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Alaska oil important to ARCO, BP, but fiscal gap an investment concern Low prices drive reduced investment for 1999, with cost cutting directed at keeping Alaska production competitive in worldwide commodity market, say executives from state’s major oil producers Kristen Nelson PNA News Editor
Record low oil prices elicited caution, but no apparent panic, from executives of Atlantic Richfield Co. and BP Amoco p.l.c., owners of the majority of Alaska’s North Slope oil production, when they spoke to the Alaska Support Industry Alliance’s Meet Alaska conference in Anchorage Jan. 22.
Mike Bowlin, chairman and CEO of ARCO and Dick Olver, executive vice president exploration and production of BP Amoco, painted a somber picture. But both stressed what their companies will be doing to work through the present low oil price crisis and urged state leaders to keep Alaska fiscally competitive for the future. Cash neutral BP Amoco’s Olver said the company’s 1999 capital budget for Alaska had not yet been set, “but with the emphasis on prudence, I can tell you that our guiding principle is that BP Amoco’s Alaskan operations must be cash neutral.” BP Amoco has the largest share of Alaska North Slope crude production and that oil, Olver said, still accounts for more than one out of every five barrels of BP Amoco’s worldwide oil production and proven reserves. (See BP layoffs news brief on previous page.)
He emphasized that Alaska now competes for investment dollars “with an even broader spectrum of investment opportunities within our organization and at a time when low oil prices are already imposing severe limitations on the amount of investment capital available within our company and within the industry itself.”
Alaska’s strengths in the competition for investment are “extensive reserves, a large land base from which to explore for and develop vast reserves, a well developed infrastructure and an enormous pool of skilled and talented people…”
“But the state is also competitively burdened,” Olver said. “It’s competitively burdened by its geography, its remoteness, its high costs and its regressive tax structure.”
Olver noted the “unsustainable gap between state revenues and state spending” and saluted “the governor and the members of the Legislature for their vision to recognize the problem, their leadership to acknowledge it and their resolve to address it now.” Solving the fiscal gap, he said, “is the only was to restore investors’ confidence in the state’s long-term stability and potential.”
These are not easy times, Olver said: “But neither has the future in any sense been canceled.” Energy demand will grow, he said, driven by a growing population. “Through what we do today, we are shaping the long-term future, as well as preparing for it.” ARCO’s crown jewel “The discovery of Prudhoe Bay three decades ago really effectively created the modern Atlantic Richfield Co.,” ARCO’s Bowlin told the conference. “Alaska continues to shape our culture, our values, our practices, our operating styles… So make no mistake about it, Alaska remains ARCO’s crown jewel.”
Alaska, he said, accounts for nearly 40 percent of ARCO’s worldwide production.
Addressing current low prices, Bowlin said the industry has done remarkable things in taking costs out of oil production since the last sudden price drop in 1986. “We’ve finally driven our costs down to where some form of joint venture or mergers are the only way that we can make step changes in our cost structure,” he said. But the formula for success in the oil business hasn’t changed, he said. “You must build a portfolio of high quality assets, with growth potential, and you must have a competitive low-cost structure. A cost structure that’s equal to the best in the industry.” And that, he said, is precisely what ARCO is trying to do.
Bowlin said that only the most competitive projects would make the cutoff this year — but those, he said, include Alpine, the Prudhoe Bay miscible injectant expansion and the Point McIntyre enhanced oil recovery project. (Editor’s note: When ARCO set 1999 capital expenditures in February, Alaska’s share was $475 million, compared to $580 million in 1998.)
Alaska operations will not be hit as hard as other parts of the company in cost cutting because ARCO Alaska, its contractors and its partners have already done what it takes to make Alaska a low-cost leader, Bowlin said. From 8 years ago, he said, “North Slope production is down by half a million barrels a day. And yet — with your help — we’ve reduced our costs on a per barrel basis. And we have plans and every intention of holding our costs down on a per barrel basis into the future.”
Bowlin cited partnership from “this governor and this Legislature” in creating hundreds of jobs in the state and applauded the fiscal discipline shown by state government. But, he said, “with low oil prices, that fiscal discipline will become even more important.”
Solutions have been put on the table, Bowlin said, “to bridge the long-term fiscal gap for the state. That is absolutely a key factor in investors making long-term investments in the state.”
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