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Alaska United Drilling.

Alaska United Drilling

Among the first to be hired and fired in the volatile oil business, the drilling contractor was on a rollercoaster for much of the tumultuous 1980s. Many were caught holding the bag in 1986 when collapsing oil prices ignited a major economic recession. Alaska United Drilling Inc. managed to survive by staying small and flexible.

"Everybody was building rigs in the early '80s." recalls Alaska United President Robert Mead. "We had our three-to-four rigs and we stuck with them. We did not get overextended at the bank. Right now, we're sitting over here in relatively comfortable condition just by that virtue."

Rather than shell out $15 million to $18 million for a new rig, the North Slope contractor would spend $2 million to $3 million modifying equipment to suit client drilling needs, or bid rates that would generate positive cash flow. Consequently, Alaska united was able to keep its head above water while competing against larger drilling contractors, including rowan, Grace, Nabors, Parker and Pool Arctic.

During the drilling heyday of the early 1980s, as many as 20 drilling rigs were working Slope oil fields. Today, about half that many are working on the average. Lont-term contracts are a thing of the past, and most drilling agreements contain 30-day cancellation clauses.

Says Mead, "We've had a fairly good market share of the operating rigs. Some of that is attributed to being a local company, a Native-owned company, as well as running a good operation. I think the oil companies give us a fair amount of support. We make an effort to spend our money in the community, and we don't do a lot of Outside buying." A joint venture, Alaska united is 40 percent owned by NANA Regional Corp., 30 percent by Veco Inc., 20 percent by Bristol Bay Native Corp., and 10 percent by Sealaska Corp. About 30 percent of the company's 150 employees also are shareholders of the Native corporations.

While Alaska United's operating revenues plummeted from $16.2 million in 1985 to $11.4 million in 1986, they increased to $17.8 million in 1987, to $25.5 million in 1988 and to $26.1 million in 1989 (Doyon's fiscal year 1990 ending March 31, 1990). "We're coming out of the bad times steadily but at a very slow pace," Mead says.

A veteran of the Alaska oil patch, Mead joined Alaska United in July 1986, just months after oil prices collapsed. He holds a degree in petroleum engineering from new Mexico Institute of Mining and Technology. In Alaska, he has worked for several oil companies, including Husky Oil and Amerada Hess, and is a former vice president of operations for Nabors Drilling.

Since the company's inception in 1980, Alaska United has kept three of its four rigs working most of the time. Even in the lean years, the company managed to keep at least two rigs under contract.

"The idea is to keep at least two rigs running and try to find a niche for the third rig, which puts you over the top in terms of cash flow and operating income," Mead explains. "You just have to bite the bullet and make the changes you have to make on the rigs. Some contractors haven't been willing to do that, and that's why some drilling contractors haven't made it and we have."

Though at times Alaska united was forced to reduce wages and manpower to stay in business, the company has kept its veterants on board. "A lot of our employees have been with us for 10 years ... and we've kept up with the technology. We're drilling them faster and we're drilling them cheaper. We have all the newest bells and whistles," Mead says.

On the exploration side of the business, Alaska United has racked up an impressive list of victories, including Amerada Hess' North Star Island prospect and British Petroleum's Niakuk and Point McIntyre prospects. One that Mead would just as soon forget was the offshore Mukluk project, operated by Sohio Alaska Petroleum (now BP Exploration), which at $150 million turned out to be the most expensive dry hole in history. "We were the unlucky contractor on Mukluk Island," Mead laments.

Alaska United also has drilled numerous development wells for North Slope oil companies. Recently, the company finished work on BP's Eileen West End, a two and one-half year, 45-well program designed to extract additional crude oil from the western fringe of Prudhoe Bay. Alaska United also is heading up BP's Hurl State drilling project near Eileen West.

But as Prudhoe Bay and other North Slope fields age, requiring more maintenance of existing development wells, Alaska United is banking on its so-called "workover" program to carve out a stable market niche for the small company. "If we go into an expansion mode, we'd probably stress the workover business," Mead explains.

"We really think that is where the marketplace is going. Development drilling will always be there. You'll have to replace wells, drill new gas injectors. You won't see a 50 percent increase in workover rigs in the next three years - it will be a very slow and steady thing."

While the U.S. drilling industry is recovering fromt he sudden collapse of oil prices in 1986, however, the nation's low rig count and increasing reliance on oil imports spells trouble, at least in the short term, Mead warns.

"We're in trouble (nationally) basically because of the lack of equipment and the lack of people," he says. "We're really going to be short if there comes a time when we have to have a dramatic increase in drilling. That will be one of the biggest problems."

And with Iraqi President Saddam Hussein and his army poised to take control of half to the world's oil reserves, there's bound to be a demand for more oil exploration and development in the United States. As Mead points out, however, it takes a long time to find oil and then bring it to market, regardless of the demand.

Adds Mead, "If the conflict goes on in the Middle East for another six months, I really don't anticipate another eight rigs going to work on the Slope come January because of any oil shortage over there. One of our problems is the long lead time to get permits to drill. If you want to drill a well next winter outside the Prudhoe Bay area, you had better start permitting now, and you'd be late. So a lot of work for the winter of 1990 was programmed a year ago."

The environmental movement as well as industry concerns for a safe operation have put added pressure on drilling contractors, although Mead says these new developments aren't all bad. He points out that at Alaska United an employee can earn up to $1,500 in bonuses a year by maintaining a good safety record.

"The pressure in Alaska now is for a very safe operation," Mead says, "and this is a good thing. It saves us money but, more importantly, it keeps our people from getting hurt. The emphasis has switched from making a hole and getting the job done to let's be safe, let's make sure the environment is part of it and then let's get the hole drilled. And there is nothing wrong with environmentalists as long as people are willing to pay for the end result."
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Title Annotation:The New Forty-Niners
Author:Tyson, Ray
Publication:Alaska Business Monthly
Article Type:company profile
Date:Oct 1, 1990
Previous Article:Doyon Ltd.
Next Article:Construction and Rigging.

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