Alaska oil industry still reeling from pandemic crash even as prices recover

The price of North Slope crude largely recovered months ago from the unprecedented fall it took a year ago, but if a recovery is also going to occur in Alaska’s oil workforce it has yet to materialize.

Preliminary employment data for March from the state Labor Department indicates the industry is continuing in the other direction. Approximately 6,300 people were employed in the state’s oil and gas sector last month, which was in line with February but did not reverse a declining trend that has persisted since the start of the pandemic.

Following a near-term peak of 10,200 oil and gas jobs in February 2020, the industry has shed nearly 40 percent of its workforce; it is the largest drop among all of the industries the Labor Department tracks. But the recent decline in one of the state’s trademark industries is not an isolated incident. Alaska’s oil and gas workforce has contracted by 57 percent since peaking at an average of 14,800 jobs in 2014.

Alaska Oil and Gas Association CEO Kara Moriarty emphasized that while the operating companies would relish the ability to hire more workers again, what has happened in Alaska is reflective of the national picture.

Nationally, the industry peaked at nearly 199,000 direct jobs in 2015 and has had 133,000 through the first few months of 2021, a one-third drop in employment.

“When you have a price fall like we have from 2014 to today the companies just don’t have as much money to spend and it does force efficiencies and you just can’t drill as many wells when prices are where they’re at today compared to 2014,” Moritarty said.

The price for Alaska crude stood at $66.62 per barrel on April 19, according to the state Revenue Department and it has remained greater than $60 per barrel since early February — a return to where it started 2020 — but still far from the $100 per barrel-plus regime the industry enjoyed early last decade.

State labor economist Neal Fried said the simple price of oil is consistently the best indicator of pending employment trends in the industry. While shale production in the Lower 48 requires more constant and labor-intensive drilling activity, there is clearly no correlation between oil production and jobs in Alaska. Pre-pandemic employment levels are in line with the size of the industry when more than 1 million barrels per day were being produced on the North Slope.

Fried said the Labor Department’s definition of an oil and gas worker is quite narrow and is largely limited to employees of the producer companies and others active in exploration or field work, noting employment at Prudhoe Bay includes a host of support professionals, caterers, construction workers and security personnel, among others.

While the producers have made significant cuts to their collective workforce, first after 2014 and again since the onset of the pandemic, most of the job losses have been with oilfield service contractors and support companies, according to Fried.

“The producer part of the industry changes more slowly,” he said, adding that “right now it’s pretty ugly” in the oilfield support business.

Alaska Support Industry Alliance CEO Rebecca Logan said the impact of the negative employment trend is exacerbated by the fact that the state is losing some of its highest paying jobs.

“It impacts everyone in one way or another,” said Logan.

She generally agreed that the support companies that work on the North Slope have felt the brunt of the cuts via less work from the producers.

“You had work stop when oil just hit rock bottom and went below zero (last April). That was the death knell and we haven’t recovered from that,” she said.

Doyon Drilling felt the pandemic directly last April when ConocoPhillips informed company leaders that it would lay down its contracted drilling rigs to limit the risk of spreading of COVID-19. The rig de-mobilization came amidst $400 million in cuts to ConocoPhillips’ 2020 capital plan, which previously was approximately $1.5 billion.

In early February 2020, Doyon Drilling had 470 employees, according to spokeswoman Sarah Obed, a figure that fell to just 110 by mid-May. The company now employs 222 workers, Obed wrote in an email. ConocoPhillips gradually resumed its drilling program last fall.

In contrast, Logan said some of the companies that work more peripherally in the industry, such as logistics and shipping firms, are thriving and she expects the industry to eventually recover at least to pre-pandemic levels because of a small flurry of yet-to-be-developed oil discoveries in recent years.

“There’s a very viable industry here,” she said.

ConocoPhillips has approximately 1,000 workers in Alaska after a reduction in February of nearly 100 positions across all functions of the company related to a restructuring stemming from the company’s recent acquisition of Texas-based shale operator Concho Resources, according to spokeswoman Rebecca Boys.

She wrote via email that the company’s current workforce is “more than sufficient” to advance ConocoPhillips’ existing suite of capital projects, which includes the 100,000 barrels per day-plus Willow project, several smaller satellite prospects and development projects within the Alpine and Kuparuk fields.

Boys added that the past year has emphasized the need within ConocoPhillips to “stay focused on cost and become more efficient in what we do. The company must be set up to succeed long-term and be able to provide jobs long-term — across industry cycles and during energy transitions. That said, we will look to grow our workforce accordingly with our projects.”

Economist Ed King of King Economics Group and a former state economist said in an interview he believes when several of the current North Slope oil prospects become construction projects — such as Oil Search’s Pikka and Hilcorp’s Liberty prospects in addition to those held by ConocoPhillips — the industry will begin adding jobs again.

An outlier, Oil Search bought into Alaska in 2018 when it took over as operator of the Pikka Unit Nanushuk prospect from Armstrong Energy, has added jobs to the industry and currently has about 150 employees in the state, according to spokeswoman Amy Burnett. However, the Australian producer had about 180 Alaska workers a year ago and has since scaled back its development plan for the large Pikka project.

“I don’t think that where we are today is the new normal,” for Alaska’s oil industry, King said. “Now that we’re back up in the $60s (per barrel) we should see employment and investment return to where it was two or so years ago.”

Longtime Alaska oil and gas attorney and fiscal analyst Brad Keithley sees less reason for optimism in Alaska’s oil fields. Keithley said that largely through 2015 Alaska was a “big project state” with Shell concluding $7 billion of offshore exploration in the Chukchi Sea; ExxonMobil developing the $4 billion Point Thomson gas field; and the major producers also investing significantly in the Alaska LNG Project at the time.

He questions whether the market conditions will ever materialize again for multiple large-scale projects like those to occur simultaneously.

While Alaska’s political leaders have blasted the growing contingent of large banks that are choosing to formally eschew Arctic oil and gas projects, Keithley said he believes more basic market factors could challenge Alaska’s oil industry for the long-term.

The development hurdles of high upfront capital requirements and in some cases decade-long lead times from first discovery to production that have always challenged North Slope operators are likely to become ever-more apparent as the future of oil demand gets increasingly blurry, according to Keithley.

He expects ConocoPhillips to see its Willow project and others through as the oil major has bet big on the state in recent years, but he’s unconvinced current prospects are as likely to become producing fields.

“We’re getting good geology announcements. What I’m waiting on is financial announcements,” Keithley said.