One of the first domestic oil and gas issues the Biden administration will need to address in the new year is the disposition of ConocoPhillips Co.’s Willow oil project in the National Petroleum Reserve-Alaska (NPR-A) on the state’s North Slope. The company estimates development would require $8 billion and that recoverable reserves are 600 MMboe. It anticipates peak production of more than 160,000 b/d.
On Sept. 20, 2022, the Alaskan delegation to the US Congress sent Interior Secretary Deb Haaland a letter urging the Bureau of Land Management (BLM) to complete the permitting process for Willow by end 2022, in time to start work during the current winter construction season. Then, on Dec. 21, 2022, the delegation held its second meeting in 10 days with the administration, extracting a commitment to release the project’s final supplemental environmental impact statement (SEIS) by end-January 2023.
ConocoPhillips hopes to begin construction in early 2023 but needs the project permitted first. To get any work done during the current winter construction season would require nearly immediate approval. The alternative is another year of waiting. This is where President Biden could step in.
A draft SEIS issued in July proposed a three-pad development alternative, reducing the project’s footprint in the Teshekpuk special area from five drilling pads. ConocoPhillips supported the move, which was also responsive to an August 2021 ruling by the US District Court for the District of Alaska that federal regulators had failed to provide sufficient environmental impact analyses and plans to protect polar bears when approving Willow.
ConocoPhillips won’t take final investment decision (FID) on Willow until a final SEIS and supportive record of decision from BLM have been issued and won’t begin even the civil construction needed (opening a mine site, laying gravel roads, etc.) until it’s taken FID. In the meantime, the company continues to do detailed engineering and updating of cost estimates. Even with recent inflation, ConocoPhillips says Willow is economical at $40/bbl crude.
The right resource
In a mid-2022 investor update, ConocoPhillips indicated that first oil would occur about 6 years after FID. So, barrels from Willow won’t be on the market until the end of the decade.
But a brief consideration of what the world might look like then still makes Willow an ideal candidate for development. Even if efforts to reduce the world’s consumption of hydrocarbons continue at the pace currently being pursued, demand for crude oil will remain high through that period, placing an increasing premium on being able to source it domestically.
Willow is not just domestic. It’s sited on federal lands explicitly set aside for oil development and can be developed on a cost-of-supply basis at a fraction of current and recent prices. What’s more, ConocoPhillips says it has identified as much as 3 billion boe in nearby prospects with similar characteristics that could leverage Willow infrastructure, making them even less expensive to develop.
The Department of Justice has already found the project legally consistent with Pres. Biden’s initial executive orders on addressing climate change. Representatives of multiple native communities have written to Sec. Haaland in support of Willow’s master development plan.
We’re still going to need crude oil in 2029 and its sourcing will likely continue to be both contentious and costly. Future hydrocarbon developments will be judged on their own merits and through the prism of competing concerns-of-the-day. This is as it should be. The combination of domestic, inexpensive, locally supported, and shovel-ready, however, will be hard to beat. The time to approve Willow is now.