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THE EXPLORERS 2006 - Bill Van Dyke: Surviving change in Alaska
Bill Van Dyke Director, Alaska’s Division of Oil and Gas
“In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.”
—Charles Darwin
Said a slightly different way Darwin believed that those organisms with the most beneficial traits are more likely to survive.
Change is ever present. Survival in the oil and gas industry is dependent on recognizing change and adapting to it.
Some changes occur slowly and in very small steps, allowing the marketplace and its participants ample time to adapt. Incremental changes in the state’s oil and gas lease terms are an example of this.
Other changes occur much more rapidly and take quantum leaps, shocking the marketplace and the players in it. I would place passage of the production profits tax, or PPT, in this category.
If one recognizes the slower, smaller changes then he or she can incrementally adapt to them. With respect to the big, rapid changes, only those nimble on their feet and willing and able to adapt quickly will prosper in that marketplace.
Recent, expected changes in Alaska Consider the changes we in Alaska are currently facing. We’re looking at a complete rewrite of the state’s oil and gas production tax, which was signed into law this past summer. We’re facing the possibility of a gas reserves tax if the initiative on the November ballot passes. And, under Administrative Order 229, we’re looking at the creation of a new state office to monitor oil field system integrity. We’ll also have a new governor on Dec. 4, and we’re on the verge, I believe, of completing an agreement for a North Slope natural gas pipeline project.
On a broader scale, conditions on the North Slope have changed significantly since oil production peaked in 1988. The Trans-Alaska Pipeline System is carrying less than 50 percent of the 2 million barrels of oil per day it once flowed.
The TAPS strategic reconfiguration project is partly in response to flow rate changes to date, as well as other changes predicted to occur in coming years. Oil and gas prices realized on the North Slope appear to have taken a new higher path over the last few years and smaller pools and fields are contributing proportionately more and more to overall production volumes.
Facility sharing agreements, like those the owners of the Oooguruk unit propose with the owners of the Kuparuk River unit, are good examples of recognizing and adapting to change.
Since the discovery of oil at Swanson River in 1957 we have seen tremendous leaps in technology and volatile commodity prices. The state’s policies have changed and lessees’ priorities have shifted, when appropriate, to adapt to these changes. Likewise, the state has reacted to changes in the local, national, and international oil and gas business. Some companies have left the state, but other companies have to varying degrees replaced them. Tracking companies is not the only way to judge whether all concerned have adapted to the changes. For legitimate business reasons, some not even related to changes in Alaska, companies leave as well as enter the Alaska oil and gas arena. Changes will continue into the future including many we haven’t yet contemplated.
No one ever said it would be easy Both the state and the industry need to manage their business for the long term based upon their underlying missions and mandates. We all need to recognize change and adapt accordingly. If a project really takes 10 years to move from inception to first oil or gas then so be it. But if it can be done safely and efficiently in five years, why stretch it out?
With overall North Slope production in decline the state wants to see new oil pools developed sooner and spending to maintain or increase production in existing oil pools accelerated.
Lessees may not always have the same priorities given their own international portfolios and individual views of the best project to fund today.
No one ever said it would be easy finding common ground in an ever-changing world. The state and its oil and gas lessees need to work together to achieve our common goals. Likewise, oil and gas lessees often want to keep all their options open so they can react to future changes. That makes good business sense.
In many ways the state is no different. Maintaining options usually has value. Long term contracts that lock-in or limit the actions of one party but not the other make adapting to future change very difficult—at least for one of the parties to the contract. All the parties need the freedom to adapt to change.
Some will fare better than others Given inevitable change, will some oil and gas entities in Alaska fare better than others in the years to come? You bet they will.
Overall, I believe that Alaska’s oil and gas industry will continue to prosper although the list of companies in the Oil and Gas Directory may look different 10 years from now, even assuming that the state continues to adopt and implement reasonable overall oil and gas goals and policies.
Some companies will leave Alaska; others will enter or re-enter the state. This is no cause for alarm. There will be survivors and they will have adapted to change.
The pool of oil and gas companies is large enough that overall some will almost certainly survive and prosper in Alaska regardless of what changes.
Alaska production in 50 years? Will there still be oil and gas production in Alaska 50 years from now?
I believe so, because we have an abundant oil and gas resource base and lessees and lessors who recognize and want the associated benefits.
Many dinosaur species couldn’t or didn’t adapt to change and they perished. We in Alaska have done much better so far because we are committed to facing change head-on.
With the help of ever-evolving oil field technologies, astute business practices and sound government policies, Alaska’s petroleum future remains bright indeed.
The resources are here—in the ground and in our people.
Utilize them wisely.
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