ConocoPhillips announced Thursday that it will cut oil production in Alaska by about 100,000 barrels per day for the month of June in response to “unacceptably low oil prices.”
That’s about half of Conoco’s daily production in the state, and roughly a fifth of the crude that typically flows down the trans-Alaska pipeline. Conoco is Alaska’s largest oil producer.
“It’s incredibly significant,” said Kara Moriarty, chief executive of the Alaska Oil and Gas Association, an industry trade group. “It will have an impact on state revenue, royalties, production tax.”
The coronavirus pandemic and an oil price war have bludgeoned the oil and gas industry, and Thursday’s announcement from Conoco is the latest fallout. The oil and gas company announced sharp cuts to production across the country, and a loss of $1.7 billion in its first quarter of 2020.
The cuts in Alaska will impact the Kuparuk River, Mooses Tooth and Colville River units, Conoco Alaska said in a statement.
“I can tell you that this is a significant action that we’ve not had to take in the past,” said Conoco Alaska spokeswoman Natalie Lowman. “I think we can all agree that these are unprecedented times with these extreme low oil prices.”
Conoco will not shut down the oil fields entirely because of the cost and complexity to do so, Lowman said. Conoco said the cutbacks will essentially leave oil stored in reservoirs, “available for resumption of production at a later date.”
“We want to be able to respond quickly if market conditions improve,” Lowman said.
In its statement, Conoco said the cuts to production underscore “the extraordinary challenges currently facing the oil and natural gas industry in Alaska and elsewhere.”
The pandemic has destroyed demand for fuel as cruise lines cancel sailings, and people drive less and book fewer flights. That paired with the oil price war has led to a glut of crude rapidly filling storage tanks. Oil prices have plummeted.
“It’s a very painful reminder today that Alaska is part of a global oil industry that is reeling from dynamics no one ever could foresee,” Moriarty said.
Last week, the estimated value of a barrel of North Slope crude dropped to an unprecedented negative $2.68 and crawled back to $10.67 by Wednesday — still the lowest price since the late 1990s.
Prompted by the global oversupply of crude, the company that runs the trans-Alaska pipeline has already announced plans to temporarily cut oil flow by about 50,000 barrels a day, or about 10%, through May.
Lowman said Conoco’s cuts are separate from the pipeline operator’s, and “should not overlap.”
Oil producers, including Conoco, have previously announced cuts to spending in the state, and oilfield service companies are laying off dozens of workers.
Conoco is the first major producer to announce significant cutbacks to production in Alaska related to the low oil prices and the pandemic.
Hilcorp said in a statement that it currently has two drill rigs operating on the North Slope and one in the Cook Inlet. At this time, it said, it has “no announced production cuts other than following Alyeska Pipeline’s proration directive.”
ExxonMobil declined to comment on its plans for production in Alaska ahead of its Friday announcement of first quarter financial results. A spokeswoman for BP said the company does not comment on day-to-day operations.
Conoco says it will start ramping down production in late May.
“Any extensions of the curtailment beyond June will be determined on a month-to-month basis,” the company said.
Conoco did not announce any layoffs in Alaska on Thursday. It said the cuts are not expected to impact the operations of the trans-Alaska pipeline.
During the first quarter of 2020, Conoco says, its daily production in Alaska totaled 218,000 net equivalent barrels of oil per day.
Reach reporter Tegan Hanlon at email@example.com or 907-550-8447.