Safety takes precedence over cost in strategic alliance contractor reviews

BP completes contractor realignment at Prudhoe Bay with few contractor changes

Kay H. Cashman

PNA Editor-in-Chief

In part one of this article, oil company optimism ran high regarding producer investment in Alaska projects. Reactions in the contractor community to stepped up oil company spending this year and predictions for increased spending in the future were only slightly less enthusiastic.

Several oilfield service and supply contractors interviewed by PNA in October were already overwhelmed with new work. Others described themselves as “guardedly optimistic,” taking a wait and see position. A few were concerned about losing contracts they had had with ARCO Alaska Inc. at Prudhoe Bay as BP Exploration (Alaska) Inc. completed the process of taking over as single operator at the field. Still others wondered about the possibility for contractual alliances as new fields come on line.

As of Nov. 1, BP had completed the realignment process for Prudhoe Bay and communicated its decision to contractors.

Contractors make smooth transition

“Our goal was to minimize operational interruptions, keep the field operating smoothly during the transition ... and I think we have done that,” he said.

“For the most part, contracts from the east side of Prudhoe were rolled under existing contracts for the west because ... in 80 percent of the cases, we had common contractors. We had to make adjustments to only about 22 or 23 contracts,” BP procurement manager Mike Cortez told PNA in the same Nov. 21 interview.

“The reason it took so long is that we had to convert the pay processing systems,” Cortez said. “We pulled together as a team and worked around the clock” to convert contracts to the BP system. “It was important to get the payments systems aligned first before we started making changes in contracts.”

The net result, Phillips said, was “that very few companies were adversely impacted by the changes.” Part of the reason for that, he said, was because there is more activity on the North Slope than there was a year ago. So, while a contractor might have lost one work at Prudhoe Bay contract, it picked up work elsewhere.

BP reevaluates contracting strategy

“Our industry’s safety record on the North Slope is not what we want it to be,” Phillips said. “Safety has always been of concern to us but safety has a new place in our contracting business and it is at the top.”

BP has not made any contractor changes yet based on safety, but as contracts come up for renewal, Phillips said BP will be evaluating contractor safety records: “Safety will be an important part of our decision on whether or not work is awarded.”

BP is “looking at” its “whole contracting strategy over the next few months,” Phillips said. “We’re always looking for ways to improve operations.”

The good news for oilfield service and supply companies not currently under contract with BP is that “base operations preferred contractors” — those under contract for Prudhoe Bay, Milne Point, Endicott and Badami — “will not necessarily be awarded work at new fields that come on line,” such as Northstar, he said.

“New developments will be contracted out separately,” Phillips said.

Any questions?

Business is looking good

Janeece Higgins, Alaska Rubber & Supply “We’re up well over 20 percent from last year. We saw it starting in January with anticipation of a settlement in BP’s purchase of ARCO. ... Last year we were way down.

“We don’t deal with just the oil patch. This year we have seen an increase in business from all of our customers. When things are going good in the oil patch, everybody’s happy. Oil company spending impacts everyone in this state; it releases money all the way down the line. ...

“This year it has been nuts. All of us have been out in the shop, waiting on customers. We’re not a big company and we try to keep our costs down, so we can offer the best deal at the lowest price. The only way to do that is for everyone to pitch in wherever they can. This year, I have been out in the shop a lot more than I usually am.

“We’re feeling good about next year, too.”

George Shedlock, American Marine/Penco “We’ve had a reasonably good year. We were busy all summer. I think that’s indicative of a healthy industry. Most of our work has come out of Cook Inlet, but we’ve also had some from the North Slope.

“The future? We’re as optimistic as anybody with all the new technology coming on on-line to enhance the recovery from existing wells. The industry has done a good job in Alaska.

Mark Helmericks, Colville Inc. and Brooks Range Supply “There are three parts to our business — industrial supply, fuel and solid waste. The industrial supply business, in particular, is up strongly. I attribute that to more rigs working and the anticipation of more rigs starting up this coming winter.

“It appears that energy prices are going to stay up. We believe that earlier crude prices in the low teens, and even and dipping below $10, was an anomaly. A number of long term studies forecast world wide energy demand creating rising energy prices in the early to middle part of this decade. Those studies have been borne out in the last 18 months.

“Obviously, high oil prices are good news for Alaska. We have extensive hydrocarbons resources in a stable political environment. The downside is Alaska’s higher costs for development and transportation. A higher world market price for energy enhances our competitive position.

“We’re encouraged by what we’re seeing from Phillips. They clearly intend to expand holdings on the North Slope.

“We’re also pleased with what we’re seeing from BP. BP is making a major commitment to Alaska in somewhat a different direction. While Phillips is expanding, looking for more reserves, BP seems to be focusing on more efficiently producing Prudhoe Bay field. Both are positive signs that Alaska’s energy industry is an attractive place for investment.

“It’s hard to remember that only six or seven years ago we were concerned that the oil industry could abandon Alaska for Russia and South America. Their renewed interest in our state is very encouraging.

“The timing for higher gas and oil prices is fortuitous in several ways. For many years all the produced gas was needed to recover the crude. That’s no longer true. The realignment of interests on the North Slope — following BP’s acquisition of Atlantic Richfield and Phillips purchase of ARCO Alaska — equalized the ownership of gas and oil. This aligned everyone’s interest in developing and marketing the gas. Finally, the world is interested in using more natural gas because it emits less pollution and greenhouse gas. The future looks great for Alaska.”

Jerry Rock, Evergreen Helicopters of Alaska “Business this year is about the same as it was last year, but, based on the requests that have had come in, we see a lot on the horizon for more activity for our firm on the North Slope.”

Chris Johanssen, Flowline Alaska “We are considerably busier than we were last year. We have 140 miles of pipe to insulate now. It’s not all here yet. ... As soon as it all gets here, we expect to be working six-10s through March.”

The pipe, Johanssen said, is coming from domestic mills whereas in the past it was ordered from Japan.

“The oil companies are talking about a lot more work for the next couple of years. ... That’s good news for Alaska. ... But it will be hard for Alaska contractors to meet the demand if everything the oil companies are talking about happens.”

Bucky Tart, Golder Associates “We haven’t seen a huge change between last year and this year ... but there have been a couple of extra opportunities this year. ... If there is a huge surge in activity, firms here will have to bring in more engineers because there’s not a huge amount of capacity in Anchorage. ... Permafrost engineering and geotechnical engineering is what we do. It’s hard to find people with those degrees and it’s very expensive to lay people off in Alaska.”

Mike Nelson, Holaday-Parks “The oil industry accounts fro 15 percent of our business. Our business in the oil patch has doubled this year. I look for a similar level of business for the next couple of years.

“Everybody’s smiling again and optimistic. There’s a tremendous amount of excitement about a gas line.”

Craig Savage, Lounsbury

“We have seen an approximate 25 percent increase in our oil patch work this year. This is partially due to production development, such as Tarn and Alpine, and partially to the increase in exploratory activity. Increased exploration doesn’t guarantee anything, of course, but generally when prices are up as they are now, field development also sees an increase in budget, and both new and known marginal fields are developed, making the outlook very good. Add to the bustling oil patch the possibility of a gas line actually being built, factor in the current federal su