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Alaska Suffering From Cutbacks
Posted: Dec 01, 2009 13:51 PM by Eric Fox
Although Alaska has been blessed with an abundance of oil and natural gas that has supplied the markets for generations, the exploration and production industry has shifted its capital spending to other areas.
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BP, Inc (NYSE:BP) and Conoco Phillips (NYSE:COP) have reduced their budgets for upstream development in 2010 in Alaska. BP cut its capital expenditures from $1 billion in 2009 down to $850 million for 2010. Conoco Phillips is also cutting back, and has no exploratory wells planned for 2010.
A recent lease held by the state for North Slope properties drew little interest and only $8.5 million in high bids, up from the $6.5 million received in the previous round last year. The only major oil company to bid was Conoco Phillips, which bid on one tract and was outbid for it.
Why Interest Is Waning
There seem to be many different reasons for the lack of interest by the bulk of the publicly traded oil and gas industry. BP blames part of its cuts on the new tax system enacted by the state in 2007.
Another reason might be all the low hanging fruit available to develop in the lower 48 states, with millions of acres available in high profile shale plays. Also, Alaska is an environmental war zone with efforts to open up a small subsection of the Arctic National Wildlife Refuge (ANWR) to drilling meeting harsh opposition.
This small coastal area of the ANWR, which comprises only 1.5 million of the 19 million total acres of the ANWR, might have generated some interest from the industry if development was allowed. The U.S. Geological Survey (USGS) estimates the technically recoverable reserves in this area to be 7.7 billion barrels.
Active In Alaska
XTO Energy (NYSE:XTO) is one of the few independent exploration and production companies that have properties in Alaska, although the operations are almost never mentioned in the company's marketing efforts. XTO Energy has acreage in the Cook Inlet area of Alaska and its gross production is about 2,900 barrels per day from here. The company is not very active in the area, and doesn't even have an office in Alaska, with its Alaska operations managed out of the Permian Basin in Texas.
Pioneer Natural Resources (NYSE:PXD) is actively developing its properties in Alaska at the Oooguruk oil field, located approximately five miles offshore. The company reported 6,000 barrels oil equivalent production per day from Alaska in the third quarter of 2009, but believes that its gross production from Oooguruk will peak at 15,000-20,000 BOE per day in 2001. Pioneer Natural Resources will spend 35% of its 2009 capital budget of $300 million to develop the Oooguruk oil field.
The Bottom Line
Alaska has billions of barrels of oil and natural gas waiting to be developed by, but unfortunately for residents of that state, the exploration and production industry has found other areas it would rather use its precious capital to invest in. (For a primer on the oil industry, refer to our Oil and Gas Industry Primer.)
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By Eric Fox
Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.
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