By Tim Bradner
BP hands over the keys on its Alaska oil and gas holdings and operations to Hilcorp Energy next year, and it will be a bittersweet moment for Alaskans who remember the company as a fixture in the state’s oil patch for 60 years. BP began its Alaska exploration in 1959 and discovered the super-giant Prudhoe Bay oil field on the North Slope in 1969 along with Atlantic Richfield and Humble Oil, now ExxonMobil.
Atlantic Richfield and Humble drilled the first discovery wells but BP was close behind on its nearby leases. Ironically, BP wound up with most of Prudhoe’s oil under its leases.
A walk through six decades of this history is a tale of pluck, sheer luck, the fortunes of timing, and a fascinating look at the geopolitics of the era.
BP was really the first major oil company to begin serious exploration on the North Slope in the early 1960s, in partnership with Sinclair Oil, a smaller company. A lot of dry holes were drilled but the companies persevered, although Sinclair gave up (to its subsequent misfortune).
Here’s the geopolitics behind this: BP, then half-owned by the British government (Winston Churchill engineered that to guarantee oil supplies for the Royal Navy), was the dominant oil producer in Persia, now Iran, along with Iraq and Kuwait. The locals were restless, though. BP got kicked out of Persia. Middle East oil producing nations were also talking about getting together to deal with the western oil companies. OPEC, the Organization of Petroleum Exporting Countries, was in the near future. BP saw the writing on the wall and started looking elsewhere.
A good solution was for BP to go to a safer political environment, the U.S., by gaining entry into the big domestic gasoline and fuels market. To do that profitably the company had to find its own source of domestic crude oil, however. American companies had Texas, California and other domestic producing basins locked up, so BP had to look for somewhere new, where competitors weren’t entrenched. Alaska fit that category.
A famous story within BP is that in the late 1950s a company director was on a London-to-Tokyo flight over the North Pole. While over northern Alaska he looked out the window at the landscape below. It looked a lot like parts of Persia where BP had found a lot of oil. According to the tale, the director asked BP’s geologists to take a look at Alaska. The company opened its office, staffed by explorationists, in 1959.
BP started exploring the slope on federal lands in the early 1960s, just before the state’s Prudhoe Bay area land selections, and by 1965 ARCO and Humble had become active in exploration. They drilled dry holes, too.
The oft-told tale is that is that ARCO and Humble were discouraged in their efforts, as was BP, and ready to call it quits. The Prudhoe test, on leases ARCO, Humble and BP had won in state lease sales was to be their last, and it was signed off on reluctantly by managements tired of wasting money drilling caribou pasture. But the result is history – a huge oil find, construction of the Trans Alaska Pipeline System, Alaska’s oil wealth and Permanent Fund, and or course our beloved Permanent Fund Dividend.
Back to BP’s strategic thinking: Having help find a huge oil deposit the company still needed to find ways to market its new domestic oil. The logical thing was to buy an established U.S. company, and BP did that in buying a major stake in the Standard Oil Company of Ohio, or Sohio, a very efficient marketing company with a solid position in the U.S. Midwest. As serious work cranked up on North Slope development and the pipeline in the early 1970s BP decided to have Sohio become its U.S. operating group, partly because of sensitivities of how a foreign company would be perceived in Washington, D.C., where important decisions were being made on the pipeline. Many older Alaskans will remember Sohio’s presence in Alaska in the 1970s and 1980s.
Eventually BP decided to buy all of Sohio and also changed the name to cemented BP’s identify as a U.S. company, although one with British roots. BP expanded its new Lower 48 gasoline, fuels and chemicals marketing under the BP brand, although the Sohio retail name was retained in Ohio because of local loyalty. In the decades since BP has grown into a major American energy company, thanks to Alaska, but it has also become a major employer, taxpayer and contributor to arts and charities in this state.
Back to the pluck and luck: Let’s once again thank Tom Marshall, now retired but in the early 1960s the State Geologist who pushed hard for the state to select the Prudhoe Blands as part of the state’s land entitlement under the Alaska Statehood Act. Marshall faced bitter opposition from many Alaskans who wanted the state to use its entitlement to choose lands near communities or in areas with mining prospects.
To them, the North Slope could have been on the moon. Even the oil industry was unenthused about the Prudhoe area and recommended the state use its entitlement to choose lands near Umiat on the southern North Slope. The U.S. Navy had found a small oil deposit there, and it seemed logical to look for more oil near where it had been discovered already. To the oil industry at the time, Prudhoe Bay was far away. The Umiat oil is still there, undeveloped.
Luckily for Alaska, Marshall, with the help of then-Commissioner of Natural Resources Phil Holdsworth convinced then Gov. Bill Egan that the caribou pasture at Prudhoe Bay had a lot of oil potential and was worth the gamble. Had Egan not listened, the Prudhoe area, then federally-owned, may well have eventually wound up in a wildlife refuge, probably as part of the Arctic National Wildlife Refuge.
Luckily, disaster averted.
Tim Bradner is publisher of the Alaska Economic Report and co-publisher of the Alaska Legislative Digest
