Oil industry's troubled waters.

• Author: Richardson, Jeffrey

Despite several bright spots last year, Alaska oil industry's long-term prospects remain dimmed by the decline of Prudhoe Bay, the still-undecided fate of ANWR and other disappointing developments.

In November, Alaska's oil industry was dealt a major blow when the U.S. Senate failed to pass an energy bill that would have opened the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) to exploratory drilling. While statewide oil production remained high and new discoveries were made in Cook Inlet, those psychological boosts were offset by the ANWR letdown, the discovery of dry holes in other areas and the looming decline of the Prudhoe Bay field.

To complicate matters, developing countries undergoing geopolitical changes are luring oil companies. This puts Alaska at an increasing disadvantage in competition for finite exploration and development budgets.

The mixed messages of the past year also portend continued uncertainty about the current condition and future prospects for Alaska's oil industry. While approximately 250 jobs were lost at Arco Alaska alone in the company's combined efforts with BP Exploration (Alaska) to consolidate Prudhoe Bay operations, 2,000 short-term jobs will be gained over the next few years during construction of Arco's GHX-2, or gas-handling expansion, project. The GHX-2 facility will boost Prudhoe oil recovery because producers will be able to process an increasing amount of gas associated with oil production.

Although, for the past three years, exploration indicators remained stable, "exploration crew months" have been half to a third of what they were before 1986. Engineering and technological innovations have enabled producers to reap more oil from Alaska's Prudhoe Bay and Kenai Peninsula fields, but frontier acreage is in very short supply nationwide.

Assessments of the oil industry's health are guarded and somewhat divergent. Tom Cook, Alaska exploration representative for Chevron USA notes that, on the whole, the sector is "somewhat sickly," but cautions against characterizing the oil industry as homogeneous. As an oilfield professional specializing in exploration, Cook says what he sees down the road is not encouraging.

Dudley Platt, a state petroleum economist for the Oil and Gas Audit Division of the Alaska Department of Revenue, reports 1991 was a pretty good year. "The industry is definitely leaner, but they're making more oil per employee," says Platt.

The failure to remove the present ban on exploratory drilling in the Arctic refuge was one of the oil industry's biggest disappointments in 1991. In the fall, a measure to open the refuge was successfully filibustered by opponents, effectively killing the comprehensive energy bill of which it was a part. Whether the measure will be considered again is not clear and at this point appears to be dead until the next presidential race.

The failure to open ANWR creates anxieties throughout the industry. The refuge is believed to offer the best hope of bringing new oil on-stream in sufficient quantities to replace output from existing North Slope fields, thereby keeping the pipeline and its related infrastructure functioning.

But timing is critical. The calendar for exploring and developing refuge lands is affected by the projected schedule of Prudhoe's declining production levels. The pipeline system needs about 600,000 barrels of oil per day to sustain optimum mechanical viability, according to Marnie Isaacs, a spokeswoman for Alyeska Pipeline Service Co. of Anchorage.

Recently pipeline throughput has averaged roughly 1.8 million barrels a day. But...