Some winners, some losers: Alaska's oil industry review and forecast.

• Author: Tyson, Ray
• Position: Industry Overview

1992 had its ups and downs -- new discoveries along with layoffs -- but oil patch experts say 1993 will be better.

While 1992 produced a few bright spots for Alaska's petroleum industry, overall it wasn't a good year, as declining North Slope production, a shrinking employment base and the pursuit of business opportunities overseas left a dark cloud hanging over the state's future.

As for the new year, the jury is still out, although the consensus among many oil analysts is that things couldn't get much worse and might even improve in 1993. After a year of gut-wrenching employment cutbacks and budget cutting, oil companies appear to be leaner, more focused and better able to deal with the realities that lie ahead. Other positive signals include new discoveries and the fact that some progress was seen in making the long-awaited trans-Alaska gas pipeline a reality.

Perhaps the most encouraging news is that North Slope oil production, which accounts for about 85 percent of state revenues, is declining at a much slower pace than many economists and industry analysts had predicted. Moreover, it's likely that any radical drop in output won't happen until sometime after 1995.

At $18 to $19 a barrel, North Slope oil prices also proved to be stronger than expected in 1992, resulting in a $332 million windfall to the state treasury. Because of the continuing embargo on Iraqi production and sliding output from the former Soviet Union, world demand for oil should keep prices at about the same plateau, at least for the first half of 1993.

It's also shaping up to be a positive year on the exploration front, although the biggest plum of them all -- the coastal plain of the Arctic National Wildlife Refuge (ANWR) -- remains closed, with little hope of explorers gaining access to the region under the new Clinton administration. But a new Alaska oil development group, Arctic Power, is fighting to open the refuge.

Exploration & Discovery

1992 produced the largest oil strike ever on Alaska's outer continental shelf -- Arco Alaska's Kuvlum discovery in the eastern Beaufort Sea -- and should encourage reluctant companies to re-evaluate remote properties they had all but abandoned. Additional drilling this summer should help determine whether Kuvlum is a commercial prospect. If so, it could serve as the catalyst to open the eastern North Slope to oil and gas development.

Further delineation work in 1993 also should determine whether Arco's Sunfish prospect in Cook Inlet is commercial. The discovery has brought new hope to the inlet, where oil and gas production have been on the decline for years.

Arco, the state's most active and successful explorer, plans to spend a respectable $600 million on exploration over the next few years. And after several lackluster years, BP Exploration (Alaska) Inc., the state's largest producer, hopes to return to the exploration scene on a more ambitious footing. Exxon and Amerada Hess also should be among this year's North Slope wildcatters, while Conoco may drill more test wells at its promising Badami discovery east of Prudhoe Bay.

Contractors Lament

But clearly, the bad news far outweighed the good news in 1992. The year began with major announcements from BP president Julian Darley that the company was going to drastically reduce the number of contractors BP deals with, as well as cut 425 positions from its 1,600-person Alaska work force.

Because of increasing costs and declining production from the supergiant Prudhoe Bay field, "The process will be painful, but it's absolutely necessary," Darley told stunned oilfield service contractors at last year's annual meeting of the Alaska Support Industry...