Meeting highlights good future for oil industry

Posted: Sunday, January 27, 2002

ANCHORAGE -- Despite lower oil prices, uncertain prospects for a North Slope natural gas pipeline and cutbacks now under way at BP Exploration Alaska Inc., there's a lot of oil and gas in Alaska and the industry has a good future.

That's what speakers told contractors and others at the annual Alaska Support Industry Alliance "Meet Alaska" conference held in Anchorage Friday.

U.S. Sen. Frank Murkowski, Republican candidate for governor, told listeners not to get into a "decline" mentality.

"There are those who say the peak days of North Slope production is past, and our job is now managing decline. I would say 'not so fast,' on that assumption. We have a lot of resources, experienced people and infrastructure, and Alaskans have always had a 'can-do' attitude."

Murkowski thinks a U.S. Senate vote to open the Arctic National Wildlife Refuge's coastal plain is likely this year, but he admits the necessary votes aren't yet there.

"We need 60 votes to overcome a fillibuster. We don't have them, but we do have more than 50," the senator said.

If ANWR's coastal plain were opened, Alaska would get about $1.6 billion quickly for its share of expected bonus bids for leases, Murkowski said.

Lt. Gov. Fran Ulmer, who introduced Gov. Tony Knowles at the conference, praised the Teamsters' Union and others in organized labor for their support in opening ANWR to exploration.

"We may not have any overnight miracles, but over time we're making progress," said Ulmer, who is seeking the Democratic nomination for governor.

Knowles said that Alaskans need to be wary of increasing oil and gas taxes to cover a projected fiscal gap.

"Tax rates for the oil industry should be stable and certain, or we'll kill the goose that laid the golden egg," the governor said.

Knowles praised the petroleum industry for boosting production this year for the first time in a decade, and for its $780 million payroll in the state.

Steve Marshall, president of BP Exploration Alaska Inc., told the audience that his company sees 7 billion barrels of reserves yet to be developed right in and near existing fields.

One third of this is booked reserves, one third is conventional oil that can be developed in and near existing fields, and one third is the viscous oil resource overlying the Kuparuk, Milne Point and Prudhoe Bay fields, Marshall said.

BP has not been successful in exploration in recent years and has had bad luck with two new projects, Northstar and Badami, on which the company has spent about $1 billion, he said.

The company has instead refocused its efforts to develop those 7 billion barrels near the existing fields.

"These are real barrels, and there will be real jobs," he said.

Despite the potential, making Alaska more competitive is a challenge, he said.

"Our greatest competition is not other companies, but ourselves," he said, referring to the competition within BP to get money for new investment.

Margins on Alaska production are about one-third of what they are elsewhere in the world, and the company's efforts to reduce its support costs in Anchorage are important.

While staff in Anchorage are being cut, the North Slope workforce will be increased to deal with infrastructure maintenance, he said. Meanwhile, BP has a $700 million capital budget for Alaska this year, 20 percent more than it was spending through most of the 1990s, Marshall said.

On exploration, however, an Anadarko Petroleum Co. official said at the conference that his company has identified four separate oil and gas prospects that are good candidates for drilling, plus seven other prospects that are in various stages of study.

"If we make a commercial discovery, we'll invest an estimated $1.8 billion or so to develop the field," said Mark Pease, vice president for international and Alaska operations for Anadarko.

A development would create thousands of jobs and generate up to $10 billion in total economic impact for the state, he said.

"That's a big deal for Alaska, and for Anadarko," Pease told the Meet Alaska conference.

Pease said Anadarko plans to spud its first totally owned exploration well in the National Petroleum Reserve-Alaska. With information from other wells drilled and additional delineation drilling being done with Phillips this year, Anadarko hopes to declare its new well commercial this year, Pease said.

The company will spend more than $100 million this year on Alaska exploration and production activities, bringing to $350 million its total capital investment in the state.

John Ellwood, a senior vice president with Calgary-based Foothills Pipe Line Co., said his company and other partners in a gas pipeline consortium have talks scheduled with North Slope producers about a pipeline along the Alaska Highway.

Ellwood said he sees the recent announcement that Canadian producers are proceeding with plans for a pipeline to Mackenzie Delta gas discoveries as a positive development for Alaska.

"No matter by what route it goes, a pipeline from Alaska must go through Canada, and the Canadian government's greatest concern is that gas reserves could be left 'stranded' in the north," Ellwood said. "The announcement that the Mackenzie project is proceeding basically takes that issue off the table. It clears the deck for the Alaska project," he said.

Despite lower gas prices in recent months, long-term supply and demand trends in North America will still require large quantities of new gas supply, Ellwood said. U.S. domestic fields are mature and declining, and in recent years expanded production from Canada has supplied growing U.S. demand.

But Canada will no longer be able to meet increased demand. New wells being drilled in western Canada are less productive and will decline faster, he said. In 1990, new wells drilled in western Canada declined at about 20 percent per year. In 2000, new wells drilled are declining at 25 percent per year.

"That means that each year Canada has to replace 25 percent of our production just to stay even," Ellwood said.

Phillips Petroleum, meanwhile, said at Meet Alaska that it believes tax incentives are critical in making the North Slope gas pipeline a reality, but it is a view not shared by Phillips' partners in a pipeline study group, BP and Exxon Mobil Corp.

Don Duncan, Phillips' vice president for government relations, said his company is proposing a tax credit that would become effective if gas prices drop to $1.24 per thousand cubic feet.

Others are showing interest in Phillips' ideas, Duncan said. He said the company is also willing to discuss an "upside" price ceiling as part of the plan that would give consumers some protection if gas prices skyrocket.

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