July 1, 2002 The Anchorage Daily News found little good news in BP chief message

Posted: Monday, July 08, 2002

There wasn't much good news for Alaska oil and gas development in remarks Friday morning by Lord John Browne, CEO of BP. A man who started his career in Alaska came back to challenge the locals to give BP a bigger piece of the North Slope revenue pie. Whether that's needed or wise is up for debate.

Alaska's business and political establishment gathered in force to hear the remarks of one of the oil and gas industry's most innovative and prominent executives. What they heard was that Alaska, while important to BP, is a maturing oil province that's less and less important all the time. Lord Browne delivered BP's now standard message on Alaska's oil patch prospects:

Markets are global, and barriers are low. There is lots of oil and gas in the world. Alaska's production must be more competitive than ever to find a niche in the market -- but its fields are maturing and its costs are high. Alaska's oil infrastructure was built for double the current production levels, so its unit costs are high now. BP will cut its staff and contractors to remain cost-competitive and plans to make about half a billion dollars in new investment yearly over the next five years -- mostly in fields and facilities near existing deposits, not in new frontiers.

Most of all, he said unequivocally that a natural gas pipeline is not commercially viable ''because of the fiscal issues.'' Between construction, operations and financing costs, he said, a natural gas pipeline is a $60 billion proposition and full of risk.

What he meant was that BP wants the state to give up part of its share of the economic rent arising from gas development, though he wouldn't say how much or in what form. Three times, pro-development questioners in the audience tried to get him to specify what's needed, and three times he avoided the question with a long-winded nonresponse. ''What we need here is some music'' to go with the dancing, grumbled one wag in the back of the room.

''It is a debate about public policy -- about distribution of rent, and about the impact of that distribution on the commercial realities,'' Lord Browne said in summary. The speech was surely part of a campaign at both the state and federal levels to achieve concessions supporting the gas line and BP.

As he emphasized several times, the public policy debate is for governments to undertake. To do it wisely we'll need more information than we have now about costs and incentives -- and some sharp negotiations on what concessions will achieve what results.

Lord Browne can hardly be expected to negotiate publicly with so many billions at stake, but he didn't have much to offer Friday except promises of cost-cutting and competitive struggle. Life is getting tougher in the Alaska oil patch, which has faced plenty of challenges already. Production, jobs, revenues and profits are all being squeezed, and Lord Browne painted a hard picture of the road ahead. There wasn't much excitement in the room after this speech, and no wonder.


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