A Recovering North Slope.

Alaska's oil industry giants are expecting to embrace healthy development on the North Slope this year.

Alaska's largest oil producers are planning to pour out more than one billion dollars this year on capital projects for North Slope fields, an increase of nearly 30 percent from such spending in 1999.

While the bulk of the money will fund construction of new fields such as Alpine and Northstar, oil producers are continuing to invest in equipment to boost flow from existing fields such as Prudhoe Bay and Kuparuk.

Also being funded this season is exploration work, including wildcat drilling and high-tech geological research techniques used to help identify new underground reservoirs.

Booming oil prices have helped producers funnel funds toward capital projects this year, compared with sluggish crude sales in late 1998 and early 1999.

During that time period, North Slope crude dropped below $9 a barrel. As a result, BP Exploration Alaska slashed up to $300 million from its capital budget in 1999. Arco Alaska also cut about $150 million from that year's spending plan.

Now, the story regarding market pricing is much different. Oil prices have more than tripled--fetching more than $30 for each barrel of North Slope crude.

While saying that higher crude prices have helped to increase BP's capital spending in 2000, spokesman Ronnie Chappell added that "investment decisions are still driven by the requirement that projects must be viable at the bottom of the price cycle." Planning for new developments takes time and often stretches out over one or two of the cycle changes in market prices for oil.

"It takes such a long lead time to do things here in Alaska; we just try, whether it's high or low oil prices, to just go about exploring," said Gary Ford, Anadarko Petroleum's project manager for Alaska development. "We realize that when prices are down, we aren't going to be able to do as much; When prices are high, we try to up the activity some."

The Merger

One aspect that has curtailed some spending even in the midst of high crude prices is the pending merger of BP Amoco with Atlantic Richfield, Arco Alaska's parent company. The resulting company would hold a majority interest in North Slope infrastructure, from existing fields and exploration leases to ownership of the trans-Alaska pipeline system.

Completion of the $30 billion financial deal is pending regulatory approval, although in early February the federal government moved to block the acquisition. How quickly that case will move though the Federal District Court in San Francisco--and the outcome-- remains to be seen.

BP desires the deal to be completed, as it "creates opportunities for investment, because it lowers investment costs," Chappell said. "Projects that aren't competitive today will be competitive tomorrow."

Capital spending could increase, even this year, he said, if the deal is finalized.

Regardless of the merger outcome, BP plans to spend $600 million this year on improvement projects for its North Slope holdings, Chappell said. That's a 50 percent increase in capital spending from the prior year, he added.

Northstar Development

Continued work to open Northstar, an offshore accumulation below the Beaufort Sea, makes up the lion's share of BP's spending. Northstar is believed to contain about 145 million barrels of oil, and will begin production at a rate of 65,000 barrels per day in November 2001.

BP Exploration is spending about $300 million on that project, including module fabrication currently going on both in Anchorage and Fairbanks, as well as construction work on that North Slope field.

VECO Construction is building seven production, camp and utility structures in the firm's Anchorage yard, including three of the largest modules ever built in Alaska, according to company spokesman Rick Smith.

The largest three modules fall in the 3,500-ton class, Smith said. By comparison, a module VECO built in Anchorage during 1999 for the MIX (miscible injection expansion) project at Prudhoe Bay was 2,700 tons, a size record at that time, he said.

In addition to the giant-sized production modules, VECO crews are building four other structures ranging in weight from 200 to 800 tons. Two of those smaller modules will be barged up to the manmade island at Northstar this summer, Smith said, while the remaining modules will be sealifted in the summer of 2001.

Twelve truckable modules--sized for transportation up the 400-mile long Dalton Highway that runs between Fairbanks and Prudhoe Bay--are being built at a North Pole fabrication yard.

H.C. Price won the bid for that part of the Northstar project, Chappell said, and has assembled a crew of about 40 Fairbanks-area workers to produce the 12 structures used in the rock grinding and re-injection circuit for drilling waste.

Chappell said that other Fairbanks-based fabrication work associated with Northstar includes assembly of more than 1,300 vertical support members--steel t-bars used to elevate pipelines above ground. The Welding Shop on the Steese Highway completed that work in January.

Crews at Flowline Alaska, located in the railroad industrial area of downtown Fairbanks, also spent time late last year insulating and applying protective coatings to more than 25 miles of pipe that will be installed this spring at Northstar.

As fabrication work kicked off in Alaska's two largest communities, construction crews hit the North Slope in January, starting to build ice roads that provide transportation routes for pipeline installation and supply delivery.

In addition, gravel has been trucked in to build the five-acre island that will hold production facilities at Northstar.

"We've got about 700 people working on Northstar across the state," Chappell said.

Exploratory Work

In addition to work on that new field, BP has increased the pace of development drilling in existing fields, Chappell said. That includes testing and developing satellite wells near the North Slope's two largest oil accumulations: Prudhoe Bay and Kuparuk.

"We will participate in two or more exploratory wells," he added.

One joint venture well planned with Arco includes Meltwater, which is near Prudhoe Bay.

Finally, BP put together its largest ever three-dimensional seismic program for the North Slope. Areas to be surveyed are west of Kuparuk, between that existing field and the developing Alpine, owned by Arco Alaska and Anadarko Petroleum Co.

"We're making the most of our opportunities, absent completion of the Arco deal," Chappell said. "We're doing what makes sense, but are anxious to take advantage of increased opportunities as a result of the merger."

For its part, Arco Alaska is pushing forward with its own hefty capital budget this year. Spending in 2000, slated for $475 million, is a decrease of about $60 million from 1999, according to spokeswoman Dawn Patience.

"Right now, in the peak season, we're spending over $1 million a day," she said. "A huge chunk is for Alpine--it's our last push to bring Alpine on line this year."

Alpine Development

That new field, located west of the Colville River, has counted heavily in Arco's capital spending the last two years, she said. This year, it makes up about half of that annual investment: $212 million.

Most of that is going for final construction work on the Slope--building ice roads to haul in a year's worth of supplies, and placing the last production modules at the far west field.

During the last three years, Alpine has cost developers, Arco Alaska and Anadarko Petroleum, a total of $1 billion, Patience said. And of that cost, three-fourths of the money was spent in Alaska, she added.

For Houston-based Anadarko, which owns a 22 percent share of the field, Alpine represents a significant milestone.

"We're all looking forward to getting Alpine on production--it will be our first revenue stream out of the state," Ford said. "We've been up here looking as early as the mid- to late-1980s; now we're getting to see some fruits of our labor."

New estimates for the Alpine project predict daily production to start at 40,000 barrels per day, ramping up to 80,000 once all the bugs are worked out. Geologists believe Alpine contains a total of 429 million barrels of recoverable oil.

"Alpine was the first stepping stone as we move out to the west," said Ford. "We're very excited about possible opportunities in (National Petroleum Reserve-Alaska) and we look forward to a successful exploration program out there.

Arco and Anadarko have partnered on 92 leases in NPR-A, and plan to drill as many as three exploratory wells there, Patience said.

The number of such wildcat wells depends not so much on funding, but on weather and how long the winter cold temperatures will last, she added. "We couldn't begin building ice roads into NPR-A until the end of January."

Satellite Wells

Arco will also participate in another two to four satellite wells, she added. Those locations include spots near Alpine, south of Tarn and the west end of Prudhoe Bay.

Infield drilling, with a price tag of $200 million, will be completed in Kuparuk and Prudhoe Bay, she said. "We're doing a lot of work, reviving wells that aren't economical any more [ldots] to get more out of existing fields."

Finally, Arco plans to spend about $50 million for 3-D seismic exploration within existing fields and in new areas west of Alpine. Some of the work is being funded jointly with Anadarko.

"Alaska is one of our core areas that we think there is growth potential for our company," said Ford. "We put a lot of importance on Alaska."