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Vol. 19, No. 8 Week of February 23, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

ISER sees spike in industry spending

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The UAA group expects a 33% increase in oil and gas sector spending over 2013, if companies complete planned programs

Eric Lidji

For Petroleum News

If the real world abides by industry plans, the oil and gas sector could see a 33 percent increase in spending this year, according to an annual University of Alaska forecast.

The Institute of Social and Economic Research at the University of Alaska Anchorage expects oil and gas companies to spend some $4.255 billion this year in the state, almost half of the $9.1 billion in total construction spending the researchers expect this year.

Last year, ISER estimated the oil and gas sector would spend $3.2 billion in Alaska, according to the report by Scott Goldsmith, Mary Killorin, and Linda Leask.

“The growth is being driven by the continuing high price of oil, the increase in the cost of inputs to all phases of oil and gas operations, the growing need to maintain the aging infrastructure and facilities on the North Slope and in Cook Inlet, and perhaps most importantly, by the climate of optimism created by passage of the new production tax on oil and gas that went into effect at the start of 2014,” the researchers wrote in the forecast.

The forecast presents a snapshot of industry intentions, but intentions can go unrealized if commodity prices change, if weather proves too treacherous for development work or if companies discover they have been too ambitious in their planning. ConocoPhillips and BP have both recently said they plan to increase their budgets this year, and smaller players on the North Slope and in Cook Inlet have also laid out big programs. But Shell recently cancelled its Chukchi Sea plans for 2014 because of legal delays and both Linc and Repsol have reduced activities in recent years due to unforeseen events.

ISER produces the report annually for the Construction Industry Progress Fund and the Associated General Contractors of Alaska. Northrim Bank underwrote the forecast.

Majors spending

The large increase in oil and gas industry spending that ISER expects this year comes largely from work planned by BP and ConocoPhillips. Those two companies each announced large budget increases after the passage of the More Alaska Production Act.

The industry-supported law eased taxes for oil production starting this year. During the primary election this coming August, voters will be asked to uphold or repeal the law.

After several years of limited exploration, ConocoPhillips plans to drill two wells in the National Petroleum Reserve-Alaska this winter. The company also plans to continue work on its CD-5 pad and conduct preliminary engineering at its GMT-1 pad, as well as additional fieldwork at the Kuparuk River unit. BP recently announced a 25 percent increase in Alaska spending this year, including a seismic program at Prudhoe Bay.

The three other North Slope producers have also suggested increased workloads for the year ahead. Eni Petroleum recently announced plans to expand development at its Nikaitchuq unit to test the shallower N sands. Savant Alaska is completing a slate of projects at the Badami unit left unfinished during 2012 or 2013. Pioneer Natural Resources is expanding the physical presence of its Oooguruk unit. The large independent recently announced plans to sell the field to the small privately held Caelus Energy, which said it is eager to sanction a proposed Nuna development at the unit.

Repsol, Linc and Great Bear Petroleum have all announced exploration campaigns for 2014 that are similar to their workloads from last year, and North Slope newcomers such as NordAq Energy and Royale Energy have preliminary exploration work for this winter.

ExxonMobil is continuing its work to bring the Point Thomson unit online by the deadlines in its settlement agreement and Brooks Range Petroleum Corp. is continuing work on its Mustang development while it ponders exploration activities this year.

The ISER forecast also includes stakeholder spending from non-operating leaseholders such as Chevron and Anadarko, and ongoing activities on the trans-Alaska oil pipeline.

In the Cook Inlet, the ISER forecast sees continued spending from Hilcorp, which is the dominant player in the region after acquiring the assets of Chevron and Marathon.

The forecast also includes activities from Apache, Armstrong, Aurora, Buccaneer, Cook Inlet Energy and Furie. Recent transactions have changed the composition of the basin. Armstrong recently sold its North Fork unit to Cook Inlet Energy and Buccaneer recently sold its stake in the Cosmopolitan prospect to its partner BlueCrest Energy. Those transactions do not appear to have impacted immediate work plans.

The forecast also considered potential work in the Nenana and Copper River basins. l

EDITOR’S NOTE: ISER used reporting from Petroleum News, among other sources of information, in compiling its forecast of oil and gas industry spending.



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