Alaska was once one of the crown jewels of the oil industry. Thanks to the discovery of the Prudhoe Bay field and others, the state pumped out 2 million barrels of oil per day (BPD) at its peak in 1988. Production, however, has gone downhill since then. It has declined 68% to around 600,000 BPD in recent years due in part to high taxes and more accessible resources elsewhere.

While those issues led many oil companies to abandon Alaska over the years, ConocoPhillips (NYSE:COP) was one of a handful that remained committed to the state's oil potential. That commitment is starting to pay off as changes in the state's tax code alongside some technological advancements have given the company the incentive and the tools to explore for new oil resources. Those exploration efforts are starting to get results, so much so that now ConocoPhillips is making plans to increase its wager on Alaska's oil future.

An oil pump in the winter.

Image source: Getty Images.

Discovering a new Alaskan gusher

ConocoPhillips restarted its Alaskan oil exploration program in 2016, drilling in the National Petroleum Reserve, where the company and its partner at the time, Anadarko Petroleum (NYSE:APC), had leased about 1.2 million acres of land. In early 2017, the two companies announced their first discovery, called Willow, which they estimated contained more than 300 million barrels of recoverable oil. The companies planned to drill more test wells to appraise the find. Prior to drilling, they thought that Willow could eventually produce 100,000 barrels of oil per day as early as 2023 following a multibillion-dollar investment to develop the field.

Fast-forward to 2018, and Anadarko Petroleum is no longer in the equation after selling its 22% stake in this partnership to ConocoPhillips for $400 million. The sale included the Western North Slope field, which produced 63,000 barrels of oil equivalent per day last year (BOE/D); the Alpine pipeline; and the company's interest in all 1.2 million acres of exploration and development land, which held the Willow discovery. That find has grown in the last year as a result of new exploration and appraisal drilling over the winter that further confirmed the potential of Willow and uncovered new potential sources of oil.

Putting together the plan

Among the benefits of buying out Anadarko's interest is that it gave ConocoPhillips full control of not only these resources but the development time frame. The company now has a plan to move forward with development of the Greater Willow Area, which after further testing is estimated to hold between 450 million BOE and 750 million BOE of resource potential, with ample upside from still-unexplored areas. The company's initial plan is to invest $2 billion to $3 billion in the four to five years following a final investment decision to develop a stand-alone hub. That investment would enable it to start producing oil by 2024 with a supply cost of less than $40 a barrel.

The company also believes it has uncovered another 100 million to 350 million BOE of resources in two new areas of Alaska. It plans to drill more appraisal wells to test these areas in 2019, as well as explore additional locations. Overall, the company has explored only 25% of its land holdings, leaving significant upside potential.

A drilling rig in a snowy field.

Image source: Getty Images.

Building an Alaskan behemoth

On top of buying out Anadarko's stake in the West North Slope and putting together a multibillion-dollar development plan for its latest discovery, ConocoPhillips recently signed a deal to bolster its interest in another part of Alaska. The company announced a two-part transaction with oil giant BP (NYSE:BP) in which it would sell 16.5% of its interest in the Clair Field in the U.K. North Sea to BP in exchange for a 39.2% stake in the Greater Kuparuk Area of Alaska, plus 38% of the company that owns the Kuparuk Pipeline. These transactions would increase ConocoPhillips' interest in the oil fields to 94.5% and to 95% of the pipeline company while giving BP a larger stake in one of its core assets.

If that deal closes, ConocoPhillips will produce about 225,000 BOE/D from Alaska and control as much as 3.1 billion BOE of captured and discovered resources that have a supply cost of less than $40 a barrel. That resource base would make the company a force in the state and should become an important driver both now and in the future.

A long-term bet with a big potential payoff

ConocoPhillips' contrarian approach of continuing to invest in Alaska after others had abandoned the state is starting to pay off. The company has already discovered a significant amount of oil, which appears poised to become a major growth driver. That long-term upside increases its appeal to buy-and-hold investors who firmly believe that the world will need more oil in the decades to come.

Matthew DiLallo owns shares of ConocoPhillips. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.