State: Costs appear to be rising for new North Slope projects
North Slope operators are reporting higher costs as activity increases, state officials are say- ing. Estimates of future capital and operating costs are filed by the companies with the state Department of Revenue. Between reports filed in December and March, estimated capital investments in projects increased from $3.14 billion to $3.38 billion in 2021; $3.24 billion to $3.35 billion in 2022 and $2.6 billion to $2.9 billion in 2023, according to the reports. The estimates were published in the state’s annual fall 2018 revenue forecast published in December and the spring, 2019 updated forecast published in March. “We attribute the increase in forecast capital expenditures, compared to the fall forecast, to higher expected costs for new developments. Our understanding of the cost of these developments has changed and we’ve increased the forecast,” Commissioner of Revenue, Bruce Tangeman, told us.
New discoveries have been made recently by major companies ConocoPhillips and Repsol, and independents Armstrong Oil and Gas and Oil Search in the Nanushuk, a geologic formation extending across the western North Slope. Two of these, Willow, by ConocoPhillips, and Pikka, by Repsol and Oil Search, are in advanced stages of development planning, with several hundred thousand barrels a day of new production expected in 2023 or 2024.
The increases in drilling and development work may now be causing prices to tick up. Con- tractors’ ranks are depleted after three lean years of low oil prices and layoffs, so there is now less competition. Rising costs could pose a problem, however. There is concern that developers could eventually be squeezed between higher costs and static crude oil prices. This could particularly affect new projects in remote, high cost areas like the National Petroleum Reserve-Alaska, where ConocoPhillips has made significant new finds.
The Department of Revenue’s long-term forecast for North Slope oil is for prices to remain static in the low-to-mid $60-per-barrel range, inflation-adjusted, for the next decade. The expected capital and operating costs published by the revenue department are derived from estimates given by companies in state production tax returns filed with the state. Alaska has a net profits-type oil and gas production tax and state law requires companies to provide estimates for expected future costs in producing fields and for new developments.
AGDC, BP and ExxonMobil set meetings on Alaska LNG
Technical teams from the state-owned Alaska Gasline Development Corp., BP and Exxon- Mobil will meet in Houston for several days next week to discuss cost-reduction strategies and other collaboration for the large Alaska LNG Project. The work will result in a new assessment of the economic feasibility of the project due in the third week of April, Joe Dubler, AGDC’s interim CEO, told state legislators in briefings last week. Another series of meeting with potential Chinese LNG buyers, led by Sinopec, is planned in Shanghai in the first week of April. The schedule for Alaska LNG is being slowed to be more realistic, Dubler said.