Crude crisis: trouble in the oil patch.

• Author: Tyson, Ray
• Position: Oil producers cut back on exploration and development

Low prices for crude are forcing Alaska's oil producers to cut back on exploration and development.

With the globe awash in oil and little hope of any significant rebound in crude prices, North Slope producers have been forced to slash capital spending in yet another investment arena -- a move that spells nothing but trouble ahead for oil-dependent Alaska.

Recent decisions to eliminate or reduce development drilling at three of North America's most prolific oil fields -- Prudhoe Bay, Kuparuk and Point McIntyre -- served as a double whammy coming on the heels of earlier company announcements of major cutbacks in exploration.

"I'm here to tell you that times are tough in the oil business, and I mean very tough," Arco Alaska President H.L. "Skip" Bilhartz lamented before a recent gathering of the Anchorage Chamber of Commerce.

Capital Spending Cuts. There's no question Alaska's oil industry is facing its biggest crisis in years, perhaps even greater than the mid-1980s, when collapsing world oil prices forced a huge cutback in capital spending on the North Slope while plunging the state into its worst economic recession in history.

Which is not to say Alaska is necessarily headed toward another recession. To a degree, businesses turned conservative after the last downturn, and now seem better prepared to handle the kind of oil-price shock that rocked Alaska's financial institutions less than a decade ago. Nevertheless, the state today faces a whole new set of problems.

Even before the latest drop in crude prices, for example, oil companies had been departing the state in record numbers for better opportunities overseas. And even with the dramatic fall in oil prices back in 1986, North Slope crude production was still a couple of years from reaching its peak of 2 million barrels a day.

Since the supergiant Prudhoe Bay field peaked in 1988, daily crude output on the slope has fallen about 400,000 barrels a year. And with Endicott and Kuparuk slipping into natural decline last year, company investments in new and existing wells have played an increasingly important role in keeping overall Alaska production rates from plummeting.

Producers say that even with the major reductions in development drilling, they should be able to sustain daily production of roughly 1.6 million barrels throughout 1994. However, the effect that the lack of company investments now will have on long-term crude yields and state income is what troubles many analysts.

Because...