40 Years at Prudhoe Bay: BP’s long road to Alaska

British company prevailed over 10 years of international setbacks, obstacles on its way to becoming major U.S. oil producer

Petroleum News

As one of the seven major international oil companies, BP’s strength had always been in the Middle East. Its vast reserves of oil in Iran, Kuwait and Iraq were greater than those of any other single company, over a fifth of the total reserves of the whole world in fact. This was strength but also a weakness, for while the other big companies were developing their marketing outlets throughout the world BP was content to rely mainly on its profitable oil production, selling any crude oil that it could not market itself to other companies who had the markets but not the production. As far back as the mid-1930s, BP had thought about entering the United States, the world’s most lucrative oil market. Then after World War II, when BP decided it really did want to go into America, the big problem was Britain’s adverse balance of payments and the corresponding shortage of dollars. It would have been an immensely costly investment either to buy up existing companies or to start from scratch with all the production and refining and marketing operations required. And BP was doing very well as the biggest producer of Middle East crude oil and possessor of the lion’s share of its reserves.

In 1951, Iran suddenly nationalized her entire oil industry and BP was compelled to withdraw after 50 years after first entering the country. It was the first major act in the tide of nationalism that was beginning to sweep across nations previously dominated by foreign industries.

The Iranians were unable technically to run such a complex industry, and during the ensuing legal battle, an embargo was placed on any country accepting Iranian oil. In 1954, BP returned to Iran to operate as the major partner in a consortium of American and European oil companies. But it had been a traumatic shock, jogging the company’s management out of its rather complacent attitude towards marketing and proving the need to develop oil production in other parts of the world.

Some observers said it was the best thing that ever happened to BP, resulting in determined expansion in place of a tendency towards self-satisfied stagnation.

World survey identifies Alaska

When the survey was completed in early 1952, Alaska was near the top of the list. The north of Alaska was included because of the oil and gas discoveries made there by the U.S. Geological Survey in the 1920s and during and after World War II. But the harsh arctic conditions as well as a shortage of exploration funding pushed Alaska to the bottom of the list. The closest BP got to the area was in 1953 when the company took over Canada’s Triad oil company, operating in Alberta.

It was another political leader in the Middle East, the late President Nasser of Egypt, who provided the final impetus for BP’s entry into the United States. The Suez Canal crisis of 1956 convinced BP’s board of directors that the company needed a substantial presence in North America’s profitable and stable oil industry.

But the cost of entering the U.S. market directly was higher than ever. The British government owned 56 percent of BP at that time.

The answer seemed to be to find a company which was already marketing in the United States, but which was short of crude oil, and come to a joint agreement whereby BP would supply it with oil. BP developed such a relationship with Sinclair Oil Corp. But the BP-Sinclair agreement was frustrated from the outset. Shortly after the companies joined forces, the U.S. government, alarmed by the threat of low-cost foreign oil flooding the market, imposed at the beginning of 1959 rigid controls on crude oil imports. Only those companies with domestic production could import foreign oil. This rule effectively excluded BP.

Unable to market Middle Eastern oil in the United States, BP and Sinclair turned to the other part of their joint operation, which was to explore for new domestic sources of oil.

Geologists see similarities to Iran

Sinclair suggested the possibility of looking for oil in Alaska, specifically the Cook Inlet Basin where many American oil companies had focused exploration. But BP, recalling its world survey in 1952, was more interested in the North Slope, where there was a better chance of finding a large field.

During a plane trip, BP geologist Peter Cox flew over the North Slope and went home impressed. “There is a similarity between the foothills of the Brooks range and the Zagros mountains in Iran,” he told colleagues.

The North Slope, in fact, got its name from the way the foothills sloped gently towards the Arctic Ocean. It was similar in many geological respects to the deserts of the Middle East – except for the difference of about 150 degrees of temperature – and the annual 4 inches average of precipitation on the North Slope was even less than in most deserts.

Cox also reportedly told BP executive Robert Belgrave that the North Slope was one of the few places in the world where there might be a chance of finding a Kuwait-size oil field.

Shortly afterward, Cox became a managing director at BP and in February 1959, it was he who accepted the recommendation of a report to London in which BP geologists wrote: “The areas of sedimentary basins are very large. That of the Arctic Slope measures 105,000 square miles, larger than our entire Iranian concession. … It contains a wealth of drillable anticlines on the Iranian scale with lengths of the order of 20 miles … Overall, prospects are of a high order …”

But the tide of industry opinion was against the move. BP geologist Frank Rickwood, who later became head of BP Alaska in New York, recalled that he was always embarrassed when American companies said to him, “What in God’s name are you doing in that wilderness?”

“I remember when the North Slope first came up, I had to send a girl down to find a map of Alaska to see where the bloody place was,” he told author Bryan Cooper in the early 1970s.

The hunt begins

Secrecy was critical to the maneuver. So, BP hired a retired Pan American Oil executive to apply for leases in its name at the land office in Fairbanks. The 70 separate forms, all in quintuplicate, were typed confidentially in a local bank. They were filed April 1, 1959.

The first step for BP and Sinclair was to conduct geological surveys on the North Slope.

In 1959, BP opened its first office in Alaska in downtown Anchorage and a year later, the company’s first team of geologists arrived.

Geoff Larmanie, a BP geologist who became the company’s area manager in Alaska, recalled those early days in Alaska – The Last Frontier, published in 1972. “We started work in 1959 in the Richardson Mountains and went to the North Slope the following year. By 1966, we had covered it back to the Brooks Range. The geological work had to be done in summer because you’ve got to let the snow melt so that you can see the rocks. We gradually worked northwards as the snow melted, setting up camp alongside lakes so that our float planes could land. The weather was terrible sometimes. “There were days when we were stuck in our tents, unable to fly, and had to keep warm by staying in our sleeping bags all day. Because of the weather, flying in the mountains was very tricky. Fog and low cloud could suddenly seal off a whole valley. Everyone had to carry emergency rations and the orders were to stay put if you were cut off until you could be rescued. Shortage of water was a problem, strangely enough. People could become badly dehydrated if left out in the mountains with no rations.

“It could get pretty rough, especially in the mountains. There we’d sit, our heads in the sky, our backsides in the snow for days on end. Living cheek by jowl with people under these cramped conditions could result in certain psychological tribulations, when we might all run out of both work and reading matter.

Usually the camp would wake up about six o’clock. Someone would make breakfast, then the first helicopter would be away with the first team – we normally worked in parties of two. It would come back for the second team, and so on, until we were all out scouting the hills and valleys.”

Roger Herrera, now retired from BP, was a member of the company’s first team of geologists in Alaska.

“There were very few maps available in 1960 for those parts of Alaska,” Herrera said. “Those that were available were of poor quality so we relied heavily on aerial on photographs.”

Herrera said their assignment was to define the geologic structures more exactly and to identify more promising reservoir rocks and develop a picture of the regional, geologic trends. They lived in tents, moving by float plane from site to site and landing in the numerous small lakes that dot the Slope Sometimes they would travel by helicopter.

“We’d go out in the morning to get rock samples, and since we had many miles to go, we only carried essentials – a map, compass, rock hammer, good hiking boots, plenty of mosquito repellent and, in the event of bad weather, patience,” Herrera said. “I recall many nights spent out on the tundra because the weather was too poor for pilots to fly.”

California production finances exploration

These wells, discovered and developed in the 1920s, did not flow under their own pressure and had to be pumped at a rate of five to 10 barrels per day each. For each group of about six wells, a steam engine drove a huge flat wheel from which bits of wire were attached to individual wells. As the wheel turned, the wires would jerk the pump at each well in succession and a glug of oil would emerge and trickle into a gutter dug in the ground. The oil was thick, almost solid, but was particularly useful in California for making asphalt, selling at a profit of about a dollar a barrel. Production had declined to almost zero and BP was seriously considering disposing of the properties.

Then Tidewater Oil Co., which also owned leases in the Kern River field, became interested in the possibilities of secondary recovery, which could greatly increase production. Tidewater negotiated an agreement with BP and took over operation of the field, paying BP a share of the profits. Enhanced recovery resulted in production increasing to the point where BP received $2 million to $3 million a year. It was this money that enabled the company to finance Alaska exploration, a program that cost $3 million a year out of BP’s total worldwide wildcat exploration budget of $10 million.

Early drilling proves fruitless

BP management in London accepted the team’s recommendations to proceed with exploration drilling. By the end of 1963, BP and Sinclair had acquired options to lease about 150,000 acres.

Though BP was the first company to extensively explore the North Slope, Colorado Oil and Gas was the first to actually drill a well. The independent spudded a shallow well in July 1963 one mile from the Gubik gas field, using a small rig left behind by the U.S. Navy when it completed its exploration program in 1953. The well was only drilled to 2,000 feet and the company abandoned it as a dry hole and showed no further interest in the North Slope.

Since the area was isolated from the rest of the world, transporting drilling equipment there was a major logistical challenge. BP brought its first drilling rig by rail from Calgary, Alberta to the Hay River in the Northwest Territories, then barged it down the Hay River into the Mackenzie River, to the Beaufort Sea coast, west to the Colville River and finally upriver.

With Canadian crews, BP drilled six wells fairly quickly under difficult and unfamiliar conditions. In addition to the thick permafrost, the mercury dipped so low that steel equipment fractured and normal lubricants solidified.

BP geologists had made a mistake about the foothill folds north of the Brooks Range. They looked promising, but did not go down to any depth. As a result, the company’s drilling in the foothills of the Brooks Range and the Colville River delta proved to be unproductive – to the tune of $30 million and nine dry holes. Dreams of an Eldorado in this northern frontier quickly faded.

“It’s remarkable how little notice people take of you when you’re drilling dry holes,” said Mike Savage, a senior BP executive at a 1987 ceremony in Anchorage that commemorated the 10th year of Prudhoe Bay oil production. “The odds of success in an entire new exploration area were at least 20 to 1 against.”