In a Nov. 16 speech at the Resource Development Council’s annual conference Janet Weiss, president of BP Exploration (Alaska), celebrated the past success of the Alaska oil industry while also reviewing some of the challenges that the industry faces for the future. Weiss said that Alaska needs “to be on the front foot” of a fundamental shift in the industry, with continuing low oil prices - BP is working to improve its efficiencies to be able to at least break even at $50 per barrel oil in 2017. In 2016, with interests in operations in the Prudhoe Bay field, Milne Point, Kuparuk River and Point Thomson, the company has been running a negative cash flow of $1.5 million per day, even after reducing activity on the Slope, she said.
Addressing the future challenge will require improved efficiency, the use of appropriate technologies and a fiscal environment that keeps Alaska competitive, Weiss said.
40th anniversary of Prudhoe
With next year seeing the 40th anniversary of the Prudhoe Bay field, Weiss celebrated the accomplishments already achieved in developing oil on the North Slope. Ingenious production techniques are enabling the extraction of 45 percent more oil from the Prudhoe Bay field than had originally been expected.
“It’s been 40 years of challenges … but plenty of accomplishments,” Weiss said.
The North Slope oil industry and the trans-Alaska pipeline have enabled the establishment of the Permanent Fund, and have enabled the state to build infrastructure and to provide services to the benefit of all Alaskans. The oil industry has brought opportunities for people across the state while also bringing prosperity to the Native communities of the North Slope.
“(The Alaska oil industry) is truly about heat, light, mobility, opportunity and, really, improved quality of life for Alaskans,” Weiss said.
The Prudhoe Bay field laid the foundation for the development of other North Slope fields, including Kuparuk River, Alpine, Northstar, various satellite fields and, most recently, Point Thomson. And there is more on the horizon, with potential further significant developments at Greater Mooses Tooth, Nuna and Liberty, and with exciting major recent oil finds in Armstrong’s Nanushuk prospect and Caelus Energy’s Smith Bay find.
“Those are the pearls that are strung on the string of Prudhoe Bay and TAPS,” Weiss said.
The fact that more companies are operating on the North Slope shows that the region is open for business - the cost structure has been changing, making more opportunities competitive sooner, she said.
But, in the world of low oil prices, the companies operating on the North Slope are working creatively to make projects that used to require an $80 oil price for viability to now work at a $50 price.
“You have to be competitive to play,” Weiss said.
Job cuts
And the industry has been shedding jobs.
BP itself has been cutting jobs over the last three years. And, while some of this has been achieved through early retirements, the most recent job losses have included millennials, a heartbreaking situation given the impacts on the families involved. Unfortunately, this pain is necessary to ensure industry sustainability, Weiss said.
Given the recent negative cash flow from BP’s North Slope activities, the company is continuing to work on its efficiency and activity levels, to be at least breakeven with $50 oil in 2017 in Alaska, she said.
A fundamental shift
With a fundamental shift taking place in the oil industry, and not just a cyclical oil price change, Alaska cannot just wait for oil prices to rise. Instead, it is necessary to find options that allow the Alaska oil industry to compete at low price levels, Weiss said. And, with success, there is the potential for another 40 years of opportunities in the state, she added.
Honest debate leading to honest solutions, moving beyond defending separate positions, is needed, Weiss said.
“What kind of Alaska are we going to pass to our children,” she asked. “Alaska can have a thriving and competitive oil and gas industry.”
A thriving future industry will require encouragement, not discouragement, for delivering more oil through the trans-Alaska pipeline. Good policies will keep companies working on the Slope, not drive them away. It is also critical not to shorten the lives of the Prudhoe Bay and greater Kuparuk areas, the two backbone areas of the North Slope, by reducing the competitiveness of new opportunities, or by excessively penalizing field economics, Weiss said.
The focus at Prudhoe Bay is to continue to improve competitiveness through reductions in the costs of both base operations and new opportunities. That would enable an expansion of developments such as the West Sak and Sag River programs that BP has been planning, without assuming higher oil prices, Weiss said.
Economic crossroads
But with the state at an economic crossroads, given the current budget deficit, decisions taken in the coming months by elected leaders will impact life for Alaskans over the next 40 years, Weiss suggested. A failure to solve the state’s current problem will increase uncertainty and exacerbate the difficulty. It is time to move beyond entrenched positions and to work the problem, she said.
And solving a problem of this type involves people coming together to establish the principles on which the desired future of Alaska can be built. Moreover, there must be dialogue to understand the ramifications of whatever choices are made, Weiss said.
Weiss also said the BP will continue to support the state’s efforts to progress the potential export of Alaska liquefied natural gas. The new state-owned, utility-style commercial structure for the LNG project that the state is exploring is a key to making the project viable in a low LNG price world, she said.
Success with the Alaska LNG project could further open up exploration and development opportunities in the state for the next 40 or more years, Weiss said.
But that will require a competitive landscape and technology breakthroughs. It will also require fiscal policies that do not make the competitive uncompetitive, do not drive away companies and do not shorten the lives of our producing fields. And, with the next 40 years being the domain of the next generation, it is important to ensure responsible choices for the future well being of the industry.
“As we face a tough situation, it is about coming together with honest debate, honest dialogue, ensuring that we are thinking about more oil going down TAPS … so that we can have this 40-plus-year additional future,” Weiss said.
