Arco banking on National Petroleum Reserve-Alaska

Posted: Saturday, April 22, 2000

It remains to be seen whether Arco Alaska Inc.'s National Petroleum Reserve-Alaska leases will bring another boom in construction for the Natchiq Inc. yard in Nikiski.

However, if NPR-A discoveries are large enough to be profitable and too remote to tie into existing production facilities, they could need modular equipment of the sort the Nikiski yard assembled for Arco's Alpine Field, said Arco spokeswoman Dawn Patience.

Work on the Alpine modules -- prefabricated buildings filled with oil field production equipment -- began in winter 1998. During their construction, Arco and Natchiq bought $4.7 million in goods and services from Kenai Peninsula vendors, Natchiq said, and paid roughly $2 million to local subcontractors. The Nikiski plant employed 382 people during peak construction.

Arco barged the Alpine modules to the North Slope last summer, and plans to install them this winter. Roughly 750 people are now working at Alpine, including many who helped assemble the modules in Nikiski.

Arco plans 112 Alpine wells from two drill sites, said Arco Alaska president Kevin Meyers. So far, 12 have been drilled. Meyers expects to double that number before production begins in the third quarter. He expects Alpine to reach peak production of 80,000 barrels per day before the end of the year.

New business for Natchiq's yard depends on new finds on the Slope and elsewhere. Last year, Arco Alaska and its partner Anadarko Petroleum Corp. spent $70 million to lease 92 NPR-A tracts. In January, Arco received permits to start drilling.

Arco has found more oil than it has produced every year since 1996, Meyers said, and until the proposed merger with BP Amoco goes through, it will continue with its development plans. Alpine is key to reversing the decline of Arco's North Slope production, he said. By 2001, Arco expects increases.

The company's $475 million capital program this year, down from roughly $535 million last year, includes $50 million for exploration. On the North Slope, Arco plans 3-D seismic surveys and development projects at new and existing fields.

Working with Anadarko in NPR-A this winter, Arco plans to drill up to three wells, depending on how long ice roads last. Anadarko is Arco's 22 percent partner in Alpine and in the NPR-A leases. Arco owns 78 percent and operates Alpine.

In Cook Inlet, Arco is a 50-percent partner with Anadarko in 130,000 acres of oil and gas leases. The operator varies with the lease, Patience said. However, Arco plans no drilling or seismic work in the inlet, she said. Anadarko will do the exploration.

Arco also owns a third of the Beluga gas field in Cook Inlet. It employs 24 people there, including contractors, and produces about 100 million cubic feet of natural gas per day. Chevron and Anchorage Municipal Light and Power each own a third of the Beluga gas. Arco sells gas to Anchorage Municipal Light and Power, Enstar Natural Gas Co., Chugach Electric Associ-ation and Aurora Power Resources.

Arco Alaska is a partner in the Alaska North Slope LNG Project. That is an industry consortium exploring the feasibility of a pipeline to bring North Slope natural gas to tidewater, where it could be liquefied for shipment to Asia. The consortium, which also includes Foothills Pipe Lines Ltd., Marubeni Corp., Phillips Petroleum Co. and BP Exploration (Alaska) Inc., is considering pipeline routes to Nikiski or Valdez.

BP Amoco has proposed a $29 billion takeover of Arco, but the Federal Trade Commission recently voted to block the deal. The FTC alleges that the merger would eliminate BP's main competition in Alaska oil and gas lease sales, and that by controlling Alaska production, BP would hurt West Coast refiners.

Unwilling to back down, BP Amoco is going to court to fight the ruling.

Meyers and Patience said Arco remains committed to the merger.

"Our shareholders, board and senior managers all voted for the merger," Patience said. "That's the reason for going to court. We have a strong belief that all reasonable antitrust concerns can be addressed. If the merger fails, there will be cuts. Arco would have to reduce costs to compete on the world market."

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