BP will reduce the active rig count at Prudhoe Bay from five drilling rigs to just two, a decision caused by low oil prices that is expected to impact oil production and more than 200 contracting jobs while sending negative waves across the state's oil-dependent economy.
With oil prices at their lowest since 2008, the news comes on the heels of several other announcements of job reductions and project delays as companies slash operations in Alaska. BP Exploration Alaska recently announced a loss of $194 million in its latest annual report to the Securities and Exchange Commission.
The decision followed discussions involving Prudhoe Bay partners ExxonMobil, ConocoPhillips and the operator of the field, BP, said Dawn Patience, a spokesperson with BP Alaska.
"We were asked to substantially reduce our expenses and our capital, and this is part of that," Patience said. "In this low oil price environment you have to review the appropriate level of activity."
Patience said there will be a negative impact to oil production at Prudhoe Bay -- one of the nation's largest fields with 281,000 barrels of oil produced daily in 2015 -- but she could not immediately say how much on Monday. She said steps will be taken to "mitigate" the drop in production, but did not explain what those steps would be.
BP recently announced its own workforce reduction of 13 percent, or about 270 employees of 2,100 employees. Those cuts are yet to come.
The rig cutbacks are not included in that number, because contracting jobs will be affected in that decision, Patience said.
The decision will, in the next few months, lead to the idling of two rotary drilling rigs and a coil drilling rig. The rigs are operated by contractors Nordic-Calista Drilling, Parker Drilling and Doyon Drilling.
The rotary and coil rigs are both capable of drilling new wells or rejuvenating production from old wells, an effort known as well workovers, Patience said. Coil rigs, however, traditionally are involved in well workovers, she said.
The job losses come after other losses in Alaska's oil industry, said Gunnar Knapp, director of the Institute of Social and Economic Research.
"That's a real bummer," he said. "Every decision of this sort has a consequence for the economy, and the problem is that these are not only a lot of jobs, they are high-paying jobs."
It also means efforts to stimulate overall North Slope production in Alaska, around 550,000 barrels of oil daily recently, could be delayed.
"You don't look at one particular thing and say this pushes us over a edge, but it's one more bit of unfortunate news," he said.
Lennon Weller, a state labor department economist, said the number of people who had been working in the oil and gas sector and are now receiving jobless benefits has increased notably in recent months.
About 549 received state assistance after losing their job in September. In January, that figure had risen to 1,239, with the state paying $1.6 million in benefits.
"They had been going up pretty consistently since about August or September, but it picked up significantly in terms of magnitude," after that, he said.
He said jobless claims in recent months have also risen in the construction sector. Some of that increase is tied to cutbacks in the oil patch affecting jobs that include welding, pipefitting and other construction work.
Shell and Apache Corp. have in recent months announced they are ending their efforts to find oil in the Alaska region; ConocoPhillips has reduced its Alaska workforce; and oil companies ENI, Repsol and Brooks Range Petroleum have announced project delays.
BP's 2015 annual report said it paid production taxes in Alaska of $140 million, a drop from the $554 million paid in 2014. Also, it said total government take in 2015 was $263 million, a figure that includes state production taxes, royalty costs and income taxes.
Rebecca Logan, general manager at the Alaska Support Industry Alliance, said the decision will affect between 200 and 300 jobs directly, and remove millions of dollars from the economy as soon as the rigs are no longer active. Losing the high-paying jobs will also have a ripple effect throughout the economy, with each of the lost jobs impacting another nine jobs as less money is spent at restaurants, shops and elsewhere, she said.
The affected drilling companies are all members of the alliance, Logan said.
At Prudhoe Bay, BP will continue to operate one coil and one rotary drilling rig. In other areas of the North Slope, Caelus is also operating two drilling rigs, ConocoPhillips is operating four and Hilcorp is operating one, Logan said.
Logan pointed out that changes to the tax regime -- Gov. Bill Walker has proposed changes that include increasing the minimum production tax from four percent to five percent to generate an extra $100 million during low oil prices -- will only compound the headwinds the oil industry faces.
"Any further changes brought about by House Bill 247 will only exacerbate a bad situation and make it much worse for Alaskan companies and Alaskan workers," she said.
The cutbacks were first reported by Petroleum News.
Alaska Dispatch Publishing