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North Slope stays busy despite drop in oil prices

Major operators warn next year will be slower as companies adjust

Posted: Monday, December 15, 2008

Activity levels are expected to be brisk on the North Slope this winter, despite the recent plunge of oil prices to levels not seen in years. The plunge has steepened in the last two weeks, but much of this winter's drilling and construction was planned months or even years ago, and much of it will go forward, the operating companies say.

The major operators are warning, however, that next year will be slower as companies adjust their plans to lower oil prices.

One positive sign is that BP has increased its planned 2009 capital spending to about $1.2 billion, a 30 percent increase over the current year capital budget of $900 million. The increase essentially covers four long lead-time projects the company has underway, including a heavy oil test development, the start of work on BP's planned Liberty offshore field, and the company's share of the Point Thomson development being led by ExxonMobil Corp. and the Denali gas pipeline project being done with ConocoPhillips.

The Point Thomson project hinges on whether the Point Thomson leaseowners - ExxonMobil, BP, Chevron and ConocoPhillips - can resolve a contentious dispute with the state over past lease obligations at Point Thomson. The state is attempting to cancel the Point Thomson leases and had blocked a key permit for an ice road that would allow ExxonMobil to move a drill rig to Point Thomson, which is 60 miles east of Prudhoe Bay.

The remaining $900 million of BP's capital budget covers ongoing development work in producing fields on the North Slope, mainly in the Prudhoe Bay field B, where BP is operator, and Kuparuk River field operated by ConocoPhillips, but where BP has a major interest.

The deteriorating economic environment has had some casualties in BP's plans, however. The company announced it will suspend work on a natural gas processing plant planned for Z Pad on the west side of Prudhoe Bay. The company said it will also reduce its development drilling by about 10 percent in 2009 and will operate one less drilling rig next year.

BP said its actions were prompted as much by state taxes as falling prices, particularly a limit on tax deductions for capital investments in the Prudhoe Bay and Kuparuk, the two large producing fields.

Capital budget plans for ConocoPhillips, the other major North Slope operating company, are not yet known. The company usually announces its plans in December.

Other work is underway on the Slope, including the drilling of development wells by Eni Oil and Gas Inc. for its Nikaitchuq offshore field, and Pioneer Natural Resources' continued drilling of production wells at Oooguruk, another small offshore field near where Eni is drilling.

Pioneer is drilling Oooguruk offshore from an artificial island built to support producing wells and facilities. Eni is drilling several wells planned for Nikaitchuq from an onshore pad and will build an offshore gravel island in a second phase of the project.

Winter exploration activity is proceeding as planned. Much of the exploration will be near the existing fields or near discoveries. ConocoPhillips will drill two exploration wells in the northeast National Petroleum Reserve-Alaska as previously announced, near the Moose's Tooth area, where small discoveries have been made.

Savant, an independent company, will drill a well east of Prudhoe Bay near BP's small Badami field. Independent Ultra Star will drill a well near Prudhoe. Brooks Range Petroleum, the operating company for a group of independents, also has winter drilling plans near the large producing fields.

Two major exploration efforts in more areas of the slope include Anadarko's drilling for natural gas in the foothills region southwest of Prudhoe Bay, where the company plans to complete a well started last year, drill a new delineation well near where Anadarko drilled last year at Gubik, a known gas discovery, and a new test well a new miles west in the National Petroleum Reserve.

Chevron Corp. will also continue with its multi-year exploration in the White Hills region south of Prudhoe Bay. Chevron began its program in the White Hills last year.



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