Concern mounting over rate of North Slope oil output decline

Concern mounting over rate of North Slope oil output decline

Anchorage (Platts)--17Apr2006

Alaska state and oil industry officials are concerned that production
from Alaska's North Slope is declining faster than expected.

During recent hearings on a proposed rewriting of the state's oil and gas
production tax, BP told legislators a doubling of industry investment will be
needed if the decline curve is to be flattened.

Slope production has held steady at just under 1 million b/d for the last
three years after declining at an average 6%/year from the late 1980s. Output
from two new fields, Alpine and Northstar, temporarly halted the decline in
2001. But with no large new fields due to come on line, the 6% decline rate
has reappeared in 2006, state Revenue Commissioner Bill Corbus said in the tax
hearings. Corbus and other state officials are concerned they have been
overestimating future production prospects for several years. For example,
estimates made in 2002 and 2003 anticipated 2006 production at about 100,000
b/d more than expected actual output of 830,000 b/d this year.

The state's lastest long-term production forecast, released April 4, has
been ratcheted down by about 30,000 b/d throughout the forecast period, said
Michael Williams, chief state economist in the Department of Revenue. But that
may not be enough. Reservoir problems with new wells in heavy oil deposits now
being produced have resulted in a slower-than-expected buildup of production,
said a state petroleum analyst who asked not to be identified.

A new uncertainty is the cumulative effect on production of aging
infrastructure. Producers' stepped-up maintenance is resulting in more wells
and facilities being temporarily out of service for repair. Last fall BP took
70 older Prudhoe Bay production wells off line for remedial work. These are
gradually being returned, but the state must now build into its forecast an
assumption that an increasing number of facilities will be down for
maintenance.

In addition, increased production of heavy oil is affecting facilities
designed for conventional crude. Another new worry is internal corrosion. A
recent oil spill from a 34-inch diameter Prudhoe Bay field pipeline resulted
from a one-inch-by-quarter-inch hole believed to have been caused by internal
corrosion. BP is still investigating.

--Tim Bradner, newsdesk@platts.com

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