Unocal focuses on future in area

Posted: Monday, February 04, 2002

Unocal field superintendents discussed the projected longevity of the Unocal operation in Cook Inlet and the factors that influence that longevity.

"Unocal's philosophy is be safe, be environmentally secure and then be productive," Chris Myers said at a Resource Development Council meeting Friday at the Kenai Merit Inn.

"If we can do the first two and return some money back to the company then Unocal's intention is to stay here. We've been here for 35 years, and there's still a lot of oil in the ground out here."

Myers and Dwight Johnson explained the balancing act required to do business in the Cook Inlet and Kenai Peninsula area. The Unocal Alaska operation competes for company funding with other Unocal oil operations, like in Thailand and the Gulf of Mexico. If the Alaska operation doesn't meet the company's criteria of being safe, environmentally secure and productive, than money goes to an operation that does.

"In general, the pipeline is in a pretty fragile environment as far as doing business in general -- fragile from a cost perspective," Johnson said.

Unocal Alaska can be at a disadvantage in this competition because the cost of doing business in Alaska is much greater than it is in other areas, Johnson said. Factors like the weather, the competitive hourly wages employees receive and the lack of competition in specialty oil industry companies makes the Alaska operation more costly to run than some other Unocal operations.

Field exploration is one way for Unocal Alaska to stay competitive and productive.

"We did pretty well last year, with the above-average discovery at King Salmon platform," Johnson said.

Keeping expenses down is another factor in its balancing act. According to Johnson, the cost to produce one barrel of oil at the field level is $5.31, which accounts for platform and facility expenses but no other overhead costs. This amount isn't the ideal cost, but it's not far from it.

"We're happy with $5 and under," Johnson said. "If the cost stayed $5 and under, we'd be here for a long time. The thing that influences that the most is production, if we can keep that up."

Oil prices obviously factor into the equation, but not as a factor oil companies can control.

"If the price gets depressed and we start losing money, (Unocal) is not going to keep us in business forever, obviously," Myers said.

The average price of oil is typically $18 a barrel. Unocal Alaska keeps that price in mind when it decides what capital projects to undertake and how much money to spend so it can still return a profit back to the company, Myers said.

"We tell (Unocal) what we're going to do this year and how much we need to do it," he said. "If the oil price stays constant, then we'll return this price back to them. Our best goal is to be efficient and in that respect try to compete with (other operations)."

At the meeting, Johnson and Myers mentioned some projects planned for this year, including $800,000 for surf zone reconstruction, $1 million to reduce the environmental footprint at the Trading Bay Production Facility and $500,000 to upgrade pipelines at the Swanson River Field.

In the past few years, Unocal Alaska's returns to the company have been close to what they predicted. Last year's return was lower than anticipated due to an unexpected drop in the oil price and the cost of dealing with the aging pipeline infrastructure, Myers said.

"They understand safety and environmental concerns so they say 'OK, that's a good reason,'" he said. "One thing about Unocal over the past several years is they're not going to invest money in operations that can't be above reproach with safety. It's been hammered home that we won't get more money unless we're that way, so we do that in our field."

Another topic that came up in the meeting was the permitting process in Alaska.

Dan Ungrue of Kenai commented that unless the permitting process is straightened out, oil companies are not going to keep spending their money in Alaska.

"Alaska is one of the harder places to get permitting through, and oil companies are spending a lot of money in up-front costs in order to get permits through," Ungrue said. "A lot of companies are looking to do business in Alaska, but once they find out how long permits take, they're not going to invest money here."

Johnson and Myers did not speak to the issue of permitting, but they did express their desire for Unocal to continue its operations in Cook Inlet.

"We, like you, want to be good stewards of Cook Inlet and the Kenai Peninsula," Johnson said. "Most of the employees who work for us have brought kids up here. We hope to be here a while and provide their kids with quality jobs in the oil field."

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