Where is BP Going to Spend $1 Billion on Drilling?

BP PLC (NYSE:BP) has announced that it will spend $1 billion on Alaskan drilling over the next 5 years.

The oil company said it will use the money to upgrade existing facilities, increase drilling, and add two new drilling rigs in the Alaskan North Slope fields. The rigs are expected to be finished around 2015 and will increase BP’s Alaskan fleet to nine rigs. Alaska’s recent cut in oil taxes, including a 20 percent reduction in taxes on new oil produced, played a part in BP’s decision. BP has said that the new rigs will bring a combined 200 new jobs to the North Slope.

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BP, ConocoPhillips (NYSE:COP), and Exxon Mobil Corp. (NYSE:XOM) are the three major North Slope oil players. ConocoPhillips announced similar plans for expansion after Alaska’s governor Sean Parnell signed the tax changes into law last month. Exxon Mobile hasn’t announced its intentions yet, but there have been talks about an additional $3 billion in projects on the western end of Prudhoe Bay. Those plans include drilling up to 110 new wells. For any projects at Prudhoe to be completed, all three companies need to buy in.

The investment from BP will help Alaska pick up its declining oil production and compete with the lower 48 states, where new drilling techniques have helped support an oil boom and pushed Alaska’s oil production to the wayside. Alaskan oil production has been declining since the 1980s, and recently fell to fourth place for U.S. oil production back in March.

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“Our announcement today should make abundantly clear that BP is committed to being a part of (Alaska’s oil) future and to continuing to extend the life of North America’s largest oil field,” said BP Alaska Region President Janet Weiss. Weiss reflected cautious optimism about the project, recognizing that it would take many years to complete, and that economic changes could occur during that time that would render the project economically unfeasible. But for now, she says, BP is moving forward in the wake of Alaska’s recent tax cuts.

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