North slope slow down: majors pull back on Alaska investments, exploration.

• Author: Orr, Vanessa
• Position: OIL & GAS

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For many years, the North Slope of Alaska has provided oil, gas, jobs and opportunities for Alaskans.

Yet with each year that passes, the ability to get "easy oil" decreases, requiring companies to make more of an investment in exploration and drilling, as well as make major investments in new technologies to harvest the oil that remains.

According to the Alaska Oil and Gas Association (AOGA), the long-term outlook for oil on the North Slope is one of gradual decline. The state expects average daily production in fiscal year 2009 to drop to 689,000 barrels per day and 665,000 barrels per day in fiscal year 2010. The good news, however, is that new gas field development, smaller field-size oil development, and the development of technologies to extract heavy oil may help to extend the North Slope's future.

2010 CAUTION

While still committed to projects on the North Slope, two major oil companies, BP Exploration (Alaska)

Inc. and ConocoPhillips Alaska Inc., are cutting back in the new year. BP will be reducing capital spending by approximately 15 percent; from $1 billion in 2009 to approximately $850 million in 2010. Roughly one-third of this investment is earmarked for infrastructure renewal, one-third for drilling and one-third for growth.

"Our first priority is to invest in the infrastructure to enable a sustainable long-term future," explained John Minge, president, BP Exploration Alaska, at a recent Resource Development Council for Alaska Inc. meeting. "We will then invest in developing the light oil base which generates the cash, and then invest for growth-projects like Liberty, Point Thomson and Denali-The Alaska Gas Pipeline."

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According to Minge, over the last five years, oil and gas industry costs have increased at a rate of four times the price of oil, while North Slope oil production has declined about 29 percent. "The light oil business has suffered over the last few years due to declining production and rising costs; costs have risen through significant inflation and increased government taxes," he explained.

"Our cash break-even point is much higher today than it was five years ago," Minge continued. "Policy decisions around taxes made over the past few years have slowed the pace and scale of some of our North Slope developments; we put projects on the shelf that didn't make sense in this environment."

One project that is moving forward is Liberty, the first full federal offshore development in Alaska. In 2010, the first of up to...