Alaska’s updated revenue forecast that generated headlines about Alaska’s grim financial future looks even worse today following news that ConocoPhillips has demobilized its drilling rig fleet to reduce the risk of COVID-19 spread on the North Slope, delaying long-term oil production and bringing some short-term production into question.
With prices already slumping, Alaska’s updated spring revenue forecast released on Monday acknowledged the “tremendous uncertainty” facing the state. The report lowered the anticipated revenue in the next fiscal year, which starts on July 1, from the fall forecast’s already low $2 billion to $1.2 billion.
Even without a PFD in 2021, the Anchorage Daily News reported, the state’s budget would run a $400 million deficit under the new forecast.
But that forecast only factored in falling oil prices. It didn’t touch the production forecast, noting that the work had been done before the price crash and wasn’t updated to incorporate its effects as they were more difficult to anticipate.
“Given the long lead time for Alaska oil projects and high level of uncertainty, the production forecast has not been further revised at this time,” explained the report, “so the forecast is still based on fairly stable Alaska production.”
The forecast put the average oil price for the upcoming year at $37 per barrel with production holding stable at 486,500 barrels per day. Much of that near-term stability in production relied on already producing wells in places like Alpine and Kuparuk, fields where Conoco announced rigs would be put into storage in March. This new announcement, putting all rigs into storage, now impacts new wells and new exploration.
According to a statement from the company, wells already in production will continue to produce oil for as long as possible, which isn’t likely much of a consolation given that Alaska North Slope crude dipped below $20 per barrel on Tuesday. And even that future is uncertain. With no operating rigs in mature fields, work that helps eek out extra production, like workovers and sidetracks, will slow or cease altogether.
“Wells in production will continue to produce oil,” ConocoPhillips Alaska spokeswoman Natalie Lowman said in a prepared statement given to Alaska media. “Given the high degree of uncertainty on how the situation plays out, we can’t say how long these measures will be in place.”
ConocoPhillips had expected a big uptick in drilling exploration wells this season, aided by the arrival of the largest mobile land rig in North America, Doyon Drilling Rig 26 (AKA “The Beast”), which had been expected to be drilling this spring.
Given the uncertainty about the duration of the halt on drilling and whether COVID impacts could extend to producing wells, it’s unknown just what the cumulative hit will be to the state’s budget, but it is all bad news. Oil production requires constant investment in drilling, whether it be it exploration wells or already developed wells needing more work. Any reduction in investment now could be felt for years to come.
It’s certainly already being felt by the Fairbanks-based Doyon, Limited through its subsidiary Doyon Drilling, which owns and operates several rigs on the North Slope, including “The Beast.” Several hundred employees could be out of work given the halt to drilling.
Doyon, Limited CEO Aaron Schutt told the Fairbanks Daily News-Miner that the oil industry has seen its ups and downs but that COVID-19 is creating new and unforeseen impacts on the industry.
“I’ve been at Doyon about 15 years and have been through a couple of downturns with oil prices, but this COVID is impacting us in dramatic ways,” he told the paper. “I take Conoco at their word that the decision was as much related to COVID as to oil prices and protecting that workforce that is very vulnerable when they live in remote camps and have close contact in camps.
“It would, could travel very quickly and create a very tenuous situation for employees.”