Q&A with ConocoPhillips Alaska President Joe Marushack
Photo © Judy Patrick Photography
Alaska Business Monthly: The Willow discovery in the Greater Mooses Tooth Unit of NPR-A was welcome news in January. What can you tell us about ConocoPhillips Alaska’s investment in this field and the development timeline?
Joe Marushack: We are excited about this significant new oil discovery in northeast NPR-A. We have well, production, and seismic data that provide a solid technical foundation confirming Willow is a discovery with development potential. Willow is also close to existing infrastructure, which helps improve its economic viability. Our initial estimates are that there could be recoverable resource potential in excess of 300 million barrels of oil. This winter we began appraising the discovery using 3D seismic. We’re still working on various development scenarios, but assuming timely permit approvals, competitive project economics, and a competitive state tax framework, initial production could occur as early as 2024.
ABM: Greater Mooses Tooth Unit discoveries are expected to add oil into TAPS. How much and how soon?
Marushack: We’ll be evaluating appraisal results and working on various development scenarios, but we’re estimating that Willow could produce up to 100,000 barrels of oil per day. Development options include building a stand-alone production facility or processing production through the Alpine Central Facility. The highest production rate scenario assumes a stand-alone facility.
ABM: Where is the company’s next big exploration project on the North Slope?
Marushack: As a follow up to the Willow discovery, ConocoPhillips and its bidding partner, Anadarko, were successful in December’s federal lease sale on the western North Slope, winning sixty-five tracts for a total of 594,972 gross acres. ConocoPhillips independently was successful in December’s state lease sale on the western North Slope, winning seventy-four tracts for a total of 142,280 gross acres. The acreage we acquired in the two lease sales will provide us the opportunity to pursue geological play types that have led to other discoveries in the area.
ABM: ConocoPhillips has a reputation for sustainable development and collaboration with North Slope stakeholders. How is the CD5 development an example of this?
Marushack: To me, the CD5 project represents what ConocoPhillips does really well in Alaska—finding good projects, beating difficult odds with patience and perseverance, collaborating with key stakeholders to reach consensus on solutions, and planning and executing the work. CD5 came online below budget and ahead of schedule, with an absolute commitment to safety.
As the first oil development on Alaska Native lands within the boundaries of the National Petroleum Reserve-Alaska, CD5 is a state-of-the-art facility located in a remote, environmentally sensitive area. Much of the work to develop it took place during the brief windows of opportunity when ice roads provide access to our remote operations on the North Slope. Over a two-year construction phase, more than 120 miles of ice roads were built; a million and a half cubic yards of materials were mined and hauled; and 32 miles of pipelines and electrical infrastructure were installed. The innovative construction of a 1,400-foot bridge spanning the Nigliq Channel of the Colville River was an achievement that involved working closely with the village of Nuiqsut. The actual bridge construction used innovative technology to launch the bridge deck and kept people and equipment off the river ice. For the whole CD5 development, we listened closely and communicated frequently with Nuiqsut leaders to solve problems and alleviate concerns. In addition, we have made significant efforts to reduce the footprint of our developments and minimize our impact on the environment. For example, we have eight years of studies to document wildlife use in the area, archeological studies helped guide placement of facilities, as did studies of water flow and the subsistence lifestyles of residents. We also built pipelines and drill sites to allow caribou and other wildlife passage, and the lack of a permanent road from Kuparuk to Alpine decreases the gravel footprint on the fragile tundra. Ice roads are built in the winter to allow delivery of heavy equipment and supplies to Alpine and CD5 and then melt by late April, leaving little trace they were ever there. Finally, CD5 is a near zero-discharge facility. The waste generated is reused, recycled, or properly disposed.
ABM: In the CD5 Case Study ConocoPhillips said safety is more than a priority, it’s a core value and the number one issue and that the most important thing you can do is set the right safety tone. How are you doing that?
Marushack: At ConocoPhillips, our safety culture is certainly a core value, and we believe everyone is a safety leader. The year 2016 was our safest on record for ConocoPhillips Alaska—and we try to incorporate safety into everything we do. A key component of our “Incident-Free Culture” is having people actively look out for each other, which we believe will ultimately result in the entire workforce returning home injury-free every day. This is demonstrated when individuals have a willingness to help and to accept help from their co-workers. We recognize the power of relationships to change behaviors, and we all try to be accountable. We encourage safety interventions—candid conversations about safe behaviors—which allow us to challenge each other in ways that build rapport and strengthen our overall performance. I myself have been the recipient and benefactor of an intervention several times over the last year and a half. I appreciate that people cared enough about my safety to take action. I guess you could say I’m the company’s “safety president”, and accordingly, I believe in safety, live it, talk about it, and I’m willing to have the candid conversations.
ABM: The world glut of oil and gas has led to a great deal of consolidation and decreased activity around the globe; how have you saved costs in Alaska?
Marushack: Based on our 2017 budget, we have reduced our operating costs by almost 20 percent since 2014. We have also worked to reduce the capital costs of new projects. We have done this by working closely with our vendors and contractors to lower costs, and we appreciate their willingness to exercise flexibility considering that many contracts were negotiated when oil prices were much higher. Unfortunately, the decrease in price has also meant that we have had to reduce our workforce. However, we’re now better prepared to survive the in the current economy where we believe prices will be lower for longer and where we expect continued price volatility. We are a stronger, leaner company than before the oil price crash. Right now, COP in Alaska is appropriately staffed for our capital budget of about a billion dollars a year, but if for any reason we reduce capital—for example, if oil taxes are increased—then we wouldn’t be right-sized.
ABM: ConocoPhillips has said market conditions led to the decision to sell company interests in Cook Inlet holdings in the Beluga River Unit and North Cook Inlet Unit and to market the Kenai LNG Facility. If the state buys it, how useful would it be to the Alaska LNG project? If someone else buys it, can they use your export license?
Marushack: I can’t speculate on who would buy the plant, but the current export authorization, received in February 2016, is valid through February 18, 2018. It is anticipated that the purchaser would retain the existing authorization. The data room that was set up to market the plant is closed and we have received interest in the plant. We believe the Plant is a strategic asset that offers good opportunities for the right buyer.
ABM: ConocoPhillips is known the world over for its exemplary corporate citizenship. What are some of the ways ConocoPhillips is a good neighbor in Alaska?
Marushack: ConocoPhillips and its employees donate millions of dollars and thousands of hours annually in Alaska. Our employees are friends, neighbors, teachers, and coaches, and they volunteer for organizations like the Red Cross, Bean’s Cafe, Camp Fire, and Habitat for Humanity. In all, ConocoPhillips Alaska donated nearly $3.2 million to 243 nonprofit groups in 2016. And since 2000, we’ve donated about $128 million in support of social services, education, civic, arts, conservation, and health and safety initiatives statewide.
ConocoPhillips Alaska is the single largest donor to The University of Alaska System at $44 million. The company’s historic $15 million pledge to UAA in 2008 funded completion of the ConocoPhillips Integrated Science Building ($4 million) and the ConocoPhillips Arctic Science and Engineering Endowment ($11 million). The endowment bolsters Arctic science and engineering programs and research at UAA and is the largest in the University of Alaska system.
Last year, ConocoPhillips employee-driven programs and volunteerism contributed more than $1.24 million to Alaska nonprofits, and our employees volunteered more than 3,500 hours helping neighbors throughout Alaska. And, 2016 marked fifty years of support for the United Way, including fourteen consecutive years of donating more than $1 million.
ConocoPhillips also awarded about $300,000 to various conservation and natural resource projects. One highlight is the long-standing Spirit of Conservation Program, which gave $160,000 to eight projects statewide, with a focus on salmon habitat restoration, trail enhancements, avian research, and conservation education. We also donated $40,000 to the Alaska SeaLife Center for its marine wildlife rescue program.
This article first appeared in the May 2017 print edition of Alaska Business Monthly.