Alaska’s Arctic oil fields are poised to see a sharp production cut

But some planning for new development is continuing.

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ConocoPhillips, Alaska’s largest oil producer, has announced massive production cuts from it’s Arctic wells. (Yereth Rosen)

A sharp reduction in North Slope oil production to start later this month is adding to the economic blows endured by the Alaska oil industry already hurt by ultra-low prices and hundreds of layoffs.

ConocoPhillips, the state’s top oil producer, announced last week that it will cut North Slope production by 100,000 barrels per day, starting in late May.

“This decision was made in response to unacceptably low oil prices resulting from global oil demand destruction caused by the impacts of the COVID-19 pandemic, combined with a global oversupply of oil,” the company said in its announcement. “The actions ConocoPhillips Alaska is taking with this production curtailment underscore the extraordinary challenges currently facing the oil and natural gas industry in Alaska and elsewhere.”

[ConocoPhillips to sharply cut oil production as low prices hit earnings]

Production averaged 502,250 barrels per day in March and slipped to an average 490,252 barrels per day in April, according to the Alaska Department of Revenue. The April figures reflect a 10-percent cut imposed by the operator of the Trans Alaska Pipeline System. Alyeska Pipeline Service Co. on April 24 ordered all producers to pare back shipments into the line because of impending high inventories.

The pandemic crisis also brought an abrupt and premature end to what was expected to be one of ConocoPhillips’ biggest exploration seasons in decades

Instead of drilling seven exploration wells as planned, ConocoPhillips drilled three. The reason for the curtailment was the concern “about having these exploration camps way out west on the North Slope if we had a COVID outbreak,” Matt Fox, ConocoPhillips’ chief operating officer, said in an April 30 presentation to investors.

ConocoPhillips’ steps exacerbate what has been an economic crisis in the Alaska oil patch.

[How coronavirus and an oil-price crisis could transform the oil industry in Arctic Alaska]

Prices for Alaska North Slope crude delivered on the West Coast slipped below $10 a barrel in late April and was $13.67 on May 1, according to the Alaska Department of Revenue. That is well below the approximately $40-per-barrel price that legislative budget analysts consider to be the break-even point for North Slope oil production.

In recent weeks, five major oil-service companies have announced hundreds of job losses.

The latest to announce layoffs was Doyon Drilling, which plans to shed jobs for 304 people, according to a May 1 notice filed with the Alaska Department of Labor and Workforce Development. Doyon Drilling, a unit of the Native regional corporation Doyon Ltd., will demobilize its entire rig fleet along with laying off the workers, the company’s president said in an April 30 letter to the state. The action “is anticipated to be permanent until the crisis is over and the industry recovers,” Doyon Drilling President Ron Wilson said in the letter.

Doyon’s notice followed previous notices of over from Baker Hughes, Haliburton, Schlumberger and Peak Oilfield Services; combined, those companies plan to lay off more than 280 workers.

The trans-Alaska Pipeline runs across Arctic tundra on Alaska’s North Slope in the fall. (Kim Mincer / Bureau of Land Management)

ConocoPhillips’ production cut is not expected to affect trans-Alaska pipeline operations — though it brings throughput closer to a point where too little oil flows through the pipeline to maintain reliability.

In a 2011 study, Alyeska put the threshold for safe operations at 350,000 barrels per day. Since then, Alyeska has taken steps to ensure that operations will be reliable at even lower levels of throughput, company spokeswoman Michelle Egan said by email. Among those steps are the addition of heat in the winter months to help oil move more readily, she said. And there is new research into ways to safely operate with flow as low as 200,000 barrels per day, a tenth of peak flow achieved in the late 1980s.

In the short term, it remains unclear how long Alyeska will need producers to keep throughput lower than normal.

“Alyeska will continue to use data and projections in its 28-day and 60-day outlooks to make adjustments that manage inventory. Alyeska has stated that the proration is in place until rescinded,” Egan said by email.

[Alaska senators blast banks for ‘discrimination’ as they halt Arctic oil and gas investments]

The current challenges are temporary, ConocoPhillips officials said in their call to investors.

The company and federal regulators continue to plan for more development on the western North Slope.

The Greater Mooses Tooth 2 project in the National Petroleum Reserve in Alaska is on track to start producing oil in 2021, ConocoPhillips said in an April 30 statement about its quarterly earnings.

Planning also continues for the massive Willow project in the petroleum reserve, which ConocoPhillips has said could ultimately produce more than 100,000 barrels per day. ConocoPhillips had previously projected first production at Willow as early as 2024.

The company is now “in the concept selection stage” of Willow planning, trying to figure out how big a facility is needed, how many drill centers are needed and other variables, Fox said in the April 30 call. A decision will come near the end of the year, he said. “So we have not made the decision to defer Willow. .. but that decision is ahead of us,” he said.

ConocoPhillips expects to secure federal and state permits for the project this year, company chairman Ryan Lance said in the April 30 investors call.

The U.S. Bureau of Land Management is currently evaluating a supplemental environmental impact statement on an altered Willow plan.

Several environmental organizations, North Slope residents and others have criticized the BLM for pushing forward with the project during the coronavirus emergency. While the BLM held a series of online public meetings on the supplemental EIS, those are inadequate for residents of rural areas with spotty internet and telephone service and with other pressing concerns, critics said.

“I find it completely inappropriate and outright disrespectful to the community members who are busy trying to take care of their families and their communities during this pandemic,” Will Bean, an Inupiat originally from Utqiagvik and living in Anchorage, said at the April 29 online hearing. “They do not have the time right now to read, to go through and understand the EIS and provide meaningful feedback, if they’re even able to.”