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North Slope crude oil production plunges, cutting into state revenue

Posted: Friday, September 10, 2004

ANCHORAGE - North Slope crude oil production was down 24 percent in August compared to last year and continued to fall short of expectations through the first week of September, according to the state Department of Revenue.

Prudhoe Bay operator BP Exploration (Alaska) Inc. says a dip in production was expected after planned summer maintenance projects, but lingering problems in getting some facilities online again has caused a greater drop than expected.

"Production is down, but we anticipated a loss in production," BP spokesman Daren Beaudo said. "We'd like to have come out of these planned turnarounds in better shape."

BP's explanation is disputed by an oil industry critic who in the past has represented whistleblowers who worked for the Alyeska Pipeline Service Co. Charles Hamel of Alexandria, Va., said several North Slope workers have contacted him with concerns that the inexperience of replacement technicians at the facilities is the cause of the production problem.

Less oil flowing through the pipeline has meant missed tax revenue for Alaska during a time when the price of oil broke several records and consistently remained above $40 per barrel.

"It would be nice if we were producing 1 million barrels a day at $40 a barrel," said Chuck Logsdon, chief petroleum economist with the Department of Revenue. But, he added, "Obviously that oil is not going anywhere."

If North Slope production rises by Sept. 15, the difference between the Department of Revenue's forecast and actual production levels could be 20,000 barrels per day, Logsdon said. Factoring in statewide production shutdowns and slowdowns, the difference increases to 40,000-50,000 barrels a day.

That could mean a difference of $50 million to $100 million for the year in tax revenue, if the price of oil stays between $28 and $35 per barrel, he said.

The difference would impact how much Alaska profits from tax revenue but isn't likely to cause problems for the state in meeting its budget, he said.

An average of 723,000 barrels a day of oil and gas liquids were pumped from Prudhoe Bay in August, according to Department of Revenue statistics That's compared to 946,000 barrels per day for the same month last year.

Production for the first seven days of September fared better, averaging 797,290 barrels per day, but was far below the September 2003 average of 972,000 barrels per day.

Beaudo said the production interruptions began in July and have continued into September. Three gathering centers - plants where water is removed from the oil - have either not been running at capacity or have had trouble coming back online after the maintenance, he said.

"We hoped we would have these facilities up sooner," Beaudo said.

Hamel said the real source of the problem is the workers who replaced striking process automation and control technicians at Prudhoe Bay.

The replacement workers took the spots after the eight technicians walked off the job last month because of a contract dispute with BP.

Hamel said he was speaking on behalf of North Slope production workers who contacted him, and not the striking workers.

In a letter to Gov. Frank Murkowski dated Sept. 6, Hamel said the replacement workers "have virtually lost control of the three volatile Prudhoe Gathering Centers" and the situation poses "dangerous risk to the safety of the workers and the integrity of the facilities."

"They may have goodwill, but they do not have proper familiarity with the system," Hamel said of the replacement workers in a recent telephone interview. "Because of these PAC technicians, who are trying to learn the system, everything is going wrong."

Beaudo said the replacement workers were "absolutely not" the cause of the production drop and problems with the gathering centers.

"The folks on the other side are going to try to make the case that eight striking workers are the reason for this, and that's just not the case," Beaudo said.



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