Alaska Oil Finds Spark Talk of `Texas North'

THIRTY years ago, before anyone knew about North Slope oil riches, this one-time Russian settlement and the nearby city of Kenai were the center of the Alaskan oil industry.

Fields in and around Cook Inlet were the state's industry. The first producing fields were credited with convincing Congress in the 1950s that the ``last frontier'' had the economic wherewithal to become a state.

The supergiant Prudhoe Bay field, discovered in 1968, and the flow of North Slope oil through the Alaska pipeline, which now delivers a quarter of all domestically produced oil, dwarfed the inlet's 15 oil and gas platforms. By 1991, the North Slope produced more than 1.8 million barrels a day, state reports say, while inlet production dwindled to some 36,000 barrels.

Again, the inlet is in the spotlight. This spring, Arco Alaska Inc. and partner Phillips Petroleum announced that their 1991 Sunfish inlet find could hold up to 750 million barrels of recoverable oil, making it the first inlet discovery since 1965 and one of the nation's largest. It could produce 100,000 barrels a day, Arco reports. Details came after Arco and Phillips dominated a state oil- and gas-lease sale for inlet tracts, driving bidding up to $65 million. The January sale was the third-richest in Alaskan history.

``I guess if there's any surprise, it was when they announced the size,'' said Don Gilman, Kenai Peninsula's borough mayor.

Now the borough, which had struggled through seasonal unemployment of up to 20 percent, plans for modest growth, he said. But despite a construction spurt and home values appreciating by 0.5 percent monthly, he believes that no economic explosion is imminent. Newcomers are likely to take seasonal work from residents finding jobs in the oil-enhanced economy.

This contrasts with sometimes-hyperbolic forecasts that a boom is near. In 1980, for example, presidential candidate Ronald Reagan cited experts who proclaimed that Alaska ``has more oil than Saudi Arabia.''

Most frequently, pro-development ``boomers'' have promoted drilling in the 19 million-acre Arctic National Wildlife Refuge as the state's salvation. Environmentalist ``greenies,'' though, say the coastal plain is critical to the Arctic ecosystem and should be protected. So far, Congress has not opened the area to drilling.

Probably bigger than Sunfish is Arco's Kuvlum find 16 miles out in the Beaufort Sea. Arco and its partners, including Phillips, estimate that it could hold up to 6 billion barrels of recoverable oil, making it perhaps North America's second-largest field after Prudhoe Bay, 60 miles east and holding some 12 billion barrels.

Kuvlum would be the first outercontinental Alaskan shelf production if it comes on-line, the world's first in Arctic pack ice, and production would require a 60-mile pipeline to the Alaska pipeline. But it would make other coastal finds east of Prudhoe Bay more feasible, experts say.

Arco and Phillips last year also announced a major find at their Colville High prospect west of the Kuparuk River field, now North America's second-largest.

With 12 exploratory wells planned this year, Arco has led the search for Alaskan oil, which accounts for 60 percent of its worldwide production. Its West Coast-based shipping, refining, and retailing operations are tailored for North Slope crude.

``Alaska is a marvelous, proved oil and gas province, which is still only lightly explored,'' Lod Cook, Arco's chairman, said in April as he described Arco's $3.4 billion 1993-97 capital plan for Alaska.

Arco now wants the Legislature to replace its incremental-leasing policy with an exploration-licensing plan that would open more land to quicker exploration. But this has upset Arco's Prudhoe operating partner, BP Exploration (Alaska) Inc. Although Alaska makes up half BP production, the firm doesn't have the cash to equal Arco's Alaskan commitment. Many other firms oppose Arco's proposal that a hefty performance bond be attached to exploration licenses.

Still, BP and Exxon, Arco's main rivals here and owners of 50.6 percent and 21.7 percent of the Prudhoe field, respectively, have boosted exploration. This year, BP is drilling or participating in five North Slope wells, making it the busiest season since 1985. Its 1993 Alaskan capital budget was 10 percent higher than the 1992 one. Last winter, Exxon drilled its first Alaskan exploratory well since 1986. A second one is planned by 1995 at the site northwest of Kuparuk, Michael Smith, Exxon's Alaska manager, said.

BP and Exxon have ceded Cook Inlet to Arco, Phillips, and other companies with experience there or the ability to take advantage of less expensive, non-Arctic conditions. Even small independents can afford to operate there; tiny Stewart Petroleum made a find in 1991.

The prospect of an inlet oil boom makes some residents anxious about a possible ``Texas North.'' They say the area lacks many environmental controls, such as tug escorts for tankers, which were imposed after the 1989 Exxon Valdez spill.

Environmentalists also say drill-waste regulations imposed on offshore sites elsewhere don't apply in Alaska. Technology that injects drill wastes into North Slope earth is not available in the inlet. Managing drill waste will be taken up next year when the Environmental Protection Agency renews inlet-drilling permits.

Mayor Gilman says if oil development hasn't hurt inlet fisheries, drilling can be controlled to protect the environment. ``If there was any major degradation of the inlet, I think there's a major way that would be noticed.''

But southern Kenai Peninsula residents have protested state plans for January's inlet lease sale. In response, the usually pro-oil Kenai Peninsula Borough Assembly Sept. 7 decided to ask the state Division of Oil and Gas to drop all southern tracts from the sale. The state has already deleted some acreage from it.