Willow project cost soars to $9 billion, which will cut state revenue for years

The announcement from ConocoPhillips last week that the cost of the Willow project has increased to $9 billion means that state revenues in future years will be lower for longer.

This will add to the Dunleavy deficit projections unless the governor abandons the practice he adopted in the aftermath of the recall movement, ignoring his responsibility and forcing the Legislature to balance the budget.

ConocoPhillips now says the Willow project, about half finished, will cost between $8.5 billion and $9 billion, with oil expected to flow in early 2029.

In early 2024, the company said it would cost from $7 billion to $7.5 billion.

“The increase is primarily due to higher general labor and equipment inflation and increased inflation on North Slope construction,” Andy O’Brien, chief financial officer, said on the third quarter earnings call.

Higher expenses per barrel mean that the company will have additional ways to reduce what it pays the state.

As I’ve said here before, the state’s oil tax system is broken.

In August, the state revised downward its projection of future Willow revenue by $2.6 billion from the amount predicted in early 2024.

There will be another drop predicted in state revenues coming with the latest increase in project costs. The Dunleavy administration needs to update the impact of the Willow project on future state revenues before the 2026 Legislature begins.

The company plans to spend a little more than $2 billion in 2025, and $1.7 billion annually in 2026, 2027, and 2028. After the oil flows, the capital costs for Willow will be about $500 million a year.

“We continue to expect Willow to deliver $4 billion of free cash flow inflection in 2029,” O’Brien said.

On top of annual $1 billion increases from other projects in the next few years, the Willow project will be a major boost to ConocoPhillips, CEO Ryan Lance said.

“That's a growth trajectory that's unmatched in our sector. So bottom line, we're performing well, we're delivering on our plan, and we're well positioned for 2026 and beyond,” Lance said.

Lance said the margins from the Willow project “are still quite attractive” and “it's gonna deliver a project for the company that will add to its future growth and development.”