Alaska cannot afford to depend only on oil for economic salvation

Posted: Tuesday, July 15, 2003

While it is bad news to hear that BP has decided to suspend production at its once-promising Badami field on the North Slope, some good may come from it. Perhaps the shutdown will remind Alaskans that the oil industry that so drives the state's economy is a fickle one indeed.

A BP spokesman said as much ... when he noted that the Badami experience highlights the risk involved in searching for oil. The oil isn't always there in the quantity first thought. And if it is, it isn't always easy to extract in an economically viable quantity.

BP sank about $300 million into the Badami project in the hopes it would produce about 30,000 barrels a day about 3 percent of the present total moving through the trans-Alaska oil pipeline and, in oil industry terms, a significant amount of oil. For Alaska's government, the field would have brought substantial income through royalty and production tax payments.

As it turns out, Badami was a bust. After coming on line in 1998, the field never achieved a rate greater than 18,000 barrels a day and for some time now has lingered around 1,300 barrels a day. Even sky high oil prices couldn't prevent BP's decision to call it quits.

The Badami decision is just the latest example of why Alaska must look for stable revenue sources.

Earlier this year, the Calgary-based company behind the McCovey prospect, a Beaufort Sea project touted by Gov. Frank Murkowski during his campaign, announced it had plugged and abandoned its exploration well and would not pursue a second well. The governor hoped, before and after his election, that McCovey would produce 300,000 barrels of oil a day and bring the state $400 million a year by 2006. He said, in the days before the election, that he had been told by reliable industry sources that McCovey was likely to contain a substantial amount of oil.

Like Badami, the hopes of McCovey vanished.

While the industry has been and continues to be good to Alaska, the Badami and McCovey results show that even the best studying and top technology cannot guarantee a good outcome. The governor is correct to pursue further oil development, but these two examples show that Alaska cannot afford to have all its hopes in one plan.

The state, which faces continued budget shortfalls under the present political thinking, needs the stability that will come through an income tax and a change in the structure of the permanent fund, a change long sought by the fund's board of trustees to also stabilize and preserve the annual dividend.

Alaska politicians and residents who believe the oil industry is the sole savior should suspend that fantasy just as BP is suspending its Badami production.

Fairbanks Daily News-Miner

July 9

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