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We Build Alaska

Conoco the bully

In March, the Biden administration approved ConocoPhillips’ large Willow project, located in the National Petroleum Reserve – Alaska. This came after five years of back and forth with the federal government for approval.

The Trump administration approved the project in 2020, only to see the approval overturned by a federal court in 2021. Getting the Biden administration – which is wary of developing new domestic oil and gas sites – to approve the project was going to be a big lift.

Last month, U.S. District Court Judge Sharon Gleason rejected another lawsuit that attempted to stop the project. This solidified Willow.

Conoco had a lot of help getting the project approved. Actually, a lot is an understatement. The entire Legislature, all three members of Alaska’s congressional delegation, Governor Mike Dunleavy (R – Alaska), Native leaders, labor leaders, and many more worked together to help Conoco get over the finish line with the Biden administration.

But while Conoco was getting help from the most powerful political forces in the state, they have also been working diligently behind the scenes to prevent one of their competitors, Santos, from developing their own large oil discovery: the Pikka project.

A Powerful Helping Hand

While most of the help Conoco got came from the usual suspects, some of it came from people not normally friendly to the oil industry.

In February, the Legislature unanimously passed a resolution supporting the project. The resolution was introduced in the House on February 10, where it was referred to the House Resources Committee. It passed the House 36-0 just ten days after it was introduced. It arrived in the Senate on February 22. The Senate waived the public hearing notice, sent it to the Senate Resources Committee, and passed it 19-0 on February 27 – only five days after they received it from the House. The whole process took just 17 days.

While most things move like molasses through the Legislature, this resolution moved with lighting speed. In part, this was because a group of legislators wanted to highlight the resolution during a March trip to D.C. to advocate for the project. The group included Senator Lisa Murkowski (R – Alaska), Senator Dan Sullivan (R- Alaska), Representative Mary Peltola (D – Alaska), Senator Lyman Hoffman (D – Bethel), Senator Donny Olson (D – Golovin), then-Representative Josiah Patkotak (now the North Slope Borough mayor), Representative Bryce Edgmon (I – Dillingham), Representative Neal Foster (D – Nome), Representative CJ McCormick (D – Bethel), Alaska AFL-CIO President Joelle Hall, Voice of the Arctic Iñupiat President Nagruk Harcharek, and many more.

In late February before the D.C. rally, Senator Murkowski posted a highly produced video advocating for the Willow project. It featured several Alaska Native leaders, including Arctic Slope Regional Corporation President and CEO Rex Rock Sr.

Senator Sullivan posted a video of his speech at the D.C. rally. He emphasized the unanimous resolution from the Legislature in support of the Willow project and criticized the Biden administration for “begging” foreign autocrats for their oil.

Representative Peltola also spoke at the D.C. rally, but was not as vocal on social media. However, Peltola and her staff worked hard behind the scenes to advance the Willow project. Peltola, the only Democratic member of Alaska’s congressional delegation and the first Alaska Native member of Congress, had unique access to and influence with the Biden administration. In fact, her chief of staff made it clear to some freshman Democrats in the Alaska House who were thinking of voting no on the resolution: either vote yes or don’t show up.

Peltola understands that her re-election is going to be more difficult in a presidential election year, and that the Willow decision will help her politically. She touted the project when she spoke at the Alaska Oil & Gas Association annual conference in August and talked about it this week when she appeared on Meet the Press. If Peltola wins re-election, it’s fair to say that the Willow decision will have played a significant role.

In March – before the decision from the Biden administration – Governor Dunleavy appeared on Fox News advocating for the project. He said Biden is “being held hostage by eco-terrorists” and assumed Biden would not approve the project. Dunleavy and Sullivan were more pointed and aggressive in their rhetoric, while Murkowski and Peltola – who have more influence with Biden – were more measured.

Without the alignment of the state’s most powerful political forces, the Biden administration would have likely rejected the project.

An Intertwined History  

Conoco acquired the Willow leases in 1999 but did not make the discovery until 2016. The project – located on federal land – is estimated to produce 180,000 barrels of oil a day. To give some context, ANS production has averaged 486,000 barrels a day since 2017.

Pikka – the Santos project that Conoco is interfering with – was discovered by wildcatter Bill Armstrong in 2013. Conoco actually held the lease and explored the area where Pikka was later discovered, but missed it. Armstrong then acquired the lease and made the major discovery. Pikka is estimated to hold more than 750 million barrels of oil and could produce 80,000 barrels a day.

Pikka, located on state land, is more beneficial to the state than Willow, located on federal land. This is because the state will collect royalties on Pikka oil but not Willow oil.

The irony is that if Armstrong had not discovered Pikka, Conoco would not have discovered Willow. In a 2018 ADN article “Discovery by risk-taking geologist was ‘game changer’ for North Slope,” ConocoPhillips Alaska former President Joe Marushack said the company was frustrated they missed making the initial discovery. “I ask our geologists all the time, how’d we miss this?” he said. “But that happens. We’ve found stuff other people have missed and we’ve also missed stuff. Hopefully we learn from that.”

Armstrong has not been shy about his feelings on Conoco. In a February 2013 appearance before the Senate Resources Committee – not long before he discovered Pikka – Armstrong spoke openly about barriers to access on the North Slope. When asked by Senator Click Bishop (R – Fairbanks) to elaborate Armstrong said, “I would say my relationship with ConocoPhillips is a little bit like Ike and Tina Turner. And I’m Tina Turner. I’m like come on Ike, hit me again! So, they don’t make it easy. What I tell my daughters is never look at what a boy says, only look at what a boy does. And I know Conoco says they’re super happy I’m up here, but I just look at their actions.”

Stopping Santos

Armstrong was initially partnered with Repsol on Pikka. After the find he sold his stake to the Australian oil company Oil Search, who later merged with the Australian oil company Santos. Currently, Santos owns 51% while Repsol owns 49%.

The trouble started in 2019, and it centered around water and a road.

Santos (then Oil Search before merger) attempted to negotiate a purchase of water from Conoco’s seawater treatment plant. When an agreement could not be reached, Oil Search decided to build their own seawater treatment plant. They informed Conoco of this in December of 2019. In March 2020, Oil Search submitted an application to the Army Corps of Engineers for a standalone seawater treatment plant.

Conoco was livid at Oil Search’s attempt to bypass their monopoly and treat their own water. During the public comment period, Conoco submitted extensive comments arguing the proposed Oil Search seawater treatment plant is “impractical” and the plan is “insufficiently vetted and lacks the necessary coordination with existing operators and facilities.” In their comments, they claimed Oil Search’s seawater treatment plant “would be sited essentially on top of existing KRU (Kuparuk River Unit) and Nikaitchuq infrastructure.” They concluded their comments by saying, “As currently scoped, we believe potential upgrade to the KRU STP (seawater treatment plant) would be environmentally preferable and would avoid the impacts listed above.”

Kuukpik and ASRC both submitted comments supporting Oil Search’s proposed seawater treatment plant. In the end, the Army Corps approved Oil Search’s permit.

Then the trouble with the road started. When Conoco purchased Arco’s North Slope assets in 2000, included in that was extensive roads that had been built decades ago. For Santos to develop Pikka, they need access to some of the roads in the Kuparuk River Unit (KRU), located on land where Conoco holds leases.

State oil and gas leases are clear: the lease holder has the right to produce the oil located on the sub-surface. They do not own the land. During the course of 2021, Santos attempted to negotiate with Conoco for a road use agreement. They ended up offering $1 million a year for 30 years for maintenance of the road, and also agreed to help pay for road upgrades as needed. Conoco countered with $20 million a year for 30 years, a total of $600 million.

In November 2021, Conoco’s vice president of strategy, commercial, BP & land, John Schell Jr., sent a ten page letter to then-Natural Resources Commissioner Corri Feige and several other DNR officials about the road issue. The letter argued that the KRU roads are private property and Oil Search cannot use them without an agreement in place.

In April 2022, Oil Search’s land manager, Tim Jones, sent a letter to Feige rebutting Conoco. “The requests should be considered in light of the overall course of conduct CPAI (ConocoPhillips Alaska) has engaged in for over two years to disrupt the Pikka Project and delay its permitting,” wrote Jones.

In April 2022, DNR granted Oil Search a land use permit allowing them to use the KRU roads. Conoco appealed the decision. In December 2022, then-Acting Natural Resources Commissioner Akis Gialopsos issued a lengthy decision denying Conoco’s appeal for failing to “identify how or why the Division or DNR lacked the authority to issue the Permit, erred in is adjudication process, or undertook a Constitutional taking.”

Gialopsos concluded by saying “The parties are encouraged to meet, confer, and reach an equitable road use agreement to effectuate revocation of this reasonable, legal, and revocable permit.” Conoco responded less than a month later by filing a lawsuit in state court against DNR for their decision to give access to Santos access to the road.

Conoco and Santos have yet to reach an agreement and the lawsuit is yet to be decided. In the meantime, Santos is allowed to use the road.

Another Road

Part of Conoco’s argument relates to another road, located near their Kuparuk Unit. The road is part of the long troubled Mustang project. The Alaska Industrial Development and Export Authority (AIDEA) got involved in the project in 2013. It invested money to help Brooks Range Petroleum, which operated Mustang but had long been plagued by financial trouble. The Mustang debacle is a whole other story, but suffice it to say it has not gone well.

During the last legislative session, AIDEA attempted to give the 4.5 mile Mustang road to the state in order to offset their financial obligations to the state. AIDEA valued the road at nearly $14 million, which, they argues, would reduce their $17.9 million cash dividend. During a Senate Finance Committee meeting, Senator Lyman Hoffman (D – Bethel) was bewildered by the move and questioned its legality.

Brooks Range and AIDEA also tried to shake down Oil Search for use of the Mustang road, but DNR denied that and gave Oil Search a road use easement.

Conoco’s argument was essentially “if AIDEA can own a road, so can we.” But AIDEA recently sold their Mustang interested to Finnex at a fire sale price (the Landmine has a records request into AIDEA regarding the sale and is working on a separate article on the situation). AIDEA, through their Mustang Holdings, had been appealing DNR’s decision to not let them charge a toll to Santos.

On November 30, Finnex President and CEO Gordon Pospisil sent a letter to Natural Resources Commissioner John Boyle informing him that AIDEA’s shakedown attempt would not be continuing under their ownership. “Finnex has met and conferred with representatives of OSA (Oil Search Alaska, which is Santos) and reached and agreement with OSA on terms for concurrent use, maintenance, and operation of the Mustang Road/NPA Road that are consistent with long held agreements for concurrent use of roads between operators on the North Slope,” wrote Pospisil. DNR responded four days later, confirming the withdrawal of the appeal.

Conoco responds

In response to questions about their repeated actions to interfere with the Pikka project, Rebecca Boys, a spokesperson for ConocoPhillips, provided the following comment to the Landmine:

ConocoPhillips Alaska, Inc. has never tried to interfere with Oil Search’s Pikka Project, and no Pikka Project traffic on Kuparuk River Unit roads has been stopped or interfered with. ConocoPhillips Alaska, Inc. does, however, object strenuously to the State of Alaska Department of Natural Resources taking private property rights without owner consent or compensation by directing Oil Search to use the Kuparuk River Unit roads without any compensation to or consent from the Kuparuk River Unit owners. The Department of Natural Resources recently paid very close to market value for a privately constructed road on the North Slope adjacent to the Kuparuk River Unit, which clearly demonstrates the property rights taking in this situation.

“Alaska’s Oil and Gas Company”

Conoco has long referred to themselves as “Alaska’s oil and gas company.” But their actions paint a different picture. More oil in the pipeline benefits all the producers, and all Alaskans. But Conoco has expended serious resources trying to prevent Santos from developing Pikka.

The time spent by Conoco, Santos, and the State of Alaska over the last four years on this issue has to be in the thousands of hours. If Conoco was serious about being Alaska’s oil and gas company, they should not be using their institutional power to make over-the-top demands and block a competitor from developing the state’s natural resources.

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sisyphus
1 year ago

An oil conglomerate not out to fuck everyone else over – that’d be newsworthy.

Taku
1 year ago

No surprise. Monopolies are what the north slope is all about.

Alaskan First
1 year ago

Wait a minute. Have you seen the time, energy, and capital investments made to create these roads?

I, too would want some newcomer to pay to rent what I constructed. That’s part of doing business.

Those who hate big oil can just leave our state. Go back to the Lower 48.

Dan
1 year ago
Reply to  Alaskan First

To me, a lay person, a million bucks a year seems to be a pretty fair offer, but so does $20 million. It’s all monopoly money. The state should rightly be a bit biased towards enabling new production. And, the last thing that we, as a state, want is for Santos to build a second road, or an ice road, parallel to the existing Conoco maintained road. That said, folks should read the August 2023 Alaska Business article on this same subject. Apparently Oil Search previously tried to sell the 11 mile road they own to AIDEA for $200 mil,… Read more »

Dan
1 year ago
Reply to  Alaskan First

I must add that many people who are sick of Big Oil’s history of dishonesty, political influence and impact on our culture were born here and wouldn’t be “going back” to the Lower-48. What was the old bumper sticker about happiness being seeing a Texan going south with an Okie under each arm? Alaska is a diverse state, with many views on these things. It always has been. And, that’s a good thing. As a matter of fact that diversity (of experience and perspective, moreso than the ways the word is conventionally used) is probably the best thing about the… Read more »

Frank Rast
1 year ago
Reply to  Alaskan First

The article stated that some of the roads were built by others, CP LEASES the underlying assets, they do not OWN the land.AIDEA is run by the Governor’s political operatives. The Courts will determine IMO that Pikka has legal access and CP will eventually agree to reasonable terms for maintenance and use.

Alaskan First
1 year ago
Reply to  Frank Rast

I did not say they owned the LAND. They built the ROADS. With permitting. Paid for by their capital investments.

I did not mention AIDEA. Red Herring.

But I will say it again: don’t like oil production? MOVE.

AKdreamin
1 year ago
Reply to  Alaskan First

Dude, fuck COP, anti-competitive behavior is par for the course from them. Same sort of shit happened with Oooguruk facility sharing at CPF3. Basically drove profitability into the ground until PXD gave up and sold out. Oil Co’s do this as a course of business, even as far back as pre-merger Conoco’s discovery and subsequent sale of Milne Point Unit, which was due to not being to get reasonable commercial transportation terms. Good on DNR for standing up the new guys on the slope, someone has to police these guys. We’re so lucky we no longer have only BP and… Read more »

Daniel K Donkel
1 year ago

If the people in power or the voters in Alaska wanted to, they could remove Alaska as the worst place in the Nation to invest in oil and gas Exploration and production reported in the 2022 Frasier Institute Ranking of Petroleum Provinces. Alaska is at the bottom with California. Alaska could be the place everyone in the world wants to go to find oil and gas and produce as much as possible, but clearly, no one in leadership seems to know how, and no one seems to be asking those of us trying to do it, why? Maybe Bill Armstrong… Read more »