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.
“It’s incredibly significant,” said Kara Moriarty, chief executive of the Alaska Oil and Gas Association. Conoco is Alaska’s largest oil producer.
“It will have an impact on state revenue, royalties, production tax,” Moriarty said.
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 curtailments in 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, ConocoPhillips Alaska said in a statement.
“The curtailment will essentially leave the oil stored in the reservoirs, available for resumption of production at a later date,” it said.
Conoco will not shut in the fields entirely “because of the cost and complexity of a total field shut down,” wrote Conoco Alaska spokesperson Natalie Lowman in an email. “We want to be able to respond quickly if market conditions improve.”
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.
Oil producers, including Conoco, have already 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 current oil prices.
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.”
Alyeska Pipeline Service Co., the company that runs the trans-Alaska pipeline, announced last week plans to cut oil flow by about 50,000 barrels a day, or about 10%.
Exxon Mobil declined to comment on its plans for production in Alaska ahead of its Friday announcement of first quarter financial results. A spokesperson 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 will not impact the trans-Alaska pipeline.
In a statement Thursday, the co-chairs of the Alaska Legislature’s House Resources Committee said Conoco’s cutbacks are another troubling reminder of the economic challenges the lie ahead for Alaska due to the pandemic.
“This news deals a blow to the state’s widening deficit and underscores the need for a comprehensive strategy to address Alaska’s financial crisis,” said the statement from Rep. John Lincoln, I-Kotzebue, and Rep. Geran Tarr, D-Anchorage.
During the first quarter of 2020, ConocoPhillips says its daily production in Alaska totaled 218,000 net equivalent barrels of oil per day.
This story has been updated.