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Weekly UpdatesFrom shake-ups in the governor's race to shutdowns in BP's oilfields, 2006 was a very exciting year for the people of Alaska. There was good news on a lot of fronts-the construction and mining industries had superlative years, and Native corporations also posted impressive profits.
But the oil industry didn't fare so well, suffering from the shutdown of 16 miles of pipeline in Prudhoe Bay, as well as questions raised from the FBI's investigation into the relationships between several Alaska lawmakers and VECO Corp. And as for construction of the natural gas pipeline, only time--and a new governor elected to replace project stalwart Frank Murkowski--will tell when, and where, that will happen.
Here's a look back at some of the top business stories of 2006.
BP RETURNS TO FULL PRODUCTION TWO MONTHS AFTER PRUDHOE BAY LEAK
In a nation already reeling from record high gas prices, the news that BP Alaska was shutting down its Prudhoe Bay operations in August as a result of corrosion problems on crude oil transit pipelines came as quite a blow. The company decided to shut down the field after a smart pig (an in-line diagnostic tool) in late July showed corrosion-related wall thinning and a small spill, estimated at four to five barrels. At the time, this shutdown was expected to reduce Alaska North Slope oil production by an estimated 400,000 barrels per day, which sent crude oil prices up by three percent the day after BP America Chairman and President Bob Malone made the announcement.
Within days, prices subsided and the company received regulatory approval to continue producing from the western side of the field, which accounted for approximately half of Prudhoe Bay's output. In September, BP Alaska was given permission to restart output from the field's eastern side for the purpose of inspections, and by October, smart pigging in the Eastern Operating Area (EOA) showed no significant areas of corrosion. Western Operating Area (WOA) pigging was started in November. BP Alaska also continued construction of bypass pipelines--the Flow Station 2 to Endicott pipeline bypass and the Crude Oil Topping Unit to the Endicott pipeline bypass were both completed in October.
"At this point, production is well over 400,000 barrels a day, and all indications are normal from a production volume standpoint," said BP spokesman Daren Beaudo. "We are positioning Prudhoe Bay to continue safe production, while re-evaluating the operability of our existing crude oil transit lines. We have put a number of bypass lines in place to provide redundancy, and have also made the decision to replace 16 miles of pipe with new steel." The replacement pipe is expected to arrive in fourth quarter 2006, and construction will begin in first quarter 2002
As a result of the shutdown, changes have been made in the way BP, and state and federal agencies, regulate the pipelines. BP has agreed to increase major maintenance expenditures to $200 million in 2007, and to undertake a number of improvements including the use of cleaning and in-line inspection tools in all of the lines returned to service. The company also has added a technical director to its structure to provide independent assurance of integrity management efforts. In early October, Gov. Murkowski created a Lease Monitoring & Engineering Integrity Coordinator's Office within the Department of Natural Resources to better manage oil and gas infrastructure oversight.
FBI AGENTS RAID LEGISLATIVE OFFICES ACROSS ALASKA
On August 31, 2006, FBI agents raided the offices of six Alaska legislators looking for possible ties between the lawmakers and VECO Corp., a large oil field services company. The FBI searched offices belonging to state senators Ben Stevens (R-Anchorage), John Cowdery (R-anchorage), Donald Olson (D-Nome), and state representatives Pete Kott (R-Eagle River), Vic Kohring (R-Wasilla) and Bruce Weyhrauch (R-Juneau).
One of roughly 20 warrants obtained by the Associated Press stated that investigators were seeking, "from the period of October 2005 to the present, any and all documents concerning, reflecting or relating to proposed legislation in the state of Alaska involving either the creation of a natural gas pipeline or the petroleum production tax." Warrants also sought information about possible payments to lawmakers by VECO executives, and hats or other items with the phrases 'CBC,' 'Corrupt Bastards Club' or 'Corrupt Bastards Caucus.'
The investigation appears to be focused on the financial contributions and other gifts that four VECO executives named in the warrant may have made to members of the Legislature, according to an article by Rose Ragsdale for Petroleum News. These executives include VECO Chief Executive Bill Allen, President Peter Leathard, Executive Vice President Roger Chan and Vice President Rick Smith.
In statements to the press at the time of the investigation, Amy Menard, an Anchorage attorney representing VECO, said that VECO was in a "very intense fact-gathering process," and did not have enough information to elaborate on the executives' political ties.
At the time of this article, the FBI would not comment on the status of its search. "The VECO investigation is a pending investigation," said FBI spokesman Eric Gonzales, "so we have nothing to say at this time."
No DECISION YET ON THE NATURAL GAS PIPELINE
For years, politicians, oil companies and Alaskans in general have discussed the importance of building a natural gas pipeline to take the state's natural gas--estimated at 35 trillion cubic feet of reserves on the North Slope--to market. In May of 2006, the issue took on special significance as Gov. Frank Murkowski, after holding closed-door negotiations with the three big oil producers-BP, ConocoPhillips, and ExxonMobil--submitted a contract to build the natural gas pipeline for legislative review.
According to the Legislature, and the people of Alaska who responded in a number of public forums, the contract raised a number of volatile issues. These included the lock-up of oil and gas taxes for 30 to 45 years, a lack of a work commitment by the industry, and weak language concerning Alaska hire and business preference. During two special sessions this summer, the Legislature failed to pass legislation that would enable the contract to be signed, and Gov. Murkowski went back to the negotiating table.
In late August, Gov. Murkowski said that he would call the Legislature back into session in September for another try to approve the contract, providing that House and Senate leaders agreed that there was enough support for the controversial deal. That special session never happened in the wake of the FBI VECO investigation, BP's shutdown of parts of the Prudhoe Bay field, and Gov. Murkowski's loss in the Aug. 22 primary election.
In October, Revenue Commissioner Bill Corbus released the state's response to the public comment period, saying that nearly two-thirds of those who commented on the proposed contract supported moving forward by fixing problems in the contract, amending it and having it ratified by the Legislature. Sixty-five of the 2,169 people who submitted comments favored the contract, with 29 percent opposing. "Our conclusion from the analysis of the comments is that the public process confirms, by 65 percent favoring the contract we negotiated, that the original contract is good for Alaska and has the support of the public," he said.
Since Gov. Murkowski's ouster from office, however, it will be up to a new governor, working with the Legislature, the public, and perhaps the big three oil companies, to take the development of a natural gas pipeline to fruition.
TAKING ADVANTAGE OF ALASKA'S OTHER RESOURCES: MINING REVENUES UP IN 2006
According to the Department of Natural Resources, in 2005, the Alaska minerals industry produced a record $1.81 billion worth of mineral products and investment in exploration and development. After such an amazing year, expectations were high that Alaska's mineral industry would fare well in 2006, and though official numbers aren't yet in, it looks like it's going to be another banner year.
"Metal prices have remained high during the year, so the majority of operating mines should have made money," said Steve Borell, executive director, Alaska Miners Association. "While Pogo is still not in a position to make money due to normal start-up issues and a fire in late September that shorted out the mine's substation, I expect that the other mines--Usibelli, Red Dog, Greens Creek and Fort Knox-have had a really good year."
Though production levels and employment levels haven't changed significantly over the past year, high metal prices have encouraged companies to invest more in exploration. "This isn't something you necessarily see on a mine's profit-and-loss statement, because it can't be attributed to a particular mine," said Borell. "But companies are definitely investing in additional exploration in areas adjacent to the mines they have as well as in other parts of the state."
For the past couple of years, Greens Creek has been investing in exploration, and continued this trend in 2006. "Greens Creek is seeking to find additional ore to process, and has also spent quite a bit of exploration dollars trying to determine where the offset is in an ore body along the Gallagher Fault, which is not an insignificant task," said Borell.
Other big exploration topics in 2006 include Barrick Gold's project at Donlin Creek and Northern Dynasty's project at Pebble. Barrick expanded to a 120-man camp with eight drills working the site. Northern Dynasty consistently drilled at Pebble over the summer and into the fall, and brought in four drills with the capacity to drill to a depth of 6,000 feet. "The last I knew, a limit to the ore deposit at Pebble had still not been determined," said Borell. "It is still open to the east, north and south, and open at depth. This is very exciting, because the project could develop into a 50-year or longer mine life, which would certainly benefit the local region, and suppliers throughout the state."
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