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Still no decline after ‘99 Meyers says company still committed to stopping decline in its share of North Slope production — but from a lower base than predicted last year Kristen Nelson PNA News Editor
Oil prices are at record lows, ARCO Alaska Inc. President Kevin Meyers told the Anchorage Chamber of Commerce March 1. “And as a result of this low oil price, the industry has had to make some extremely difficult decisions. We’ve had to lay off employees; we’ve had to cut our capital budget; we’ve had to defer projects; we’ve had to lay down rigs. We really had no choice, because when the cash flow drops that much it’s the only thing you can do to stay in business.”
Where do we go from here, he asked?
Development drilling, especially at Prudhoe Bay, will be dramatically reduced from last year. Exploration drilling will be reduced. But a number of big projects — Alpine field development, expansion of the miscible injectant enhanced oil recovery project at Prudhoe Bay and the new enhanced oil recovery project at Point McIntyre — are going forward.
ARCO is committed to Alaska, Meyers said, “but I have to be honest with you — this is the right economic decision for ARCO, as well. We’ve sunk a significant amount of capital already in these projects and at this point in time the best economic decision is to complete them, get them on line and start generating some off-setting revenues to help pay for that capital that we’ve already sunk.” Drilling down Meyers said there will be no more than six North Slope exploration wells this winter season compared to as many as a dozen in recent years. At Prudhoe Bay, field operators ARCO and BP Exploration (Alaska) Inc. will be shutting down nine rigs, although in April a rig will start drilling at Alpine, boosting the rig count by one.
“Now this loss of eight rigs I’m showing you here is going to have a significant impact on 1999 production,” Meyers said. “And we’re not doing this capriciously. We’re doing this because our revenues are down dramatically. …And many of these projects are no longer economic at these low oil prices or alternatively we can’t afford the cash flow at these low oil prices so it’s best to defer them until price begins to recover.”
Development drilling has been suspended at ARCO’s West Sak viscous oil development because “at today’s oil price continued drilling at West Sak is just not economic. The oil was expensive to produce and it sells for less than the other North Slope crudes.” Meyers said the company will “continue to operate the 30 wells we have existing as long as they can cover their operating costs.” $450 million in 1999 for Alaska exploration & production But ARCO Alaska is moving ahead in other areas, Meyers said, with plans “predicated on the assumption that oil prices will gradually recover over the next several years.” ARCO doesn’t share its price estimates, Meyers said, but the general assumption the company has made is “that over the next two to three years we’re going to see a gradual return towards normal oil prices — what we saw the last 10 years.”
ARCO plans to spend $450 million in Alaska on exploration and production in 1999, Meyers said. That level, he said, is about $120 million less than the company spent in 1998, but “it’s almost three times what we spent in 1994 when oil price dropped to the unbelievably low level of $15 a barrel.”
One reason that ARCO is spending that much, “and the reason for that increase in capital spending over the last three to five years is the partnership we’ve had with the state.”
“It reflects the access to acreage we’ve had, it reflects the stable tax policy that we’ve had. Bottom line, the partnership is working and it’s been key to increased confidence in investment in the state. And from ARCO’s perspective,” Meyers said, “we are absolutely committed to keeping that partnership healthy during these difficult times.”
In addition to its price estimates, Meyers said that ARCO’s plans in Alaska are also based on “the assumption that the partnership with the state will continue and that we’re going to solve the fiscal gap problem that we all face.” Solving the fiscal gap is important, he said, because of the uncertainty it casts “over all of our business, but especially if you do a business that’s very capital intensive like the one that the oil industry is in. It really makes it difficult to make investment decisions when you’re uncertain what the future holds in terms of the state’s fiscal gap.”
Moving ahead One of the projects that ARCO is moving ahead is the Tarn field, where development drilling began last year. Work will continue at Tarn, Meyers said, “although it’s going to occur at a little bit slower pace than we would have expected just a year ago.”
In the seismic area work continues to be strong, with two crews acquiring some 700 square miles of 3-D seismic. Seismic, Meyers said, is the first step in the exploration process: “We’re continuing to invest in the long-lead item for exploration and that’s this 3-D seismic,” he said.
And Alpine field development is moving ahead, with about $220 million to be spent on the project in 1999 alone. (See related story on page A19.) ARCO has described Alpine as a 365 million barrel field with expected peak production of 70,000 barrels a day, and Meyers noted that “a new plan of development incorporating an enhanced oil recovery project” is expected to boost both reserves and production rate.
The MIX project, a $160 million expansion of the existing Prudhoe Bay enhanced oil recovery project, is also moving ahead, Meyers said. “The heart of the MIX project is a nine-story 2,700 ton compressor module. It’s the single largest production facility ever fabricated in Alaska.” The MIX project will be completed in the fourth quarter of this year, boosting Prudhoe Bay liquids production by 20,000 barrels a day, Meyers said.
The $44 million Point McIntyre enhanced oil recovery project will be completed in November, with truckable modules being built in Anchorage. A 12-mile pipeline is being constructed to move miscible injectant to Point McIntyre from the Lisburne production facility. NPR-A bids planned It’s no secret that ARCO plans to bid at the National Petroleum Reserve-Alaska oil and gas lease sale planned for this spring, Meyers said, since ARCO Chairman Mike Bowlin has already made that announcement. Meyers said that the U.S. Department of the Interior is planning to offer about 87 percent of the northeast quadrant of NPR-A. ARCO believes “we can develop the entire area responsibly and we’d like to have access to the entire area and we’re going to continue to work to have access to the entire area,” he said. “We know we’ve shown that we can develop and operate in sensitive areas with minimal impact to the wildlife and to the environment. But in the meantime, we’re going to make the most of what we have and we’re very excited about what we have here.”No decline, but from a lower level Referring to ARCO’s North Slope production goal, “no decline after ’99” in ARCO’s share of ANS production, Meyers said that the goal will be achieved. “But I’ve got to be honest with you — it’s going to occur at a lower level than we would have thought a year ago,” he said.
What will make the turnaround in ARCO’s share of North Slope production possible is the Alpine field, he said, scheduled to begin producing in 2000. Current plans are for production to peak at 70,000 barrels a day. Since the Union Texas Petroleum acquisition ARCO owns 78 percent of Alpine.
Meyers said ARCO believes it can sustain its production in Alaska above 330,000 barrels a day for the foreseeable future.
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