|
Pumping up 2003 Industry predicts a flat 2003 for oilfield service companies in Alaska; but there are some actions government could take to stimulate drilling Kay Cashman PNA Publisher
Despite expectations a drilling boom will begin in Alaska in 2004 due to Republican domination in Juneau and Washington, D.C., 2003 is shaping up to be economically flat for Alaska’s oilfield service industry. (See related news item on page 3.)
Oil companies operating in the state, such as BP and ConocoPhillips, are spending close to what they spent last year; others, such as Unocal, are spending significantly less.
And North Slope exploration will likely produce one of the lowest wells counts since the start-up of Prudhoe Bay. The latest conventional well tally is eight: one well drilled by EnCana, three by Pioneer; and four (unconfirmed) by ConocoPhillips.
And even if companies that are new to Alaska (rumored to include Lukoil and Talisman Energy) decide to buy properties in 2003, most oilfield service companies will not see business from them until 2004 or later.
So what, if anything, could entice the oil companies that already have operations in Alaska to spend more in 2003 on exploration or development? In the last two months I asked that question of 17 key participants in, or observers of, Alaska’s oil and gas industry, often guaranteeing anonymity in exchange for frank answers.
One of the individuals interviewed is the Alaska head of an oil company; six others work in executive positions within oil companies. Some have operations in Alaska; some are new players and some have investments, but no operations here.
Twelve of the 17 individuals have been involved in Alaska’s oil and gas industry, or government agencies dealing with the industry, for more than 10 years; half of those were here when Prudhoe Bay was discovered.
Bids raise some 2003 expectations Close to half of the people I interviewed thought activity in the second half of the year would pick up slightly, especially in Cook Inlet.
Some were basing their assessment on recent bids being requested by Cook Inlet and North Slope operators. Others expected “good news” in the first half the year to stimulate business in the second half the year — but in every case the emphasis was on a “slight” increase in activity in the second half of 2003.
The top four things those surveyed wanted to see from government in 2003 were: lowering the trans-Alaska oil pipeline tariff by $1.50 a barrel; reducing oil and gas project permitting time and complexity; opening the coastal plain of the Arctic National Wildlife Refuge to drilling; and assistance in gaining affordable access to existing North Slope infrastructure, including facilities, pipelines and oil spill equipment. (See the “good news” brief on page 1.) The last three items were “expected” in 2003; the first was merely hoped for.
“Any one of these things could create a drilling boom by itself,” said one respondent.
“If we get half the things Murkowski has promised, plus ANWR and a few things the Bush administration has promised, we won’t have enough people to process the RFPs. No way we could handle a gasline,” said another.
But all agreed that most of the results of what they expect to see from government in 2003 would not bring business to Alaska’s oilfield service industry until 2004 or later.
So what could stimulate activity in 2003?
Stop funding environmental lawsuits One respondent whose company has the resources to increase spending in 2003 said the one thing that could boost his firm’s investment was to “change the legislation that allows environmental groups the right to get their legal costs refunded by the state” and “make the individuals behind the lawsuits somehow accountable for the costs incurred by the oil companies.”
He felt that action alone would do a lot to increase spending in the Cook Inlet basin in 2003.
A respondent who works for a North Slope operator said environmental lawsuits were part of the “Alaska fear factor” his company faced when making investment decisions for its Alaska operations. While he didn’t think a change in the law would make a difference in 2003 spending, he did say he thought it would have a bearing on future investment, especially in Arctic offshore projects.
Re-enter “broken wells” at Prudhoe Bay One of PNA’s most valuable sources, a man with a 25-year-plus history in Alaska’s oil patch, said he could think of only one way to put the idle rigs on the North Slope back to work in 2003 — and, at the same time, help stave off production decreases from the aging Prudhoe Bay field. He said the state should look for a way to convince BP to re-work the 250 or so “broken wells” in Prudhoe Bay — i.e. wells “possibly not producing at full capacity, shut in or suspended.” Many of those wells, he said, could be re-entered and re-worked.
A workover is the performance of a variety of remedial operations on an oil well to try to increase its production. Deepening a well and pulling and re-setting liners are two of many workover methods.
But the best incentive you could offer BP is already on the table — $30 per barrel oil, he said.
Others agreed with him.
One said, “BP stock is sitting in the cellar. Even if Alaska is their most profitable oil province, they’ve got to get costs down and returns up system-wide to be able to do business, to be able to borrow.”
How to prepare for 2004 What can oilfield service companies do to survive 2003 and prepare for the stepped up activity expected in 2004 and 2005?
Here are some of the answers I pulled from my interviews:
• Be well positioned to take advantage of 2004.
• Stay visible.
• Stay on top of which companies are coming into Alaska.
• Dig into your savings accounts and keep your best people. You won’t be able to find them next year.
| 