This month in history: Alaska oil and gas jobs on the decline
20 years ago this month: After completion of Alpine and Northstar, numbers falling, now approach '99 lows, Labor department notes
Editor's note: This story first appeared in the Sept. 21, 2003, issue of Petroleum News.
Oil and gas employment is the mainstay of Alaska's economy, but the number of employees in that industry is falling, driven down by a lack of new projects, and is approaching the low of 7,900 reached in 1999.
The 8,800 employed in 2002 is the lowest level in more than a decade, well below the 1991 peak of 10,700, says a September 2003 report by Alaska Department of Labor and Workforce Development labor economists Neal Fried and Brigitta Windisch-Cole.
Oil industry jobs are particularly significant to the state because they are so well paid. While that 2002 oil industry employment figure, 8,800, represents only 3% of wage and salary employment in Alaska, the report says, it represents 7% of wage and salary payroll, reflecting an average annual wage and salary for the industry of $96,158, compared to a statewide annual wage and salary average of $37,101. These jobs include oil and gas extraction, drilling and support activities for oil and gas operators, but not the thousands of other jobs that service the industry, such as catering and security.
Employment levels have fluctuated from year to year over the last decade, but with a downward trend "punctuated by strong recoveries," the report says.
Not surprisingly, industry employment trends reflect production levels, oil prices and development activity.
Alaska North Slope crude oil production peaked in 1988 and oil and gas employment in the state peaked three years later, in 1991. The report said that in addition to reduced production, changing technology and an increasing reliance on "contractors, consultants, outside suppliers and temporary workers" instead of company employees also reduce the employment count.
Big job losses in early 1990sIn 1991-92 BP Exploration (Alaska) and others "responded to declining oil prices with major restructuring and consolidation," the report says. Those cuts were followed by major cuts at ARCO Alaska in late 1994 and 1995. Combined, these cuts reduced the oil industry workforce by 1,800 between 1991 and 1995 and were followed by smaller job losses through 1997.
Employment numbers made a strong recovery in 1998, to 9,300, the report says, a reflection of North Slope development at Alpine, Tarn and Badami, drilling at West Sak, and preliminary work at Northstar.
But oil prices dropped substantially in 1997 and 1998, followed by "near-record employment losses" in 1999, when oil industry employment fell below 8,000 for the first time since 1983.
A strong employment upswing in late 2000 and 2001, when employment reached a 10-year high (9,500), reflected development at Alpine and Northstar and construction in Alaska of large oil field modules.
Mergers, project completion drive declineIn 2000, Atlantic Richfield sold its assets to BP and Phillips (now ConocoPhillips), and ARCO Alaska, the company that had been Alaska's largest oil industry employer disappeared, the report says. In addition, work on Alpine and Northstar was nearing completion by the end of 2001 and employment began to fall.
"By 2002, oil industry employment had declined 8% and by June of 2003 it has reached near 1999 levels."
What is driving the decline?The report notes that while oil prices have remained high, there are few new projects underway "and little is on the horizon that would change this pattern in the near term."
Most of the current job losses are not at producing companies. BP did move its exploration department out of Alaska, but "contractors, drillers and other supporting employers account for more than 90% of the reductions."
Alaska's industry a fraction of that in TexasThe report also compares Alaska's oil and gas industry to that in Texas and other major oil states. Texas, which produced 412 million barrels of oil in 2002, compared to 359.3 million for Alaska in that year, had 133,802 employed in the oil and gas industry, compared to 8,761 for Alaska. California, which produced 258 million barrels in 2002, had 16,441 oil and gas industry employees in 2001, the latest year for which figures were available. Louisiana, which produced 66.6 million barrels, had 69,009 employed in the industry.
Why the big differences?The report says a big reason "is that Alaska oil fields enjoy economies of scale." Prudhoe Bay, the largest oil field in the United States, accounts for 45% of North Slope production. The Kuparuk field is the second largest oil field and Alpine, Milne Point and Northstar are also large fields.
"Large fields do not necessarily require more workers than smaller fields," the report says.
In other oil producing states production is from a range of field sizes, from very small to large. And the report says that in many of the other oil producing states there are hundreds of "mom and pop" operations, "but such small scale efforts do not currently exist in Alaska."
And using the rig count as an indicator of activity, "the June 2003, Baker Hughes rig count showed five for Alaska, 466 for Texas and 154 for Louisiana," the report says.
"If Alaska's oil fields were not so remote, employment in Alaska's oil patch would be considerably higher. Oil fields now considered marginal or non economic would be viable in a more populated, less remote environment," the report says. The state also lacks transportation infrastructure: the 800-mile trans-Alaska pipeline and a number of shorter pipelines don't compare to the "thousands of miles" of pipeline in other states.
And there are few oil companies headquartered -- or even regionally based -- in Alaska, the report says, which "means that much of the employment associated with Alaska production is located elsewhere." This is true for many oilfield service companies, as well as for oil and gas companies, and means that "corporate functions such as planning and research are undertaken in places like Houston," where nearly 60,000 oil industry workers service "oil industry activity elsewhere in the country and world."