Slope producers doing more with less
Alaska’s oil workforce has been hit hard by low prices, yet the companies in the state have managed to buck a longstanding trend and increase production for the last two years. So what gives?
For state Labor Department Economist Neal Fried, the curiosity in the numbers goes back further than when oil prices started tumbling from the $100-plus per barrel plateau in August 2014.
“The whole trend in oil production and employment has been very interesting just because in 2015 we reached a record number of employees in oil and gas in the state’s history, which is pretty amazing given the fact that we were producing significantly less than our peak in 1988 or for many years before that,” Fried noted.
He said that the decade-long run-up in oil and gas sector jobs exceeded the generally accepted notion that oil fields — the three primary North Slope fields are 17 to 40 years old — require more investment as they age.
In 2006, Alaska had an average of 9,600 oil industry workers, according to the state Labor Department. That year Trans-Alaska Pipeline System throughput averaged just more than 759,000 barrels per day.
By the peak of industry employment in 2015, just before price-induced layoffs started taking their toll, oil accounted for about 14,200 jobs while TAPS carried just 508,000 barrels per day, the lowest annual production level in the history of the North Slope.
Fried attributes the employment boom to the peak oil price years of 2011 to 2014.
“Without that magical price I don’t expect that it would’ve ever happened but it still was surprising,” he said of the workforce expansion. “It kind of humbled anyone that makes any kind of long-term forecast on any industry.”
However, the script has flipped in less than two years. So far this year Alaska has averaged 10,600 oil industry jobs, the fewest since 2006, while TAPS throughput is at nearly 523,000 barrels per day, according to the pipeline owner Alyeska Pipeline Service Co.
The last month Alaska North Slope crude averaged more than $60 per barrel was June 2015.
North Slope oil production has generally declined at about 5 percent per year with few exceptions since peaking in 1988 at just more than 2 million barrels per day.
With the regular North Slope winter production ramp-up still on the horizon for the end of the year, 2017 is already on pace to surpass the 517,000 barrels per day of 2016. If that holds true, it would mark the first two consecutive calendar years and only the third year overall of year-over-year increased North Slope production since 1988. The only other year prior to 2016 to see a production increase on the Slope was 2002 when the Alpine field came online.
New technologies could be starting to displace some traditional manpower, Fried surmised, but quantifying that for Alaska in the complex and extremely proprietary oil and gas industry is very difficult.
“You just have all this other noise going on,” he said.
On a high level, the federal Bureau of Labor Statistics estimates productivity in the oil and gas sector increased 5.4 percent nationwide in 2016 on a production per hours worked basis. The industry saw production output decrease over the year, but less than hours worked did, as oil prices down to less than $30 per barrel to start 2016 discouraged investment.
Just because there are fewer people doesn’t mean there is less quality work going on, Alaska Division of Oil and Gas Deputy Director Jim Beckham said.
He described it as producers “refining their techniques and their abilities to make efficiencies all the time.”
“They will pick and choose, high-grade, so to speak, the work that they’re going to do targeting the projects that they’ll get the most benefit from,” Beckham said.
He surmised a significant number of the jobs lost in the recent downturn could’ve come from Anchorage offices, allowing the Slope workers to continue the actual work of extracting oil.
The oil and gas sector in the city is down about 700 jobs from mid-2016 to now, according to the Anchorage Economic Development Corp.
Beckham said the production increase has been driven primarily by more oil from the Prudhoe Bay and Alpine fields.
BP, which operates Prudhoe, outpaced its own estimates for oil and natural gas liquids production from the Prudhoe Bay field in 2016, with production averaging 197,900 barrels per day for the year. The company had expected reduced drilling activity brought on by low oil prices would result in average daily production to be flat or down as much as 40,000 barrels from 2015, when 196,400 barrels per day were pumped from Prudhoe.
“In the Prudhoe Bay Unit they’re still reaping some of the benefits of their drilling and workover program that they had over the last couple of years,” Beckham said.
BP is only down about 50 jobs since 2015, with 1,700 Alaska employees, according to spokeswoman Dawn Patience.
The company has two drilling rigs working at Prudhoe this year.
“We are pursuing well work which can be done less costly and more efficiently by non-rig equipment such as coil tubing,” Patience wrote in an email. “In today’s low oil price environment, Prudhoe Bay’s working interest owners must look closely at every investment decision.”
Beckham added that BP has achieved “remarkable results for a field that’s that age and size” with its well workover and maintenance programs over the past couple years.
At Alpine, in the Colville River Unit, ConocoPhillips started up its CD-5 oil project in October 2015. The company approved adding 18 new wells to CD-5 in April 2016 — bringing the total to 33 — and since then production from the Colville River satellite has approached 20,000 barrels per day, or about 25 percent above the company’s stated goal of 16,000 barrels daily.
At the same time, ConocoPhillips Alaska is down about 240 positions since January 2015, spokeswoman Natalie Lowman said, adding a majority of the employees affected by layoffs worked in Anchorage.
Overall, ConocoPhillips has managed to reduce its operating cost by about 20 percent since 2014, Lowman noted.
“We have found ways to streamline processes both in the office and on the Slope,” she said. “We are a stronger, leaner company than before the oil price crash.”
Beckham also noted ExxonMobil brought the Point Thomson natural gas field, which pumps liquid gas condensates into TAPS, online in April 2016. While technical problems have hampered Exxon’s ability to average its 10,000 barrels per day target, the field has pumped about 3,000 barrels per day into the pipeline.
“You start to add those up and you get an 11,000-12,000 barrels per day increase,” Beckham said.
It should be noted the new production must offset continuing decline in other fields before contributing to increased production Slope-wide.
If the majority of job losses have not come from the largest companies operating on the Slope, there is only one other place to turn: their contractors.
Alaska Support Industry Alliance General Manager Rebecca Logan said the issue of job losses amongst Slope contractors is a touchy subject, but acknowledged a majority of the positions cut from Slope oil work came from contractor companies.
Best known simply as the Alliance, Logan’s trade association represents more than 500 companies with upwards of 50,000 employees working in the state’s oil and gas and mining sectors.
Contractors are often the first place the operators turn for cost savings in the form of less expensive work, she said.
“People are doing more with less and the less means fewer people,” Logan said.
She added that when oil prices were at $100 per barrel, the operating companies were likely not looking as hard for efficiencies in day-to-day work.
Additionally, Logan said the transition from the majors with large capital budgets dominating the Slope to smaller companies operating more fields likely means leaner contracts for her members.
“I think that our contractors have known, especially the ones that have been around for a long time — who built the pipeline and have been here through all the ups and downs — to be working for companies like a Hilcorp, which comes in and does things differently than a global company like a BP, right?” she said.
Hilcorp purchased operating interests in several of BP’s producing Slope fields and prospects in 2014 for $1.25 billion.
Houston-based independent Hilcorp Energy is known for reviving aging oil and gas fields that larger companies no longer deem worthy of investment.
Logan said she hopes the continued low prices and state policy decisions don’t deter future investment in Slope fields that could lead to a sharp decline in production in the coming years.
Beckham said the state is very excited about a few massive Slope oil discoveries that have been announced but are yet to be developed that could add several hundred thousand barrels per day of new oil into TAPS. However, even the most advanced of those prospects, Armstrong Energy’s estimated 120,000 barrels per day Nanushuk project, is several years off.
Elwood Brehmer can be reached at [email protected].