ConocoPhillips said Thursday that it will cut capital spending in Alaska by another $200 million as demand plummets and oil prices tumble to an 18-year low. That’s on top of a $200 million reduction the oil giant announced last month.
“The combination of COVID-19 and the oil market downturn has been difficult on industry and on stakeholders everywhere,” Ryan Lance, Conoco’s chief executive, said in a statement on Thursday that detailed the company’s massive cuts to oil production and its budget.
While Conoco is slashing oil production in the Lower 48 and Canada, it did not announce any cuts to production in Alaska or any layoffs on Thursday, said company spokesman John Roper.
“We continue to monitor the market situation,” he said in an emailed statement. “But at this time, based on our current outlook, we chose to maintain organization capacity so we can resume programs in the future.”
In total, the $400 million cut to capital spending in Alaska represents about a 25% reduction from what the company had expected to spend on capital in the state this year, Roper said, citing budget plans from February.
In a conference call on Thursday, Matt Fox, Conoco’s chief operating officer, said the company is cutting costs in Alaska, at least in part, by reducing drilling, including shutting down traditional and coiled tubing drilling activity.
“And we’ve elected not to start up the extended-reach drilling rig we mobilized to the North Slope last year,” Fox said. Also, he added, the company has ended its winter exploration program early to minimize the risk of COVID-19.
He didn’t provide additional details about the Alaska cuts in the call, and Roper said the company wasn’t providing more specifics.
Conoco had expected this winter to be its largest exploration and construction season ever in Alaska. Citing concerns about the coronavirus, the company announced last week that it planned to shut down development drilling, and reduce its workforce at the remote North Slope oil fields. It said wells in production would continue to produce oil.
Across its operations in the Lower 48 and Canada, Conoco said Thursday, it will slash oil production by 225,000 barrels a day, nearly a fifth of its global production. The Financial Times described it as the biggest coronavirus-related production cut of any U.S. energy producer. Across the company, Conoco is cutting more than $5 billion in spending.
On the conference call, Lance said the company expected oil prices to remain “weak and quite volatile” over the next several months.
“We’re just not going to sell our crude for these kinds of prices,” he said.
Alaska North Slope Crude sunk to $16.65 a barrel on Wednesday, the lowest price since early 2002, as the coronavirus pandemic crushes demand and an oil-price war ravaged the industry.
Don Wallette, Conoco’s chief financial officer, said on Thursday’s call that Alaska is “in the mix” as a place Conoco would consider curtailing production, “at least the portion we operate on the western North Slope.” But, for now, he said: “Alaska is sold a little bit further forward than Lower 48 is and so the pricing is still acceptable to us.”
“So we don’t plan to curtail Alaska in May,” he said. “And as far as future production projections, we’re not going to be in a position to provide that with all the uncertainty that we’re under.”
Other oil companies have also announced reductions in Alaska: BP said last month it was ending its two-rig drilling program on the North Slope, and OilSearch has said it’s cutting about $70 million in spending in the state.
Despite the cuts, the amount of oil flowing down the trans-Alaska pipeline so far this month has remained similar to last year’s average production.