Wednesday, 05 January 2011 14:27
While BP, ConocoPhillips and ExxonMobil made headlines over the past decade, smaller oil companies leased hundreds of thousands of acres across the North Slope and drilled dozens of exploratory wells, leading to the first independently operated oil production in the history of the North Slope. If that trend continues, Alaska will become home to many smaller oil companies this decade, fundamentally changing how the North Slope works.
"When we can produce a barrel, and prove to everybody else that we can produce a barrel, I think there's going to be a flood of independents coming to the North Slope," said Jim Winegarner, vice president of land for Brooks Range Petroleum Corp., an independent operator leading a joint venture of small companies on the North Slope.
After years of exploration work, Brooks Range Petroleum is evaluating a prospect in Gwydyr Bay, the stretch of coast north of Prudhoe Bay. If the company sanctions the project, it would become the smallest oil producer on the North Slope. In the 2000s, Alaska proved it could be profitable for large independents, but Winegarner believes the same can be said for small independents, tiny players looking to compete on a big field.
Indies large and small
The term "independent" covers a lot of ground. They are usually "upstream" companies that focus exclusively on producing oil and natural gas, unlike the vertically integrated "majors" that also own pipelines, refineries, gas stations and research divisions. Independents cover a broad spectrum that includes multibillion-dollar international companies as well as domestic "mom-and-pop" oil producers.
The two most prominent independents in Alaska are on the larger end of that spectrum. Anadarko Petroleum is one of the largest independents in the world, earning $9 billion in revenue last year and employing thousands. Since arriving in Alaska in the early 1990s, the Houston-based company helped bring the large Colville River unit online and drilled numerous exploration wells, including the first to target natural gas on the North Slope. Pioneer Natural Resources produces more than 100,000 barrels of oil per day on two continents. The Dallas company arrived in Alaska in 2002 and brought the Oooguruk field online in 2008, becoming the first independent producer in North Slope history.
Brooks Range Petroleum, which only operates in Alaska and employs just a few people full time, is at the smaller end of the spectrum, alongside other independents active in Alaska, companies like Armstrong Oil and Gas, Savant Resources, UltraStar Exploration and various small companies that have all drilled wells on the North Slope since 2000.
Independents are not entirely a recent phenomenon in Alaska. Prospectors drilled wells across the state in the first decade of the 20th century. That trend expanded after Congress passed the Mineral Leasing Act of 1920, opening almost the entire territory to drilling and making access to land much easier: a matter of paperwork, rather than on-site staking. "This first-come-first-served method of leasing gave everyone, including the little guys, a chance to play in Alaska's oil and gas leasing game," Jack Roderick wrote in Crude Dreams, his history of the Alaska oil industry.
Drilling is still difficult and expensive in Cook Inlet - though not quite as a difficult or expensive as the North Slope - yet it's home to several independent companies. But since the discovery of Prudhoe Bay in 1968, majors have ruled the North Slope: BP, Chevron, ConocoPhillips, ExxonMobil and their predecessors drilled most of the wells, made all the largest oil discoveries and built all the major infrastructure projects.
Those majors have grown substantially since the 1960s, and the influx of independents in Alaska over the past decade can be traced to industry consolidation at the turn of the century. The gigantic companies created by those megamergers passed over many relatively large oil fields in favor of huge discoveries to replace their reserves. In Alaska, those mergers led to the Charter for the Development of the North Slope. While the Charter primarily outlined divestments needed to alleviate State of Alaska antitrust concerns, it also opened the door for independents to come to the North Slope, according to Jim Weeks, a former ARCO Alaska executive and managing member of the independent UltraStar Exploration, one of the smallest companies ever to explore for oil on the North Slope.