Legislature(1993 - 1994)
03/02/1993 02:00 PM House O&G
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
JOINT SENATE AND HOUSE SPECIAL
COMMITTEE ON OIL AND GAS
March 2, 1993
2:05 p.m.
SENATE MEMBERS PRESENT
Senator Loren Leman, Chairman
SENATE MEMBERS ABSENT
Senator Rick Halford
Senator Bert Sharp
Senator Judith Salo
Senator Al Adams
HOUSE MEMBERS PRESENT
Representative Joe Green, Chairman
Representative Harley Olberg
Representative Jerry Sanders
Representative Jerry Mackie
Representative Gary Davis
Representative Joe Sitton
HOUSE MEMBERS ABSENT
Representative Pete Kott
COMMITTEE CALENDAR
Presentation by Julian Darley, President BP Exploration AK
WITNESS REGISTER
Julian Darley, President
British Petroleum
ACTION NARRATIVE
TAPE SENATE 93-4, SIDE A
Number 001
REPRESENTATIVE GREEN called the Joint Senate and House
Special Committee on Oil and Gas meeting to order at 2:05
p.m. saying the Senate members would join the Committee when
the floor session adjourned. He introduced Julian Darley,
President, British Exploration Petroleum AK, to give his
presentation.
Number 039
JULIAN DARLEY, said they have had a major transformation for
the better in their business in Alaska. He said it is
continuing as he speaks, and will continue to evolve and
develop for the foreseeable future in Alaska. Just a few
years ago the outlook for their Alaska business was
decidedly not very attractive. But through their major
efforts, they changed their outlook for the better.
He said they are working very hard to produce 1,150,000
barrels a day at Prudhoe which is nearly 25% off peak. The
costs of operating in that field are climbing at an alarming
rate, both in terms of dollars per barrel and the total
amount of money BP is spending. He explained they are
producing more water and gas along with the oil which costs
money to handle and earns them nothing.
BP decided to try to save their business in Alaska by doing
business better. This decision required a transformation in
performance. First they aimed at eliminating duplication by
sharing common services with ARCO, the other North Slope
operator, and this has been successful. Secondly, they
radically increased the effectiveness of what BP people were
doing. Thirdly, they formed business alliances with vendors
and suppliers. Fourthly, they looked at existing leases in
active exploration in other areas of the North Slope.
He said BP is trying to build an ethic of continuous
improvement. It is improving its effectiveness by drawing
the collective goals and objectives of the people into
greater alignment with the needs of their businesses.
Number 181
They have introduced a program called gain sharing where
they set specific targets in each of the major measures of
their business performance - safety, operating costs,
capital projects, environmental protection, and production.
They try to match incentives with specific performance
targets for each multidisciplinary team within the company.
They are working to introduce a new style of working with
suppliers which is collaborative or being open about their
planning and having close working relationships.
MR. DARLEY said their contractors and vendors have to learn
with them to act smarter and with incentives and to earn
their rewards by earning less of BPs money.
Number 309
He said they can't do much to change the oil prices, but
they have done a lot to slow down decline in production at
Prudhoe. These improvements have been delivered by extremely
talented people who have assessed actual field performance
and identified ways to produce them more effectively and
with the vital followup of spending money where it's going
to generate more oil to build on the good ideas.
Number 333
They have set themselves the target of keeping the operating
cost per barrel flat for the next years even though decline
will continue. BP now takes a very positive view of its
Alaska business.
Last January he announced that BP plans to resume
exploratory drilling on the North Slope this year. They
plan on drilling three wells and participate in a fourth.
This program ends a hiatus in their drilling. It is, in
fact, the largest drilling program they have had since 1985
in state.
Yesterday they announced an agreement with Petrofina in
which BP will take over the operation of the Bardarmi
Discovery. BP plans to stay in Alaska as a producer, and
investor, explorer, and operator, he reiterated.
By the end of this year the second gas handling project in
Prudhoe Bay, GHX 2 should be installed and operating. This
will help them maximize all recovery production from that
field. They are paying half the $1.3 billion cost. They
expect the GHX 2 to increase their ability to handle the gas
that comes with the oil from 5.3 billion cubic feet per day
to 7.5 billion cubic feet per day. It is the gas handling
capacity that limits how much oil they get up. They expect
to increase oil production by 100,000 barrels per day. This
is about the equivalent of a whole year's decline at the
current rate.
Number 387
Other investments are ongoing like development drilling,
workover of existing wells, and expansion of secondary and
tertiary oil recovery programs.
MR. DARLEY said in the year 2000, 60% of production will be
from investments not yet made and in place. He used a graph
to illustrate his point. He said there is nothing to alter
the fact that oil production at the end of the decade is
going to be below today's levels. Although by most
standards it will still be handsome.
Number 483
At Governor Hickel's Economic Summit earlier this year, the
most important lesson he learned is that there is still time
for Alaska to choose from a number of options over a period
of time to get fiscal stability without a great deal of pain
and dislocation. The choices need to be made and acted
upon.
Number 498
MR. DARLEY said that his real concern was that Alaska would
choose to raise oil taxes instead of taking other measures
to balance its budget. There is no doubt that raising taxes
would hurt their business. He believes it would be
counterproductive to the state. The rich oil days of the
early 80s and late 70s are past. He said his business
projections are based on stability and oil taxation. The
attractiveness of new investments must compete with other
opportunities throughout the world.
They are exposed to changes in the economic environment, to
bad investment, etc. Each investment decision they make
stands on its own and a raise in taxes would have a chilling
affect on their attitude.
TAPE SENATE 93-4, SIDE B
Number 570
REPRESENTATIVE GREEN thanked him for his very good speech.
SENATOR LEMAN asked if him to comment on the proposed
changes in exploration leasing. Mr. Darley said they are
happy with the frontier basins type of approach. He didn't
think that large tract leasing was helpful for such areas as
the North Slope. Confining his remarks to the Canning and
Colville areas he said the current system of licensing has
served the state well and that drilling has taken place in a
reasonable amount of time.
REPRESENTATIVE MACKIE commented that looking at the long
term interests of Alaskans, he thought the partnership he
was talking about needed to expand to include the
legislature and other branches of government. He asked him
what chance ANWR had of being opened under the current
administration. MR. DARLEY responded that the U.S. has
gotten used to importing a large portion of its oil and
unless something makes the nation uncomfortable with that,
it will not be in a great hurry to go into areas a large
part of political constituency would prefer to have closed.
He said they should work to make sure that area is not shut
off as a wilderness and hopefully get people up here to see
how we do business and to visit the Native communities and
see what their expectations are and what is needed to
deliver them.
Number 482
REPRESENTATIVE GREEN asked what he thought about the state's
strong position in keeping the 90% - 10% split of royalties
with the federal government. MR. DARLEY said they are
trying to stay out of that political issue.
Number 473
REPRESENTATIVE DAVIES asked if they were making a tradeoff
with natural gas in keeping oil production up. MR. DARLEY
said there is no trade off. The gas doesn't get wasted.
REPRESENTATIVE GREEN asked if reducing the competition
wouldn't ultimately turn around and result in higher prices.
MR. DARLEY said they will maintain competition. The real
prize comes from having suppliers work with them to do
business better - working more efficiently and learning each
others business.
REPRESENTATIVE DAVIES said in Alaska there are a lot of
small innovative companies which might go out of business if
BP works with suppliers capable of handling large contracts.
Number 410
MR. DARLEY said they are still contracting with a lot of
different people with expertise. They don't have cause to
think there is the kind of problem he mentioned.
Number 387
REPRESENTATIVE GREEN thanked him for joining the Committee
and said he had to attend another meeting and turned the
gavel over to Senator Leman.
SENATOR LEMAN asked for questions or comments from the
audience. There were none and he adjourned the meeting at
3:10 p.m.
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