Increased oil company spending bodes well for Alaska businesses

Kay Cashman

PNA Editor-in-Chief

Phillips Alaska Inc. is anticipating higher oil production from the North Slope — as much as 15 percent higher over the next five years. “This winter we will execute one of our most aggressive exploration programs in recent history,” Phillips Alaska President and CEO Kevin Meyers told PNA Oct. 18. “We will increase our Alaska production from 350,000 BOED in 2000 to 390,000 BOED in 2001. We plan to keep our production between 375,000 and 400,000 throughout this decade. And increase it substantially with the commercialization of ANS gas before the end of the decade.”

In the company’s first oil production forecast since the government stopped its takeover of ARCO Alaska Inc., BP Exploration (Alaska) Inc. President Richard Campbell said late last month, “The current plan is to ramp up as fast as we can.” He projected as much as a 17 percent hike in BP’s North Slope oil production — specifically 350,000 barrels of crude per day by the year 2005.

In a late October letter to community leaders in Alaska, Campbell wrote: “BP has a 40-year history in Alaska. We expect to be here at least 40 years more. ... A decade from now, BP’s oil and gas production in Alaska will still be higher than it is today.”

More production = more spending

ARCO Alaska’s capital budget in 1999 was $665 million, Dawn Patience, Phillips Alaska spokeswoman, told PNA Oct. 18. “Our 2000 capital budget is $750 million. We expect 2001 at, or slightly above, next year, but that budget isn’t approved yet,” Patience said.

BP spokesman Ronnie Chappell said BP’s capital budget in 1999 was just $400 million. This year it’s $650 million

“Next year we anticipate spending $700 million,” Chappell said. “But when you think about how our share of Prudhoe Bay, and thus Prudhoe Bay capital expenditures, has dropped with the ownership alignment this year — from 36 percent to just 26 percent — you can see those capital numbers represent a fairly significant increase in spending. They are masked by the equity change at Prudhoe Bay.”

Contractor reactions mixed

Some executives, such as SteelFab Inc.’s President Richard Faulkner, reported a “drastic” increase in the amount of business this year versus last year; others, such as Lynn Johnson of Dowland-Bach Corp., whose company normally experiences the impact later in the spending curve, said he is “optimistic that there are projects around the corner.”

Bill Stamps, president of The Alaska Support Industry Alliance, told PNA in late October, “I haven’t seen a heck of a lot yet, but I’m encouraged by what I hear from the oil companies.”

Stamps said because of BP’s acquisition of Atlantic Richfield, Phillips acquisition of ARCO Alaska Inc., the new North Slope facilities agreements, and the new ownership alignments, both BP and Phillips are “rethinking their contracting strategies. We’ll have to wait and see what they come up with as far as long-term contracting strategies because ... there are probably going to be some changes. Hopefully, the long-term the prospects for activity will be great for the next several years.”

What the contractors had to say

In mid-to-late October, PNA did an informal survey of companies that do business in Alaska’s oil patch, asking their top executives two basic questions: What is the difference between this year and last? What do you foresee for the future?

Here is what they had to say:

Ron Doshier, Baker Hughes Inteq “What we’re hearing is very encouraging. I think more Alaska business — for all oilfield service providers — is closer than even around the corner. We’re seeing major preparations for increased activity by BP, Phillips and the other producers. All the producers have operated in Alaska for a long time —40-plus years, in fact — and it’s a win/win for everybody to support their endeavors. Baker Hughes is looking forward to supporting and participating in whatever capacity will make it work.”

Harry McDonald, Carlile Transportation Systems “This year has been considerably better than 1999. It started off strong and has carried right through. We’re cautiously optimistic that it will continue based on things that the people who control oil company spending are saying.”

Laurie Gray, CN Aquatrain “The full impact of increased spending this year on the transportation industry probably won’t be felt until November or December. There has definitely been an increase in the movement of drilling compound already this year. And the general impact of stepped-up oil company spending has positively impacted the rest of Alaska’s economy, so we’re seeing increased movement of goods outside the industry as well.”

Craig Tornga, Crowley Alaska “A lot of what we’ve seen this summer has been related to Northstar. We had a large sealift in 1999 but our near-shore work is up this year with the barging between West Dock and Northstar.” In addition to transporting a drill rig and supplies to the island, as of Oct. 1, Crowley had transported more than 18,000 passengers, mostly construction crews, between Northstar and West Dock. “Next summer we should have three sealift barges to Northstar Island loaded with production modules coming from Anchorage. Facility modules went up this year, but they weren’t as large.”

Lynn Johnson, Dowland-Bach Corp. “We’re on the trailing end of things with instrumentation and controls. The folks who feel it first are the ones that move dirt and drill holes. We do some business direct with BP, Phillips and Alyeska, but for most of it we’re two or three sequences back. We’re optimistic that there are projects around the corner. ... We’ve diversified over the last few years, but unfortunately, the tourists don’t buy a lot of Dowland-Bach wellhead safety systems. ... Eighty percent of our business is petroleum-related.”

Ron Wilson, Doyon Drilling “The atmosphere is different from a year ago. It’s more positive. There’s a lot of exploratory work, seismic, going on and that bodes well for the future. The number of rigs we have working hasn’t changed for us — we still have two operating — and our employee level has stayed the same. We anticipate getting a lot busier. Rig 15 is expected to go to work Jan. 15 and we’re hoping to get 14 to work.”

Chris Humphrey, ENSR “Last year and this year were good years for us. It could always be better though. We’re optimistic that next year we’ll see an increase. In the longer term, we see the producers’ emphasis on getting North Slope gas to market an opportunity for us.”

Brian Blixhavn, Era Aviation Inc. “This year we have the first long term contracts for the North Slope that we've had in a very long time. We have two helicopters under a 30 month contract at Northstar and we just finished a 6 month Twin Otter contract at Alpine. Era primarily provides air support for remote locations. We're hopeful the opening of the National Petroleum Reserve-Alaska will generate more activity for us.”

Pete Nelson, GW International “We supply a lot of production chemicals and they stay fairly consistent, regardless of how much drilling is going on. We also supply the service companies, so when drilling activity is up, that side of the business is way up. It’s as high as it’s ever been for us and we’ve been doing business in Alaska for about 10 years.”

Dave Mathews, H.C. Price “It’s shaping up to be a busy pipeline construction year. If everything goes as expected, there will be 155 more miles of pipeline laid between January and April of next year. We were just awarded the Alpine CD2 pipeline last week.”

Craig Bieber, MI Swaco DSR “Business has definitely increased over last year — by 25 to 30 percent. I think we’re probably facing the same problem everybody is right now — a shortage of manpower and equipment. We’re all looking for the same kind of people.”

Jim Denney, Nabors Alaska Drilling — “We had 80 employees last year; this year we’re up to about 600. We expect to have 13 drill rigs operating by December of this year; that’s up seven or eight from last year. In 2001, I expect us to take up a few more rigs.”

Richard Faulkner, SteelFab “The difference between last and this year? Drastic ... It looks very bright for the oil patch in the foreseeable future.”

Curt Stoner, TOTE-Totem Ocean Trailer Express Inc. The increase in oil company spending in 2000 has been positive for TOTE. We also benefit from increased spending in the oil patch because it translates into more consumer goods being shipped. I am very optimistic about shipping this winter. We are maintaining our three ship schedule through the third week in November. On a longer term basis, we’re committed to building two new vessels at an approximate cost of $300 million that will service the Alaska economy well into the 21st century.”

Tom Maloney, VECO “This year’s level of activity is much higher than last year. We’ve had a lot going on for Northstar — both at the port in Anchorage and Northstar Island. ... We attribute it in part to the oil companies’ emphasis on doing more engineering and construction procurement work in Alaska. ... We’re seeing a tremendous increase in drilling-related activities on the North Slope at Prudhoe satellite fields, the N-PRA. ... We think that will generate additional development. ... BP’s gas-to-liquids plant in Nikiksi and the gas lines under discussion are exciting prospects for the next 10 years. We’ve invested a lot of money in facilities here and elsewhere to meet the demand we see ahead.”

Editor’s Note: Part two of this story, including more comments from contractors, will appear in the November issue of PNA.