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Alaska's independents: smaller oil and gas companies are making their marks in the state.

New blood is coming into Alaska's oilpatch. The state's petroleum industry badly needs the transfusion.

Smaller, aggressive and entrepreneurial independent oil and gas companies are now on the scene. They bring new ideas and fresh thinking about how to develop Alaska's still simple resources.

For years, Alaska was the exclusive turf of large major oil and gas companies. At the time only they could afford the huge costs of developing large oil fields in remote areas, dealing with the environmental risks, lawsuits and extensive permitting, and financing infrastructure like the trans-Alaska oil pipeline.

Alaska seemed no place for the independent companies. These smaller companies have dominated the Lower 48 industry for years, but were not present in Alaska.

Times are changing. Independents are coming to Alaska, and it is none too soon.

Oil production from the state is declining because large oil fields developed from the 1960s through the 1980s are being depleted. Production is now about a million barrels of oil per day, half of what it was 15 years ago.

New discoveries are being made, but they are smaller and there are not enough of them to replace the production decline in the large fields.

What's more worrisome, Alaska Gov. Frank Murkowski says, is that new exploration drilling is lagging despite oil prices that have been healthy for some time. Only three exploration wells are planned so far in 2003, the governor said.

Mark Myers, director of the state Division of Oil and Gas, said Alaska needs 12 to 14 new exploration wefts drilled each year if enough discoveries are to be made to replace the oil in fields now being produced.

If the large, major oil companies are losing interest in Alaska, the hope is that a new generation of smaller, more aggressive independent companies will pick up the slack.


The timing is right, because Alaska's petroleum industry is in transition. In the 1960s the major oil companies explored for and discovered large fields like the Cook Inlet offshore fields such as MacArthur River and the mega-giant Prudhoe Bay field on the North Slope.

In the 1970s and 1980s, a string of other discoveries followed that were smaller, but still very large. Kuparuk, the second largest field in North America after Prudhoe, came online in 1981. Other fields followed.

As the years went by new discoveries were smaller. One by one, companies with long-time presence in the state, like Chevron U.S.A. Inc. and Shell Oil Co., started leaving. Others, like Texaco and Amoco and ARCO, were absorbed in mergers.

By the 1990s, the oil fields were consolidated under fewer owners. BP Exploration (Alaska) Inc. on the North Slope and Unocal Corp. and Marathon Oil Co. in Cook Inlet remained as field operators because they could still make money in fields producing less oil.

One new company appeared on the scene, ConocoPhillips Alaska Inc., which acquired ARCO's assets in the state.

The stage was now set, however, for the entry of a new type of player, the independent. This evolution is actually common in the industry. It is happening now in the North Sea, and it has already occurred in the Gulf of Mexico, where independents now dominate.

What happens is the large companies go in first and develop new producing regions. As these fields mature and decline, the large companies often sell out to smaller companies so they can look for new discoveries elsewhere. The smaller companies come in with new ideas, and the result is usually more oil and gas being developed.

Independents by definition are companies that explore for oil upstream and produce, but sell their oil and gas to other companies who have downstream refiners and marketing companies.

The large major companies are typically integrated with their own upstream exploration and production divisions, which usually sell their own crude oil to the downstream refining and marketing divisions.


Alaska is in the beginning stages of this transition and it coincides with an other trend in the petroleum industry. The large companies, which pioneered the oil business in Alaska, are consolidating, merging and getting bigger. At the same time, the independent companies themselves are getting bigger and financially stronger.

Alaska is affected in two ways. For the now mega-sized, very large companies like BP, Exxon Mobil Corp. and major companies no longer here, like Chevron (now merged with Texaco) and Shell, Alaska just doesn't offer exploration prospects large enough to attract major investments.

BP and Exxon Mobil are still big producers in Alaska but Exxon Mobil hasn't drilled an exploration well in years and BP has transferred its Alaska exploration group and sold its undeveloped acreage outside known oil and gas fields.

ConocoPhillips, now operating the fields developed by ARCO, is still exploring but it also has become larger. Its Alaska prospects now face more competition for capital inside the company because the corporate portfolio exploration prospects is larger and more diversified.

Meanwhile, the independent companies are larger, too. Companies like Anadarko Petroleum Corp., Forest Oil Corp., and Encana Oil and Gas are working in places like Algeria, Africa and the North Sea alongside the major companies.


Anadarko and Forest (through its predecessor company, Forcenergy) were the first of the major independents to show that Alaska wasn't exclusive to the very large companies.

Both companies have done well for their efforts. Forest has found and developed the first significant new oil held in Cook Inlet in decades, the Redoubt Shoal held Similarly, Anadarko's partnership in finding and developing the Alpine oil field, originally with ARCO and now with ConocoPhillips, has been a success.

Others are now coming in. Encana, a large Canadian independent, drilled an offshore exploration well last winter and is a partner with Anadarko in large blocks of acreage in the foothills region of the North Slope, which is believed to be promising for natural gas.

Pioneer Natural Resources, another major independent, drilled three test wells on the North Slope last winter. The company found oil, but it isn't known yet whether the discovery is commercial.

Other independents are active, toll. In Interior Alaska, Denver based Andex Resources is exploring the Nenana Basin west in Fairbanks, looking for natural gas. Prodigy, based in Dallas, has acquired leases in Cook Inlet and has high hopes in exploring an oil prospect that, like Redoubt Shoal, was considered uneconomic earlier.

The smaller companies aren't cut out of the same cookie cutter mold, either.

Aurora Gas, developing small shut-in gas fields on Cook Inlet's west side and exploring for new discoveries, is an affiliate company of Aurora Energy, which buys and sells natural gas to commercial customers in South central Alaska.

Evergreen Resources, of Denver, is exploring for natural gas from coal seams, and drilled several rest wells in the Matanuska-Susitna Borough last winter.

Winstar, a startup company formed by Alaska investors and headed by former ARCO manager Jim Weeks, is drilling a prospect at the edge of the Kuparuk oil held.

The company believes the Kuparuk producing formation extends onto its leases.


If Alaska no longer interests the super-majors, how do the independents view the state?

Jim Dodson, executive vice president of Andex Resources, told the Alaska Support Industry Alliance earlier this year that with prospects on the Lower 48 pretty well picked over, his company sees Alaska as the last place in North America where small companies can establish significant new reserves and grow.

Bill Armstrong, president of Armstrong Oil and Gas, echoed similar sentiments at a Resource Development Council conference in Anchorage last November.

Alaska still has potential for significant discoveries, and Armstrong says he wants to be bore Armstrong is a small Denver-based independent that purchased North Slope offshore leases last year and then brought in Pioneer, a larger independent, as a partner to drill three exploration wells.

Mark Hanley, Anadarko Petroleum's Alaska public affairs manager, said that independent companies have to be more aggressive than larger oil firms because they need to get a retina on their investment faster. Unlike major companies, they don't have large world wide portfolios of assets to pick and choose from. "Bigger companies can take more time than we can," he said.


Meanwhile, independent companies are also bringing fresh thinking and truly revolutionary ideas to how exploration and development is being done.

There are three recent examples of this in Alaska. The first was Forest Oil's approach to exploring and developing its Redoubt Shoal field in Cook Inlet.

Forest's predecessor in the inlet, Forcenergy, couldn't afford to bring a Jack-up rig or drill ship to Cook Inlet to drill exploration wells needed for Redoubt and then pay the expense of installing a platform.

That was the industry's traditional way the problem would have been approached.

Forcenergy (now Forest Oil, following a merger between the two companies) got creative and developed an innovative plan to build a small bottom founded platform, a kind of heavy version of a jack-up rig used in exploration.

The plan was for the new platform to be used to drill exploration wells and, if they wine successful, be converted to a production platform, explained Gary Carlson, Forest Oil's manager for Alaska, who has been with the project from the start.

If the wells were unsuccessful, the platform could be floated to a location to drill more exploration wells, Carlson said.

Luckily the test wells in Redoubt Shoal were successful and the platform, named Osprey, is now the inlet's newest producing platform.

Secondly, there wins the plan developed by Encana Oil and Gas to drill the McCovey prospect offshore of the Prudhoe Bay field on the North Slope

The previous year Phillips Alaska Inc. Encana's partner in McCovey, tried to get the project permitted using a conventional approach of building an artificial ice island.

The project encountered problems because of tight seasonal constraints. Construction of the ice island couldn't be done until the winter temperatures were cold enough, usually in January, and there wasn't enough time to build the island, drill the well, test it and get off the ice in the late spring by the deadline set by government agencies.

Phillips canceled the project. Encana took over as operator with a new concept of using a steel drilling structure that could be floated into place in the fall, recalled Ken Boyd, a former state oil and gas director who is now an independent consultant.

Using the steel drill structure would allow drilling to start much earlier than would be possible with an ice island, Boyd said, With an earlier start, the well could be completed before the deadline. In fact, there was enough time for a second well if it was needed. Unfortunately it wasn't. Encana's well was unsuccessful.

Still, the company showed that it could accomplish a difficult offshore project with new thinking where a larger company, using a traditional approach, had failed.

A third example is Anadarko Petroleum's new "Arctic Platform," a revolutionary way of drilling onshore exploration wells. This is a kind of steel platform set up for land, where steel piles are sunk into the North Slope permafrost to support a drilling deck. The unit is assembled in modules, according to Keith Milheim, Anadarko's technology manager.

The platform would take the place of onshore ice pads, today die conventional method for supporting winter land exploration wells on the North Slope.

Ice pad building faces die same challenges as ice islands offshore. With winter freeze-up coming later on the North Slope, a possible consequence of climate change, the time it takes to mobilize, build an ice pad, and drill and test the well usually allows only one well to be drilled ha a season.

Anadarko's steel platform can be assembled earlier in the winter, allowing an earlier start to drilling. This could allow several wells to be drilled in one season.

Another problem the company faced is that hilly terrain on the southern North Slope, where the company holds leases, make ice pads difficult if not impossible to build. The new Arctic Platform is a solution to the problem.

Anadarko successfully demonstrated a prototype Arctic Platform last winter on a hydrate gas exploration project near the Kuparuk field.


For its part, the state of Alaska is encouraging new companies to come here with tools like annual area-wide lease sales and exploration licenses, which put more acreage out for exploration.

Those make more land available hit companies to try out different ideas on where oil and gas might be found.

Gov. Murkowski and the state Legislature are also making changes in state laws to streamline complex permitting and regulatory rules, another problem that made independents hesitate to explore in Alaska.
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Article Details
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Author:Bradner, Mike
Publication:Alaska Business Monthly
Geographic Code:1USA
Date:Aug 1, 2003
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