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Oil & Gas

ConocoPhillips gets green light for controversial Alaska oil project

The US Department of the Interior has approved a development plan allowing just three well pads for ConocoPhillips’ Willow oil project in Alaska, reduced from the originally proposed five-pad project.

The project, five years in the making, is expected to produce about 180,000 barrels of oil per day at its peak.

The official Record of Decision was released on Monday, following the recommended alternative plan that the Bureau of Land Management approved in its final supplemental environmental impact statement (SEIS) last month.

“This was the right decision for Alaska and our nation,” said ConocoPhillips chief executive Ryan Lance.

“Willow fits within the Biden Administration’s priorities on environmental and social justice, facilitating the energy transition and enhancing our energy security, all while creating good union jobs and providing benefits to Alaska Native communities.”

Supporters of the Willow master development plan say the project will produce low-cost oil with low greenhouse gas intensity, addressing energy security concerns around the world.

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The Willow project is expected to yield about 600 million barrels of oil equivalent over the life of the project and start producing in 2029.

Analysts also saw the project as a plus for the operator, despite a medium term impact on short-term capital and capital expenditure of between $1 billion and $1.5 billion over the next six years.

A research note by Piper Sandler investment bank assessed Willow as offering a sub-$40 per barrel break-even cost expected to generate $2.6 billion per year of free cash flow at $75 per barrel of West Texas Intermediate “while opening the door to significant future upside potential from highly efficient near-infrastructure resource development in the area”.

Sajjad Alam, Vice President-Senior Credit Officer for Moody’s Investors Service, wrote: “The approval of ConocoPhillips’ Willow project in Alaska by the US Department of the Interior will provide the company with another avenue for domestic production growth at relatively low cost. ConocoPhillips generates a sizable portion of its liquids production in Alaska, where it is the largest oil producer and land lease holder.”

Lance said during CERAWeek by S&P Global last week that the project is “exactly what this administration has been asking our industry to do”, referring to the administrations recent calls for the industry to invest in oil and gas production with lower emissions.

Alaska Senator Lisa Murkowski applauded the decision, saying the project will create thousands of jobs and billions of dollars in new revenues.

“We finally did it, Willow is finally reapproved, and we can almost literally feel Alaska’s future brightening because of it,” Murkowski said.

Fierce opposition

But it has many opponents due to the environmental implications in Alaska and the apparent softening of the administration’s stance toward turning to clean energy rather than greenfield fossil fuel projects.

Environmental groups oil from Willow will add hundreds of millions of tonnes of greenhouse gas to the atmosphere during its lifetime.

“The harmful effects of President Biden’s decision cannot be overstated. By allowing ConocoPhillips to move forward with this operation, he and his administration have made it almost impossible to achieve the climate goals they set for public lands,” Ben Jealous, executive director of Sierra Club, a US environmental organisation said in a statement.

“Willow will be one of the largest oil and gas operations on federal public lands in the country, and the carbon pollution it will spew into the air will have devastating effects for our communities, wildlife, and the climate. We will suffer the consequences of this for decades to come.”

Abigail Dillen, president of climate activist group Earthjustice, said in a statement: “We are too late in the climate crisis to approve massive oil and gas projects that directly undermine the new clean economy that the Biden Administration committed to advancing. We know President Biden understands the existential threat of climate, but he is approving a project that derails his own climate goals.”

President Biden was at one point expected to reject the proposed project outright but, with concerns over energy prices more of a concern than before the last US election, the administration opted to reduce the number of drill pads to reduce environmental footprint.

Out of bounds

At the same time that the Department of the Interior was approving the alternative Willow plan, the Department also announced protections for up to 16 million acres of land and water in Alaska.

The Biden administration said it is withdrawing about 2.8 million acres of the Beaufort Sea in the Arctic Ocean nearshore in the National Petroleum Reserve as indefinitely off limits for future oil and gas leasing, and it is considering extending those protections to 13 million more acres within the reserve.

The decision gives additional protections for Teshekpuk Lake, guarding it against potential developments in onshore pipeline infrastructure.

As part of the reduced plan for the Willow oil project, the Interior Department said ConocoPhillips will have to relinquish 68,000 acres of its existing leases in the National Petroleum Reserve, including about 60,000 acres in the Teshekpuk Lake Special Area.

“The fight to unleash American and Alaskan energy is far from over. The fact that this Willow ROD comes with the announcement of future legally-dubious resource development restrictions on Alaska lands and waters is infuriating and demonstrates that the Biden Administration’s unprecedented lock-up of our state will continue,” Alaska Senator Dan Sullivan said in a statement.

Sierra Club added in its statement: “While we celebrate the administration’s unparalleled protections for Alaskan landscapes and waters, the decision to approve the Willow project may very well wipe out many of these climate and ecological benefits. And by approving one of the largest oil and gas extraction projects on federal public lands, one must ask the question what the Biden administration has in store for the Arctic Refuge.”

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