2001 RDC Annual Meeting: Following the Yellow Brick Road:
The Journey from Today to Tomorrow for North Slope Oil and Gas
President, BP Exploration (Alaska)
* Sound & visual special effects of wind & tornado, transitioning into Wizard of Oz video clip of house in tornado, ending with Dorothy saying, "Oh!"
I'm sure you all remember that scene from the "Wizard of Oz," when Dorothy's house was caught up in the cyclone.
Well just think of Dorothy's house as our company and the Alaskan oil industry in the late 1990s and early 2000. For about two years, we were caught up in a whirlwind of uncertainty driven by layoffs, low oil prices and the seemingly endless delays in my company's efforts to combine with ARCO.
Then, with almost the same abruptness as Dorothy's arrival in Munchkin Land, everything changed.
The BP-ARCO deal was resolved.
Oil prices rebounded
Natural gas prices and demand surged.
Oil and gas interests were aligned among the major owners in the Prudhoe Bay area, and a single operator agreement at Prudhoe set the stage for new cost savings and efficiencies.
The wicked witch was dead, and suddenly we found ourselves in a whole new world. Or, as Dorothy would say (speaking to stuffed Toto dog under arm), "Toto, I have a feeling we're not in Kansas anymore."
We're poised for a long journey ... a journey to the Emerald City and beyond.
That's where North Slope oil production will still be going strong in another 30 or 40 years, fueled by satellites and viscous oil development, new fields, new finds, new technologies.
It's a place where Prudhoe Bay has been transformed from the premier oil field of the 20th Century to the premier oil and gas field of the 21st Century, and gas from the North Slope is a cornerstone of America's energy supplies.
It's a place where all work is done safely, and where the environmental impacts of oil and gas development are a mere shadow of the impacts today ... which are a shadow of what they were only 20 ... or even 10 years ago.
It's a place where Alaska leads the world in oil and gas technology.
It's a place where oil and gas production continue to be a powerful engine driving Alaska's economy, spinning off real jobs and business opportunities and a steady stream of state revenues for the next generation, and the next.
It's a splendid place indeed. But from where we stand today, it's still somewhere over the rainbow.
How do we start for the Emerald City? ... How do we get there?
(from the audience) "Follow the yellow brick road." "Follow the yellow brick road." "Follow the yellow brick road."
(Campbell, partway down Yellow Brick Road ramp) Follow the yellow brick road?
(from the audience) "Follow the yellow brick road."
(Campbell, proceeding on Yellow Brick Road to cornfield & Scarecrow) Now which way do we go?
(Scarecrow, pointing, cross-armed) "Pardon me, but the southern route is very nice. It could be pleasant on the northern route, too."
(Campbell) Just what we need ... a clear choice. Who are you?
(Scarecrow) "You don't get to the theater much, do you? I'm the Scarecrow, and I'm the brains you'll need to get to the Emerald City."
(Campbell) And that means ... ?
(Scarecrow) "That means the technology you'll need to find and produce new sources of oil and reduce your impact on the environment."
(Campbell) What have you done for us lately?
(Scarecrow, arms crossed, hand to chin) "Well, let's see. I've made your facilities a fraction of the size they used to be, and I've shrunk the footprint of your developments by three-quarters.
"I've eliminated surface disposal of oil field wastes, and one day I'll virtually eliminate CO2 emissions from your facilities and show you how to use it to recover even more oil. I've given you 3D seismic testing to improve the odds of finding oil when you explore, and I'm working on 4D seismic so you'll be able to track the movement of fluids in the reservoir."
(Campbell) You da man, Scarecrow.
(Scarecrow) "Wait, I'm not finished."
(Campbell) Somehow I suspected as much.
(Scarecrow) "I've also given you extended-reach drilling so you could drill a well right here and hit a target the size of a witch's broomstick 2 miles beneath the Dimond Center, and it won't be long before I can stretch it to Potter Marsh. I've given you horizontal drilling to improve your productivity, and multilateral drilling so you can tap multiple targets from a single well.
"I let you steer a drill bit this way & that way (arm gestures) and track where it's going instantly from the surface. I'm letting you perform more & more of the functions of running an oil field remotely, so you can move functions off the North Slope and make your operations safer.
"So tell me, Richard, what have YOU done for us lately, other than go to receptions and cruise around town in your little sports car?"
(Campbell) OK, OK, I'm convinced. You must come with us to the Emerald City.
* Campbell & Scarecrow proceed along Yellow Trick Road to the Tin Man, accompanied by "Follow the Yellow Brick Road" music
* Campbell & the Scarecrow come upon Tin Man, who's holding an oil can & is squeaking, "Oil me ... please oil me." Campbell takes can from Tin Man & squirts around mouth, arms & legs.
(Tin Man) "Thanks, I needed that. I don't think we've met. I'm Tin Man, and I'm the heart of your operations in Alaska."
(Campbell) Do you mean Prudhoe Bay?
(Tin Man) "Well I don't mean Badami."
(RCC) Some people say the over the last 25 years you've become a clinking, clanking, clattering collection of caliginous junk.
(Tin Man) "That's rather rude, don't you think? Especially after I've already produced a billion barrels of oil more than people said was possible back then, and I've still got at least another 3 billion barrels to go.
"Hey, just think of me as the Dick Clark of the oil patch. I'm still strong and healthy after all these years, and as long as you and your partners keep me well oiled - so to speak - I'll still be going strong in another 30-40 years."
(Campbell) Why do I sense that "keeping you well oiled" is a euphemism?
(Tin Man) "Because you're very perceptive. With you and your partners spending more than $100 million a year to maintain and upgrade my safety and mechanical integrity systems, I'm getting stronger every day. That's more than half a billion dollars over the next 5 years!"
(Campbell) And it's even more than Bill Clinton spent on haircuts while he was President!
(Tin Man) "That's right, Richard. But if I'm going to stay strong & healthy enough to compete with other oil and gas fields around the world, you're going to have to make sure every dollar gets spent wisely."
(Campbell) I'll be sure to add that to my to-do list.
(Tin Man) "Having a single operator for me and realigning my oil and gas interests have opened up a whole new world of opportunities to make me safer and more efficient, to adapt to the challenges I face and to develop more of my little tin boys that you call satellites.
(Campbell) I must say, though, for someone who's healthy, you certainly seem to have a lot of gas.
(Tin Man) "And with all of the money you're spending so you can market it - projects like the gas-to-liquids plant in Nikiski and the gas pipeline study - I should be passing gas later this decade. I'll be the largest producing oil field AND the largest gas field in North America.
"Whenever you say it's time to start cutting loose with a few billion cubic feet a day, I'll be ready."
(Campbell) Whoa, I'll bet the Wicked Witch won't be the only one with a green tint when that happens, if you get my drift. I can see that we're certainly going to need you if we're going to reach the Emerald City.
* Campbell, Scarecrow & Tin Man proceed along Yellow Brick Road to Lion, accompanied by "Follow the Yellow Brick Road" music
* Lion jumps out from behind tree & roars ...
(Campbell, deadpan) I won't speak for the others, but I know I'm terrified. You must be the Ghost of Christmas Yet to Come.
(Lion) "You're mixing your metaphors, chief. I'm the Lion, and I'm the courage to compete for investments."
(Campbell) I didn't know we had to compete for investments.
(Lion) "You'd be amazed how many other people don't, either. They want the greatest returns on their own investments, but the concept of a company wanting to do the same thing doesn't seem to register. Funny, ain't it?"
(Campbell) Yeah, funny.
(Lion) "But if Alaska is going to continue to attract the investment capital it needs to develop its resources, provide job and business opportunities for Alaskans and generate revenues for the state, it needs to offer investors a competitive business climate.
"That means a stable fiscal climate and a reasonable regulatory regime ... one where the tax burden is fair, consistent and predictable, and the regulations enable responsible development. And it means having your own fiscal house in order with a long-term plan that balances out-go with in-come."
(Campbell) That sounds rather one-sided, doesn't it? I mean, don't the investors have some obligations, too?
(Lion) "Richard, it's almost as if you'd written the script. Of course they do. They need to support the communities where they do business by providing job and business opportunities for the people who live there. And they need to support local charities and encourage their employees to be involved in the communities where they live.
"Did you know that more than 86% of BP's Alaskan work force lives in Alaska? That's 5% more than last year, and the number is still growing. Last year, 259 of the 266 people BP hired here were already Alaska residents.
"And did you know that last year 83 cents out of every dollar BP spent on its Alaskan activities was spent in Alaska, and during the first quarter it was up to 86 cents? BP has also led the way in building oil field modules in Alaska."
(Campbell) I've heard those rumors ... but maybe it's just a fluke.
(Lion) "You're pretty cynical for a guy who walks around in a pair of ruby slippers. BP has taken the lead on a number of training programs designed to ensure Alaskans will have the skills they need to work in the oil and gas industry, and several years ago it adopted a new Alaska residency requirement for all new employees."
(Campbell) So it really is sort of a partnership between the state and the industry, right?
(Lion) "You're a quick study."
(Campbell) Why thank you. Shall we all go visit the Wizard?
* All four complete Yellow Brick Road loop back to podium to the music of "Follow the Yellow Brick Road." Scarecrow, Tin Man & Lion flank Campbell
(Campbell, from podium) Brains, a strong heart, the courage to compete for investments. With the three of them on our side, we've got the Emerald City in sight.
But we also face formidable challenges - roadblocks along our journey.
Roadblocks that threaten to derail our efforts to commercialize North Slope gas,
... to find and develop new fields, including satellites.
... to sustain oil and gas production on the North Slope for another 30-40 years.
... to ensure a steady stream of revenues to the state and provide long-term job and business opportunities for Alaskans.
... our efforts to reach the Emerald City and beyond.
Some of them are beyond our control. Things like fluctuating oil and gas prices. Fluctuating demand. The weather, and global politics.
But the greatest risks are those that we can influence.
* Witch slide, audio ... "I'll get you, my pretty, and your little dog, too."
(Scarecrow, to Campbell) "I thought you said she was dead."
(Campbell, to Scarecrow) That was her sister, the Wicked Witch of Depressed Market Conditions. This is the Wicked Witch of Increased Taxes on Oil & Gas ... she's worse than the other one was.
(Campbell, to audience) And she'll stall our development efforts and stifle investment if she gets her way and increases taxes on oil and gas production or reserves as a quick fix for Alaska's long-term fiscal problems.
This year, BP is investing a third more than we did last year, and twice as much as in 1999. We plan to invest at least $3.5 billion over the next five years.
We're drilling about 3 times as many new wells on the North Slope as we did in 1999. We're investing about $200 million developing satellites, supporting hundreds of Alaskan jobs in the process, and we'll increase satellite production ten-fold by years end. With more satellite drilling and development to come.
We've launched an aggressive exploration program in the NPRA, and we're working hard to transform the potential of new fields like Point Thomson and Liberty into new production.
Tinkering with oil and gas taxes once again will have a long-term chilling effect on all of these investments. And on the thousands of jobs they represent for Alaskans. And on the hundreds of millions of dollars in revenues they provide to Alaskan companies ... and on the billions of dollars of long-term revenues they could bring to the state.
The message would be, "Alaska is no longer open for business" ... and investors will get the message.
* Slide of apple tree throwing apples
Robert Frost once wrote that good fences make good neighbors, and maybe that's true in some instances. But it's not if you want to build a gas pipeline, and no matter what route you take, 2/3 of it is going to go thru your neighbor's property.
Legislating political barriers between Alaska and Canada won't build a gas pipeline. But it can bury one.
We've heard Alaska's preference for the southern pipeline route loud and clear, and we're listening. But with 2/3 of any pipeline to the Lower 48 destined to run through Canada, Alaska's neighbors will have an important voice in the discussion.
If Alaskans really want to commercialize North Slope gas, we'll accomplish a lot more through dialogue than through debate.
Marketing North Slope gas sooner rather than later is in everyone's best interests, but it won't happen if we spend our time glaring across the border at each other rather than working together to overcome the enormous commercial, technical and regulatory hurdles facing any project.
* Slide of poppy field
And there's the ever-present danger of allowing ourselves to be lulled into complacency ... lulled into thinking that as long as Alaska is rich with oil and gas resources, we don't have to compete with other oil and gas regions for the investments that will turn potential into prosperity.
(Scarecrow) "Lulling ... "
(Tin Man) "And taxes ... "
(Lion) "And glares ... "
(Campbell) Oh my.
But if we use our brains ... if we maintain a strong heart ... if we have the courage to compete ... if we reach the Emerald City, Alaskans will never have to wander far to find their hearts' desire.
Gas will be commercialized. New sources of oil and gas will be found and developed. Our footprint on the environment will nearly vanish. The state will have a strong and steady source of revenues. Alaskan workers will find good long-term jobs in the industry. Alaskan businesses will thrive.
And for generations to come, the people who live and work here and the companies that do business here will be able to say ...
* ... "Oh, Auntie Em, there's no place like home" (video clip of Dorothy holding Toto), continuing to "The End" & closing music of the movie