Staying invested in Alaska: though cost on the North Slope can be up 60 percent higher than a company's global average, the outlook for 2004 is good for investment dollars to the state.

• Author: Brady, Judy

No matter what the issue is for the oil and gas industry in Alaska for 2004-the bottom line will be the bare-bones, hardcore competition for investment dollars for infield development and especially for new exploration and new developments.

This is not bad news; it is simply the new fact of life.

A dramatic shift in global exploration spending is taking place, ac cording to a report by the firms of John S. Herold and Harrison Lovegrove. Cost is driving the industry from up stream North America (where finding and development costs soared to $11.85 per barrel of oil equivalent in 2002 from 4.76 in 1999) to less expensive plays in Asia, the Pacific, Africa and the Middle East (where costs average $3.31 to $3.33 per barrel).

HIGH COST OF DOING BUSINESS

Investment dollars to Alaska are competing against even higher odds: Cost on the North Slope can be up to 60 percent higher than a company's global average.

Alaska companies have been hammering the cost factor hard with--increased investments in technology and by concentrating on being more efficient.

"The price of oil doesn't matter when it comes to competing for investment capital, cost does," one company president told an Alaska audience. "If prices are high for North Slope oil, they're high for oil from anyplace. Costs of producing and transporting it gives one area a competitive advantage or disadvantage compared to another source. To successfully compete for investments, we need to lower costs."

At the right time and the right place, the state of Alaska is also taking a hard look at the cost factor. Gov. Frank Murkowski is very clear in his intent to keep Alaska competitive for oil and gas investment dollars.

OPEN FOR BUSINESS

And the industry is staying invested in Alaska. The outlook for 2004 is one of good news.

1. The oil and gas companies in Alaska are making billion-dollar investments in Alaska and are expected to continue to do so throughout 2004.

2. Because of this investment, production on the North Slope is holding steady. Short-term production on the North Slope, with increased investment in the core Prudhoe/Kuparuk fields and new investment and production from satellite fields, is expected at just less than or more than 1 million barrels per day through the end of the decade.

3. The proved and recoverable reserves of oil on the North Slope hold the possibility for production for the next 60 years. Alaska's gas resources are the largest gas resources in the U.S.

Combined capital budgets for the three largest companies, ConocoPhillips, ExxonMobil and BP, are more than $1 billion in the Prudhoe Bay/Kuparuk fields alone. This winter three companies are drilling exploratory wells on the North Slope: ConocoPhillips, TOTAL and Armstrong/Kerr-McGee. Additional multi-millions are being spent for new ships, satellite fields and technology. All Cook Inlet companies--Marathon, UNOCAL, ConocoPhillips, Forest Oil, XTO--have made substantial new investments in each of the last three years. Independents--Anadarko, EnCana, Pioneer...