The hunt for oil (cont.)
So although the hope of the future may lie under the North Pole, the reality of the present remains in places like Alaska. But even that is a guessing game. Darnall, the geophysicist, knows the terrain well - especially the frigid waters of the Chukchi Sea off the state's northwestern coast. He spent a recent summer on an exploration ship shooting seismic in its icy shoals. What did he find? Conoco won't say. Neither will Royal Dutch Shell (RDS.A), which teamed up with Conoco on the project. So loath were they to reveal the information after it was first gathered that they assigned two pistol-toting guards to accompany the briefcase full of data back to Anchorage. This much we do know: Conoco and Shell agreed to pay a combined $2.6 billion for the right to drill in the Chukchi. Is that a measure of the field's potential - or of the oil companies' desperation?
Matt Elmer has a problem. It's a "warm" morning on the North Slope - a toasty minus 11 degrees - and we're driving near a Conoco field called Alpine. Elmer is the company's operations manager for the western part of the North Slope. "We're a little behind on our production targets," he says, citing an inability to inject enough water to maintain underground pressure. "In the past Alpine has exceeded expectations. Last year we met our targets. But I'm not sure this time." In truth, Elmer is missing his daily goal by an average of only 3%. He later says he'll find a way to make up the difference, but it doesn't change the fact that his target is 13% below last year's number.
Elmer's is a common concern. Like the rest of the oilfields on the North Slope, Alpine is waning faster than companies can find replacements. Last year the Trans-Alaska Pipeline pumped only a third of its capacity and is set for another 6% decline this year. If the falloff continues, the cost of running the pipeline could exceed its revenues in the next two decades, and it may need to shut down.
Alaska's North Slope is about the size of Michigan, but its oilfields are clustered within a 100-mile belt on the coast of the Arctic Ocean. It's tundra - essentially a frozen desert devoid of trees yet teeming with caribou, white foxes, and the occasional polar bear. The original human inhabitants, the whale-hunting Inupiat Eskimos, have known for centuries that oil exists up here; it used to seep out of the ground. But the scientific proof didn't gush from an oil company well until the day after Christmas 1967. When Atlantic Richfield announced its discovery near Prudhoe Bay, people danced in the streets in Fairbanks, some 390 miles south. Soon the state would build what was then the world's longest oil pipeline - 800 miles - and become rich enough to pay each resident an annual stipend. In 2000, ARCO was acquired by BP (BP); its Alaskan assets were divided by the British oil company and Conoco (COP, Fortune 500). Though Prudhoe, operated by BP, now pumps out 6% less each year, it is still by far the country's most productive field.
Conoco's Alpine field, 70 miles west, is the nation's fourth largest. The 100-acre facility is effectively a small town, with its own fire department, sewage treatment plant, medical clinic, and airstrip. Camp life is transient: most of the 400 workers rotate in and out every two weeks. When they're here, they work 12-hour shifts and sleep in small dorm rooms with two beds. Outside, workers' pickups idle all night in the parking lot; once you turn an engine off for any length of time, you may never get it started again. But no one is really roughing it. They have cable, daily maid service, and reliable BlackBerry coverage. The cafeteria even poached a chef from a luxury hotel in Anchorage a couple of years back to expand the menu beyond its staples of steak and French fries.
Elmer, Alpine's operations manager, splits his week between the North Slope and Anchorage. A Connecticut native who looks more like an accountant than an oilman, he admits his job is getting harder. Besides flooding the reservoirs with water and gas to help push oil to the surface, the other main way to keep production up is to, well, find more oil. And that means shooting seismic and, eventually, drilling, which is the only sure way to find the prize.
Char, about seven miles west of Alpine, is one possibility. Right now it's just an ice platform with a mobile derrick on top. Dearl Gladden, a rugged Texan with oil-stained coveralls and a thick grey mustache, is the rig's supervisor. Gladden needs to find evidence of 20 million to 60 million barrels underground for the company to consider building a facility, which can cost upwards of $500 million here. Last winter Conoco conducted exploratory drilling about 100 miles west of Char. After two dry holes, the company returned 300,000 leased acres to the state. "I'd like to think there's another Alpine out here," Elmer said, "but the future may be offshore."
Russia certainly thinks so. "The Arctic is ours, and we should manifest our presence," proclaimed Russian explorer Artur Chilingarov, after he planted a titanium flag on the seabed of the North Pole last summer. It was the climax of a research expedition to bolster Russia's claim over much of the Arctic. And predictably, it started a polar ice rush. The Canadian Prime Minister quickly announced plans for an Arctic military training facility, Danish scientists set sail to map the seabed north of Greenland, and even the U.S. Coast Guard dispatched a cutter on a similar mission north of Alaska.