Today’s Key Takeaways: Conoco buys Chevron holdings on North Slope. Hilcorp looks to the interior for oil exploration. Impacts of Middle East conflict on LNG. AK Energy Metals completes Canwell drilling. Oil price sensitivity for AK budget,
OIL:
ConocoPhillips buys most remaining Chevron oil holdings on North Slope
James Brooks, Alaska Beacon, October 3, 2024
The international oil company ConocoPhillips has signed a $300 million deal to buy portions of the Kuparuk and Prudhoe Bay oil fields owned by Chevron USA.
ConocoPhillips announced the deal, which is expected to close by the end of the year, on Thursday.
Chevron has been seeking to sell its North Slope assets since at least 2022, and reporting by Northern Journal earlier this year showed that the company had been considering a sale to a small, independent Texas firm.
Pontem Alaska Midstream, the firm in question, failed to close that deal, records show.
ConocoPhillips’ purchase, announced this week, doesn’t include Chevron’s stake in the Endicott oil field, the company confirmed, and the status of that holding isn’t clear.
ConocoPhillips’ purchase comes amid a general withdrawal from the North Slope by other large oil companies, including BP — which sold to Hilcorp in 2020 — and Chevron.
The trend on the North Slope has been toward smaller, privately held oil companies like Hilcorp, but ConocoPhillips is a notable exception. It has invested heavily in the Willow oil project within the National Petroleum Reserve and this week completed delivery of a large oil production unit to Kuparuk.
Hilcorp again eyes Interior Alaska for oil exploration
Nathaniel Herz, Northern Journal, October 3, 2024
Oil and gas company Hilcorp appears to be moving toward new oil and gas exploration work in Alaska’s Interior, according to public documents released by state land managers.
Hilcorp on Sept. 19 applied to the Alaska Department of Natural Resources to install water level gauges in Birch Creek, not far from the Yukon River, “in support of oil and gas operations.”
Hilcorp has previously explored in the area in a partnership with Doyon, the Native-owned regional corporation for Interior Alaska.
The original agreement covered exploration of 1.6 million acres; just 3% of that area was selected by Hilcorp for further exploration this year, Doyon says on an informational web page.
“Plans for specific activities for the remainder of 2024 and 2025 are still in progress, but Hilcorp and Doyon will continue providing regular status updates to leaders in the region,” the page says.
The area is relatively close to the trans-Alaska pipeline, but it’s also near the Yukon Flats National Wildlife Refuge, which could complicate any plans for development
GAS:
What the Middle East conflict means for oil and LNG
Wood Mackenzie, October 3, 2024
Heightened geopolitical tension in the Middle East has become a disturbingly recurrent theme this century, just as it did in the last. The locus of conflict might shift each time and so, too, the implications for energy markets. So far, the oil, gas and LNG markets seem largely unfazed by this week’s escalation in Lebanon and Iran’s direct engagement with Israel.
How could the gas and LNG markets be affected?
The LNG market faces similar risks to supply as oil, but unlike oil, there is little or no spare capacity should there be a disruption, and neither Iran nor Iraq exports LNG.
Iran does export gas via pipeline to Turkey for an equivalent of 4 Mt per annum of LNG, however intentional disruptions of the pipeline carry substantial political risk and there is sufficient spare capacity to import more Russian gas in Turkey. Risks to global LNG markets seem limited. (mostly Qatari). All these volumes pass through the Strait of Hormuz. The threat to either country’s ability to deliver cargoes is limited in our view. However, higher security to protect cargoes, perhaps including military escorts for LNG carriers, could slow down deliveries to the market.
Any shutdown of Israel’s piped gas exports from Israel to Egypt could also impact LNG supply, albeit indirectly. Israel took pre-emptive action to cut gas exports in case infrastructure sited close to the conflict zone became a missile target. In the event, there was no strike and flows resumed promptly. Now, with Hezbollah’s military capabilities seriously damaged, it seems unlikely it has the capability to inflict damage.
Should gas flows be disrupted for an extended period, Egypt would need to secure the equivalent of up to 6.5 Mt per annum of LNG from an already tight global market (although regas capacity might be a constraint). With winter approaching, this would occur just as the northern hemisphere enters peak demand.
The global LNG market was already pricing in some of these risks. Prices are currently trading upwards of US$13/mmbtu as the market grapples with resurgent Asian LNG demand and further risks to Russian pipeline disruption. Unlike oil, there has been no spike since the recent escalation and risks to supply disruptions remain modest.
MINING:
AEM completes first drilling at Canwell
Shane Lasley, October 4, 2024
Drills one hole at each of three targets with compelling evidence of nickel-rich massive sulfides; two reach target depth.
Alaska Energy Metals Corp. Oct. 1 reported that its 2024 drill program at Nikolai included three holes to test intriguing high-grade massive sulfide targets on the Canwell block of claims at its Nikolai nickel-copper-cobalt-platinum group metals project in Alaska.
Nikolai is comprised of two blocks of claims – Eureka and Canwell – that each host compelling nickel targets. Alaska Energy Metal’s inaugural drill program at Nikolai, which was carried out last year, built upon previous exploration at Eureka, which hosts a very large and thick body of disseminated nickel-copper-cobalt-platinum group metals mineralization.
Results from the 2023 and previous drilling outlined a deposit at Eureka that hosts 813 million metric tons of indicated resource averaging 0.22% (3.88 billion lb) nickel, 0.07% (1.28 billion lb) copper, 0.02% (303 million lb) cobalt, and 0.15 grams per metric ton (4.03 million oz) palladium-platinum-gold; plus 896 million metric tons of inferred resource averaging 0.21% (4.23 billion lb) nickel, 0.05% (1.04 billion lb) copper, 0.02% (327 million lb) cobalt, and 0.12 g/t (1.34 million oz) palladium-platinum-gold.
This year, Alaska Energy focused its exploration on Canwell, a block of claims approximately 12 miles (19 kilometers) northwest of Eureka, where outcroppings of massive sulfides with very high-grade nickel have been found on the surface but drilling has yet to discover a large body of high-grade nickel.
POLITICS:
Oil Price Sensitivity for FY25 Budget
In FY24, the budget split revenue beyond the Spring 2023 forecast between an energy relief payment and the Constitutional Budget Reserve (CBR). The legislature revised that provision during the 2024 session, and ultimately a $190.0 million energy relief appropriation added $298 to the FY25 PFD payment to Alaskans. The projected $112.8 million surplus was deposited into the CBR (savings).
In FY25 (current budget year), at the forecast price of $78, there is a projected budget surplus of $146.9 million. If oil revenue falls short of the forecast, there is no deficit-filling provision that would occur at prices below about $75 per barrel. Alaska North Slope crude prices have averaged $79.83 through Friday, September 27, but had dropped to $73.33 by that day. It is possible that the legislature will need to address a deficit when lawmakers convene in January 2025, particularly when supplemental appropriations are added to the existing FY25 budget. As there is no balance in the majority-access Statutory Budget Reserve (SBR), this likely means that the legislature will need a 3/4 vote to tap the CBR unless oil prices rebound.
If prices exceed the forecast in FY25, there is once again an energy relief provision. In FY25, that kicks in if revenue exceeds the forecast by $135.0 million or more about $81 oil or higher. This provision splits revenue 50/50 between an energy relief payment that will be part of the FY26 PFD, and a deposit to the SBR. This split is capped at $322.5 million for each purpose (enough to add about $500 to the FY26 PFD). Beyond that, any additional revenue is appropriated to the CBR.
From the Legislative Finance September 2024 Newsletter