Oil competition has helped the state

Posted: Tuesday, September 21, 1999

The following editorial appeared in Friday's Fairbanks Daily News Miner:

British Petroleum and Atlantic Richfield may have been working side by side for many years, but that doesn't mean they've always had their arms around each other like those two cute kids in the ads.

That's not a criticism of their behavior. From day one, in fact, Alaska has benefited from the fact that these two full-grown, competing oil companies weren't always in a warm embrace. If they merge, then Alaska needs to make sure that such a competitive environment isn't smothered in the process.

Arco and BP's tense relationship started long ago during bidding over the state leases at Prudhoe Bay. In one way or another, conflicts surrounding that field have continued through the present.

Arco started work in Alaska as Richfield Oil Corp. It made the first significant strike in the state, on the Kenai Peninsula in 1957. British Petroleum also was exploring in Alaska at the time. After statehood in 1959, geologists from both companies began to focus on the North Slope. The state started leasing its newly selected lands there in 1964. On July 14, 1965, the state opened bids for the land just south of Prudhoe Bay.

In his 1997 book, ``Crude Dreams,'' long-time independent oil lease broker Jack Roderick of Anchorage tells the story of what happened next:

``Richfield and Exxon bid as high as $94 an acre for Prudhoe Bay's crestal tracts, outbidding BP, Atlantic Refining, Chevron, Shell, Mobil and Phillips . . . BP's bids for the same crestal tracts averaged about $47 an acre,'' Roderick wrote.

``Richfield and Exxon's coup in picking up most of the Prudhoe Bay crest raised some suspicions at BP,'' Roderick noted. `` `We were sure some of our seismic (data) had been stolen, probably from a contractor, because of the way the bids came in,' says BP's Geoff Larminie. `We were bloody sure that this had a significant impact on the bidding at the sale.' '' BP thought it was the only company with enough seismic information to identify the crest so well.

The charges of thievery were denied by Richfield, which shortly afterward merged with Atlantic Refining. ``I don't think their exploration strategy and knowledge of the area at the time was any sharper than anyone else's,'' Arco geologist Gil Mull told Roderick.

Nevertheless, according BP's Roger Herrera, a member of BP's board of direc-tors traveled the world telling BP employees that `` `Arco stole BP's Prudhoe seismic data,'. . . and they should have no dealings with the company.''

Curiously, BP came out ahead anyway because the Prudhoe crest wasn't the best spot for oil. The crest's value also was reduced by a massive ``cap'' of natural gas. The better crude supplies were on Prudhoe's margins, where BP picked up most of the leases.

To this day, the physical legacy of that sale generates friction between the two companies. Arco, which ended up with the largest share of natural gas, has been more interested in marketing that product. Also, the companies' differing interests have led to disputes before the state's Oil and Gas Conservation Commission over the proper disposition of gas and crude pumped from the Prud-hoe area.

Competitive tension between the companies arguably hasn't always led to the most efficient management at Prudhoe, but it has been good for the state as it sought to develop and market its oil and gas resources. So before BP and Arco link arm in arm, Alaska should ensure that opportunities to compete remain for someone other than the cuddling kids.



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