Shops empty as oil production declines

Photo/Michael Dinneen/For the Journal

When a film producer called up CH2M Hill’s area manager Tom Maloney a few weeks ago to ask if the company’s empty fabrication shop could be used as space for film production, it was the last straw.

Maloney’s job includes keeping the shop full and its people working.

“I was tempted – it was revenue – but I just couldn’t let it happen on the odd chance that we might get some work into the shop,” Maloney said.

Alaska’s once-bustling oilfield fabrication shops are now empty, CH2M Hill’s among them. ASRC Energy, which also operates a fabrication shop in south Anchorage, reports a similar situation.

Last year the welders, pipe fabricators and electrical technicians were busy building things for the oil fields. Not this year.

NANA/Colt Engineering operates a facility in the Matanuska-Susitna Borough, and Flowline Inc. does fabrication as well as pipe-coating at its Fairbanks plant.

Everyone is in the same boat, Maloney said.

“I’ve never seen things so bad. Even in 1988, oil prices dropped to $10 a barrel but we were still busy. That’s because people were optimistic, and planning new projects. They knew the oil price would go back up,” Maloney said. “Now prices are almost $120 a barrel and we’ve got this pessimism. We’re losing our key workers to North Dakota where oil work is booming.”

Maloney puts the blame for things on the impasse squarely on the Legislature’s inability to agree on a needed adjustment to the state oil and gas production tax, which he says are too high. That is impeding new investment by oil producers and new projects to keep CH2M Hill’s workers busy.

The state House passed a bill last year, House Bill 110, which would lower the taxes, but the Senate disagreed. Senators are now working on their own proposal, but state House leaders and Gov. Sean Parnell are dubious that it will be enough to make a difference.

Meanwhile, CH2M Hill’s 100-plus workers normally at work in the fabrication shop aren’t there.

These employees, and those who work for the company’s competitors in Anchorage, Kenai and Fairbanks, are indirectly employed by Alaska’s oil industry but many don’t show up counted as oil workers in state labor statistics.

“Our people live in Anchorage and Mat-Su and they work here. They don’t go to the Slope,” Maloney said.

The last big jobs the fabricators had was two years ago on the building of Eni’s small Nikaitchuq oil field on the slope, and before that it was the construction of the Oooguruk field by Pioneer Natural Resources. Both companies built many of their production facilities in Alaska as “truckable” modules that could be constructed in Anchorage and moved by road to the North Slope.

A boom time for the fabricators was from 1998 through 2000 when the Alpine and Northstar oil fields were being developed by ConocoPhillips and BP, and large “sealift” modules, so large they had to be moved to the slope by sealift barge in summer, were built in Anchorage and Nikiski, near Kenai.

Since then there have been a steady stream of smaller projects, mostly facilities for expansions of the large oil fields, and then the new fields by Pioneer and Eni. Since then, the work has dried up.

When oil companies decide to build their projects in Alaska the decision has a much bigger economic impact than just the module-building, because companies like CH2M Hill are also asked to help install the modules on the Slope, which creates a lot more jobs.

“With the Eni project we had 120 in our ‘fab’ shop, working 70 to 80 hours a week, and we had 350 at the site on the slope, on installation. At one time we had as many as 600 working for Eni,” Maloney said. “Now it’s zero.”

Engineering work along comes along with a fabrication contract, too, and this creates additional jobs. Terry Bailey, a CH2M Hill vice president responsible for engineer services, recalled that during a particularly busy period when the company was doing the engineering on the CD-3 and CD-4 drill sites for the Alpine field and the DS 1-J drill site in the Kuparuk River field that CH2M Hill had 175 people employed in the design work, and 60- to 70-hour work weeks were the norm.

Not all of those people were engineers. Typically 30 percent to 40 percent of those in the engineering group were support people, for example doing data management, Bailey said.

Module work always had its peaks and dips, said Nate Andrews, CH2M Hill’s manager for the fabrication plant, but the company has always tried to keep a core group of about 60 skilled and experienced fabrication workers busy, to retain them.

With no work in the plant it’s getting really tough to keep these workers, Andrews said.

“The problem we now have is that we’re losing our core workers to North Dakota, as well as Alberta. They can work three weeks on and three off, and the employers will fly them back and forth,” Andrews said.

If work picks up in Alaska, CH2M Hill will be able to get some of these workers back, but not all.

“They can see years of work down there. Why come back here when it’s start-and-stop?” he said.

Maloney said these workers, including project managers and supervisors, are critical.

“Without people like these you’re not in the construction business,” he said.

Andrews said the company is doing everything it can to hang onto these experienced people including putting them temporarily into CH2M Hill’s field maintenance jobs on the North Slope or on loan to the company’s well service group.

This isn’t enough to take care of everyone, however, so the company has initiated a “work-load imbalance” program where it has had to furlough workers, but with benefits. There are about 75 people temporarily furloughed for now, who are on call.

“Some of these people haven’t worked since last November,” Maloney said.

Andrews said it’s tough to compete with North Dakota and Alberta.

“We used to be a high-wage state, and the differential allowed us to retain skilled workers. That’s no longer the case. The wages are the same in North Dakota and the hours are much better,” he said.

A lot of skilled Alaskans have left the state for better work elsewhere. “I don’t think we’ll get them back,” Andrews said.

Hiring new people to fill vacancies, if work picks up, is expensive.

“It costs us $7,000 to $12,000 to hire someone from outside the company,” he said. What’s also of concern, however, is that it takes time to a new person to become part of a team and fit in with a company’s safety culture, an area of importance in construction.

11/07/2016 - 3:43pm