Oilfield firms see pockets of activity

Posted: Wednesday, May 26, 2010

Business is down for many firms in the state's oil and gas support industry but there are pockets of activity on the North Slope and in Cook Inlet, so it's not all bad news.

"I'm optimistic things will turn around. I'm not quite sure why, but I'm just an optimist. I want to have a smile on my face," said Mike O'Conner, president of Peak Oilfield Service Co., one of the state's veteran industry support contractors.

Contractors and support companies said work is essentially flat on the North Slope. The two major operating companies, BP and ConocoPhillips, are gearing up for their usual summer maintenance and facility renewal work, but developing drilling work is down. Drilling is an importance source of jobs in the support industry.

ExxonMobil's gas cycling and condensate work at Point Thomson is continuing, and that is one bright spot for contractors, as well as BP's new Liberty project and Eni's development of the small offshore Nikiachuk field.

In Cook Inlet, things are on a smaller scale but Armstrong Oil and Gas and Enstar Natural Gas are separately building small pipelines to connect with the small North Fork gas field Armstrong is developing.

What is also helping is that Tesoro Petroleum is investing in a new benzene extraction unit at its refinery near Kenai and Flint Hills Resources has a "turnaround," or major maintenance, project under way at its refinery near Fairbanks this year.

On Cook Inlet's west side, Cook Inlet Energy, a newly-formed independent, is planning more oil well workover activity at the West MacArthur River field, and Marathon and Chevron will drill more gas development wells on the Kenai Peninsula and on Cook Inlet's west side.

These projects create work for specialized contractors and engineering firms.

Tom Maloney, business development vice president for CH2M Hill, said he's most concerned about cutbacks in development drilling and well work on the slope that is resulting partly from the state's high tax rates.

Drilling trickles through the entire support industry chain to affecting engineers, craft labor, transporters and a wide range of professional service providers, Maloney said.

"Without drill bits in the ground, jobs are down," he said. "We need to get drilling work going again, and get this industry back on its feet."

What could have helped the North Slope industry was legislative approval of Gov. Sean Parnell's proposal to expand state investment tax credits on in-field well work that results in more oil being developed, Maloney said.

The state has generous tax incentives for new exploration, but a lot of new oil can be developed in existing fields, and the same incentives should be applied there, he said.

This spring the Legislature approved an expansion of tax credits for well work for Cook Inlet and other parts of Alaska, except the North Slope.

Still, the dearth of new projects in the planning stages worries contractors. Chevron and Anadarko did not drill last winter in the North Slope foothills as they have in previous years, which reduced work for firms which build ice roads and haul fuel and drilling supplies.

One thing that encourages O'Connor, at Peak Oilfield Services, is the state's aggressive action in promoting getting new gas for Southcentral Alaska, whether it's the new incentives package for gas exploration or the commitment of funds for preliminary engineering for a "bullet line" to bring North Slope gas south.

"I think it's a good thing that we are at least exploring the possibility of a gas pipeline to Southcentral," O'Connor said.

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