Alaska News

Oil patch slump oozing anxiety throughout the industry

With Shell job losses still looming and some projects stalled amid the continuing oil-price slump, Alaska's petroleum industry and its related companies are struggling to adapt to the headwinds that threaten the entire economy.

"Don't go out and buy a new motorhome," suggested Kevin Durling, majority owner of Petroleum Equipment and Services, saying the consequences of slowing activity in the high-paying industry could ripple across the state.

Durling says demand for his specialty oil field supplies and services has fallen 15 percent to 20 percent, in part because the state's working rig count for new wells is down. He's worried it could fall another 20 percent next year if things don't change.

"We're not doing layoffs yet," said Durling.

But he's not sure how long he can keep that up. "Natural attrition" has taken care of things for him, with four workers departing Alaska or finding other jobs, leaving the company with 25. But even if Durling diversifies and picks up work related to completing and maintaining wells, he can't rule out layoffs if low prices continue to crimp activity.

"We'll diversify and then probably expect there will be some tough times," he said.

Similar stories are echoing across the oil patch, though key efforts remain alive despite oil prices about half the $100-a-barrel they were last summer.

Hilcorp is moving ahead with the Liberty prospect. ConocoPhillips recently brought two new projects into production. And Alaska newcomer 88 Energy recently spudded a North Slope exploration well in the search for shale plays.

There's also Great Bear Petroleum, which is continuing its aggressive seismic work and has doubled its staff -- from six to 12 -- with some workers coming from the industry's newly unemployed ranks, said Pat Galvin, a Great Bear executive.

"There's still a lot of oil to be found on the North Slope," said Galvin, adding the state and industry need to be ready to tap it once prices rebound.

No one expects prices to recover anytime soon, though, leaving those rare silver linings overshadowed by big cuts.

ConocoPhillips has completed its workforce reduction of about 120 Alaska employees in its effort to reduce its worldwide staff by 10 percent, a spokeswoman recently said. And in September, CH2M Hill said it thinned its engineering and design group by 22 employees, though the company still employed more than 2,500 Alaskans.

More pain is lurking, many say.

"What we hear from our guys providing front-line (oil industry) support is that things are active, but come January or February it will be a whole different picture," said Rebecca Logan, general manager of the trade association, Alaska Support Industry Alliance.

The full impact of Shell's decision to suspend its Arctic Ocean drilling campaign hasn't fully hit the economy yet, she said. The company is still wrapping up its summer drilling effort, and job losses associated with many of its 400 office contractors and staff are yet to come.

Other big hits include Repsol's decision not to drill in a Colville River prospect this winter, costing an estimated 500 jobs, and Italian producer ENI's decision to suspend drilling this winter.

An idle rig can affect some 200 high-paying jobs, so the suspended drilling efforts are huge, said Logan.

Arctic Slope Regional Corp., whose subsidiaries employ about 4,500 in Alaska's oil and gas sector, is looking for new revenue opportunities outside oil and asking "everyone to do a little more with fewer resources," said spokesman Ty Hardt.

Efforts by BP to pursue complicated viscous and heavy oil deposits on Prudhoe Bay's west side will have to wait until prices rebound, said Dawn Patience, BP's press officer in Alaska.

Still, other BP efforts are on track and the company expects production to remain level this year. While BP has idled one of six contracted drilling rigs, the work that had been planned for the rig will continue using smaller equipment.

"We're looking at keeping up the activity and the well work, but you have to adjust your expenses in this price environment," said Patience.

State statisticians have begun to see the slowdown. After years setting employment records, the oil industry in Alaska saw job numbers fall by 100 in August and 200 in September compared to last year, said Neal Fried, a state Labor Department economist. Still, September employment remained historically high, the estimate shows, at 14,900.

Alaska has so far been spared the big cuts affecting other states, where companies have retreated from numerous small prospects, Fried said. Not surprisingly, companies in Alaska have kept efforts alive on big projects with near-term payoffs, including ExxonMobil's Point Thomson field, where more than $3 billion has been spent, and ConocoPhillips' $450 million viscous-oil project in Kuparuk.

But spending will fall as production begins at those sites, with light oil at Point Thomson expected to begin flowing next year and the viscous-oil project, 1H NEWS, expected to come on line in 2017.

"The question is what comes after that," Fried said.

Bob Bell, president of F. Robert Bell and Associates, said he and other companies are looking ahead to Alaska LNG.

The surveying company with some 80 workers has already supported environmental studies on the northern portion of the proposed 800-mile gas line. That, plus attrition and new village public works projects, has helped the company avoid layoffs.

But Shell's pullout has left a cloud over the industry's hopes, leaving the Alaska LNG project as the industry's one big project, he said.

"All of us are concerned that it will be derailed for political or economic reasons or whatever," Bell said. "If that happens, that takes away the potential for a lot of work."