ConocoPhillips Alaska on Monday said it will move ahead with a development expected to add up to 8,000 barrels of crude to the trans-Alaska pipeline each day, crediting Alaska tax reform, despite low oil prices that have delayed projects around the world.
But the announcement comes amid rumblings of layoffs on the North Slope, including at the field where the project is located, Kuparuk, about 40 miles west of Prudhoe Bay.
Just how many people have lost jobs is uncertain. Though companies nationwide have announced spending reductions as the price of oil has fallen dramatically — from more than $100 a barrel to less than $50 — companies in Alaska face a challenging political reality and have avoided talk of cuts. State production taxes have often been altered in the past, sometimes negatively for oil producers.
State Sen. Bill Wielechowski, an Anchorage Democrat, said industry doesn’t want to lose the deal it got when oil tax reform passed in 2013, which includes hundreds of millions of dollars in subsidies from the state.
“They realize they got a sweetheart deal and they want to keep it,” said Wielechowski.
Adjustments being made
A ConocoPhillips Alaska spokeswoman said with oil prices low, adjustments are being made to the company’s scope of work, which affects the amount of support work that is required. She also said, however, that major capital projects pursued in association with the passage of tax reform are all on track.
“We have adjusted our work scope. That has an effect on the amount of contract support we need,” said Natalie Lowman, director of communications at ConocoPhillips Alaska.
Lowman did not say by what amount the scope of work had been reduced.
For Alaskans hopeful to see increased flow in a pipeline that now carries about 540,000 barrels of oil daily — about one quarter of production in the late 1980s — the good news is that Conoco said it and its partners have approved funding for the $460 million 1H NEWS project, a viscous oil development in the Kuparuk field.
Partners in the project include ExxonMobil and BP.
Technological advances and high costs have challenged the production of viscous oil at the field, Lowman said. The oil can have the consistency of syrup and doesn’t flow as readily as the crude long produced at the larger Prudhoe Bay field, which moves more like water.
Tax reform and new developments that have made viscous production more efficient have enabled the project to move forward, she said.
A press statement from Conoco called the 1H NEWS sanctioning the largest investment in viscous oil at Kuparuk since 2004. Production is expected to begin in early 2017. Meanwhile, construction will start later this year and continue through next year, Conoco said. The estimated peak workforce during construction is approximately 150 people.
“The 1H NEWS development is one of the key projects we announced after passage of oil tax reform,” said Trond-Erik Johansen, president of ConocoPhillips Alaska.
Other projects are moving forward as well, he said.
— Nabors rigs 9ES and 7ES at Kuparuk have added a combined production of 9,000 gross barrels of oil daily.
— Two new rigs — Doyon 142 and Nabors CDR3 — are under construction.
— Developments known as CD5 and Drill Site 2S are on schedule and should have first production by the end of this year.
Work also is progressing at Greater Mooses Tooth 1, which would be the first commercial oil development in the National Petroleum Reserve-Alaska, the nation’s largest federal reserve. Conoco had delayed a sanctioning decision on the project earlier this year, in part blaming regulatory delays by the Bureau of Land Management, the agency that manages the NPR-A.
The federal agency is requiring that Conoco pay $8 million to develop and implement a regional mitigation strategy for development in the NPR-A. The money would also finance mitigation projects that will help offset unavoidable impacts of the Greater Mooses Tooth development, said Lesli Ellis, communications chief at BLM Alaska.
In a sign the oil field project will continue moving ahead, Ellis said BLM is working with Conoco on transferring the first $1 million to the agency. “We expect the transfer to happen soon,” Ellis said.
In Conoco’s statement, Johansen said CD5 has had about 700 construction jobs on site this winter. Drill Site 2S and other Kuparuk projects combined have more than 400 construction positions.
Still, some North Slope workers have lost jobs, including layoffs by BP last year that the company said were related to a sale of some of its assets.
With oil prices low, Lowman said ConocoPhillips is continuing its normal practice of reviewing operations across the company and has to make adjustments to the scope of work where needed. Contractors, such as ASRC Energy Services Alaska, determine the amount of people needed to execute that scope of work.
Ken Federico, chair of the Southcentral Alaska Dipnetters Association, said he was laid off in late February from his job as a carpenter providing maintenance at Conoco’s Kuparuk field.
His supervisor with ASRC Energy called him on a Sunday and said Conoco wanted to cut back at Kuparuk by 25 percent, he said. Federico said he was told not to get on the plane to the North Slope oil field the coming Friday.
Frederico said he called others who work in maintenance and learned that 14 of his fellow workers were also being cut.
“Guys with five, six, seven years in, they got laid off,” said Federico, who had worked there a year and a half.
He said he was “pissed” that he had been led by ConocoPhillips to believe that oil tax reform would lead to steady work and investment in the state. He said he even “pushed hard” for tax reform, such as contacting lawmakers and getting his views in the newspaper.
“I understand the price of oil dropping from $110 to $40 (a barrel),” he said. “My point being is Conoco promised one thing and they are turning around and giving money to their shareholders. They are not worried about the state of Alaska.
“We pushed for them on Vote No on 1 and now they’re going to screw the average Alaskan,” he said. “Conoco wants it both ways.”
Recent set of layoffs
In what appears to be a different and more recent set of layoffs at Kuparuk, KTUU reported last week that 75 contracted workers on March 13 were told by ASRC Energy Services they were being let go because of low oil prices, according to an anonymous source.
ASRC Energy Services, part of the Arctic Slope Regional Corp., the Alaska Native corporation for the North Slope, calls itself the state’s largest minority-owned oil and gas service company.
Following media requests about the layoffs, ASRC Energy issued a statement saying the company’s oil field employment levels grew as a result of producers investing more, thanks to tax reform. But “restructuring” is now happening.
“Recent changes in our market have resulted in the company restructuring its North Slope operations to be more efficient and productive in a new and highly competitive business environment,” the company said. “This change that AES has made supports a sustainable business model that adds stability in a commodity-driven industry.”
Michelle Egan, corporate communications director at Alyeska Pipeline, said that company is looking for efficiencies in its operation in light of the oil price drop. That includes closely scrutinizing open positions before they are filled.
Asked how many people had been laid off this year, or how many positions had not been filled, Egan, who was sick and working by email from home on Monday, said she did not immediately have that information at hand.
But she said there had been no “significant change” in the size of Alyeska’s workforce.
“Our decision making is risk-informed and we will not compromise our commitment to safety, environment and the integrity of the pipeline,” Egan said. “We’re working with our employees and contractors to identify opportunities that will help us manage through the dramatic drop in oil prices.”
Alaska different from other U.S. oil-producing regions
Neal Fried, a state Department of Labor economist, said layoffs are not generally something an oil company will highlight.
“They don’t hold up a banner and say, ‘This is happening,’” said Fried. “We won’t see press releases.”
He expected the state agency will learn of the cutbacks when companies provide quarterly reports, a process that could take five or six months.
Anchorage is the oil industry’s headquarters, and Fried predicted a slight decline in Anchorage industry employment.
Oil-service contractors are the first to feel layoffs, he said, and oil prices are the big factor.
“Price is fundamental,” Fried said. “If oil hadn’t been $100 for as long as it was, we wouldn’t have seen a lot of the production that has gone on.”
Alaska is different from other U.S. oil-producing regions, like North Dakota and Texas, because those Lower 48 areas have lots of small projects and many operators and service companies involved. Reaction to high or low prices is going to be much quicker in those places, he said.
In North Dakota, for example, the industry is very focused on rig count, which has declined nationally. But in Alaska, rig count isn’t that big a deal since there are few rigs doing bigger projects, he said.
“We are very large-project based, so our reaction isn’t quite as quick.”
— Alaska Dispatch reporter Yereth Rosen contributed to this story.
Related stories from around the North:
Canada: Canada ponders exceptions to relief well rule for Arctic oil drilling, Alaska Dispatch
Finland: Finns still sharply divided over wind power, Yle News
Greenland: Arctic oil and gas must stay in ground to restrict warming to 2°C says study, Blog by Mia Bennett
Iceland: From Arctic Circle 2013-2014, a big drop in the price of oil, Blog by Mia Bennett
Norway: Norway offers 34 Arctic blocks along Russian border, Barents Observer
Russia: Peace and stability crucial for Arctic economy, Barents Observer
Sweden: Lower electricity bills for Swedes, Radio Sweden
United States: Alaska’s financial dilemma: Reserve funds lately have earned more money than oil, Alaska Dispatch News