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FAIRBANKS - Alyeska Pipeline Service Co. this week announced major changes as it looks to shed costs, saying it will shift hundreds of jobs to non-union contractors and look to reduce office space in Fairbanks and Valdez.
Roughly 300 positions at the firm will no longer be represented by unions as the company shifts to non-union subsidiaries of the Arctic Slope Regional Corp., the regional Alaska Native corporation based on the North Slope, Alyeska President Kevin Hostler said.
Alyeska also plans to consolidate offices, first in Fairbanks and then in Valdez, Hostler said. One or two of the firm's four Fairbanks offices could shut doors within a year or two, he said.
"Let's be frank," Hostler said at a luncheon in Fairbanks. "That means some people from Fairbanks and Valdez will be relocated to Anchorage."
Hostler characterized the changes as part of a broad response to rising costs, including property taxes, and falling oil volume in the pipeline.
With throughput on the line expected to keep falling, the company's marginal costs - the costs of operation per barrel of oil - are expected to keep going up, Hostler said.
"We're trying to be as efficient and effective as we can," Hostler said, calling the restructuring a "wake-up call" to a statewide economy that leans heavily on the oil business.
The labor change involves contracts covering maintenance and operation of the 800-mile pipeline system. ASRC Energy Services will be the primary maintenance
Doyon, the Interior regional Native corporation, will continue to provide security, catering and fire protection services, Hostler said.
The changes mean three of the firm's main contractors - Crowley, Doyon and Houston - use union labor, while ASRC Energy Services is non-union, Alyeska said.
While details of Alyeska's announcement were still emerging Wednesday, Jim Laiti, president of the Alaska Petroleum Joint Crafts Council, was ready to say the changes likely will shift work for Joint Craft union workers away from Fairbanks and Valdez.
"These are jobs that our folks have performed well over the last 30 years, and I expect (it) will have a direct economic impact on our communities," Laiti said.
The changes will save Alyeska "significant" sums on labor costs, Hostler said. He told guests at a mid-Wednesday luncheon that the firm has cut 60 staff or contractor positions and $100 million from its 2010 budget. The company employs roughly 1,500 people directly or through contracts.
The office centralization would, at least in part, reverse a trend by Alyeska in the late 1990s when it expanded its office presence in Fairbanks and other spots closer to the pipeline system, said Greg Jones, a senior vice president at the firm. The company's executive offices are in Anchorage, although the 800-mile pipeline lies hundreds of miles from the city. That expansion eventually left the company with some long-term inefficiencies, such as engineering and project teams that perform similar tasks from different offices around the state, Jones said.
"There's a premium you pay" for such expansion, he said.
The firm also has seen increased maintenance costs on the pipeline, Hostler said. The system was built to carry up to 2 million barrels of warmed oil per day between the North Slope and Valdez. The line is only one-third full, which makes for slower throughput - a barrel of oil used to take four days to travel south to Valdez but now takes three times that long - and creates costly technical challenges, Hostler said.
Hostler said Alyeska will continue to invest in Alaska despite the reorganization. It is replacing four pump stations, for example, and is spending $10 million throughout two years to study the impact of lower volumes on the pipeline's efficiency.
While North Slope production has slowed significantly, oil companies are actively exploring the Chukchi and Beaufort seas for new finds. But Hostler said even offshore production will take years to hit the pipeline, and Alyeska had to make choices based on certainties.
"This is difficult news," he said. "But we're in a difficult challenge."
The changes come as some industry watchers raise red flags about declining oil production in Alaska and the potential long-term ramifications to the state's economy. Without new oil production, the line could outgrow its useful life in roughly 20 years. More than four-fifths of state government spending comes from oil taxes.
The Alaska State Chamber of Commerce has asked the state Legislature to rework taxes and encourage oil development and production, and some lawmakers have suggested the state may need to spur investment in companies looking at one day tapping abundant but tough-to-develop "heavy oil" basins on the North Slope to keep the pipeline full.
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