining 30 percent of the North Slope and providing nearly 70 percent of the over-wintering fish habitat of the North Slope, the corps said in its statement.

"The delta serves as habitat for approximately 80 species of birds, numerous fish, migrating caribou and is within the subsistence hunting and fishing areas of the village of Nuiqsut," the statement said.

Nuiqsut villagers, however, support the ConocoPhillips project after the company changed the bridge and road plan to accommodate community concerns about the bridge's location, and to provide a short road link to the village.

ConocoPhillips is the majority owner and operator of the CD-5 project, along with the main Alpine field. Anadarko Petroleum Corp. holds a minority interest in the state and federal leases underlying the field.

The mineral rights under the federal leases are owned by Arctic Slope Regional Corp., which would receive royalties from production and share a majority of those with other Alaska Native corporations under terms of the 1971 Alaska Native Claims Settlement Act.

ConocoPhillips has said that getting new oil from smaller deposits near Alpine into production as fast as possible is important for sustaining the Alpine field and its infrastructure. The main field itself is now past its peak and in decline. With production from the main Alpine reservoirs declining, about half the oil the field now produced comes from satellite oil accumulations.

When new production is delayed, company officials say it becomes more difficult to efficiently process new oil in the processing facilities.

"The more Alpine declines the harder it is. At lower volumes there are more problems with handling gas and water," that comes up the producing wells mixed with oil, said Helene Harding, ConocoPhillips' North Slope development manager.

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