Real promise’ met real challenges

Alaska: Early Frustrations Led to Later Success

American Association of Petroleum Geologists (AAPG)

The history of oil development in Alaska is often presented as a heroic tale, but long before the 1968 discovery of the Prudhoe Bay field (16 billion barrels and counting), the industry experience was marked by a great deal of frustration and failure.

The Bear Creek well drilled in 1957 by Shell and Humble Oil is representative of the high-stakes gamble that is oil exploration in the Arctic.

Like many other American oil companies, Humble Oil – a company today known as Exxon – expanded and diversified its operations in the 1950s, an era of economic growth and increased oil consumption. From 1947 to 1956, the number of Humble’s producing U.S. wells increased from 8,976 to 13,145. Expenditures for drilling in the same time period more than doubled from $50.5 million to $127.5 million.

Although most of this activity took place in Texas and the Gulf Coast, Humble also looked north to Alaska.

Pratt’s Prophecy

AAPG legend Wallace Pratt, Humble’s chief geologist and renowned sage of oil exploration, encouraged Alaskan development as early as 1944.

“A promising region is the Alaska Peninsula. Its accessible southern coast exhibits seepages of petroleum at Cold Bay,” he said. “Three successful test wells have been drilled on the peninsula [and] obviously further exploration is justified in this region.”

Humble sent geological and aerial survey crews to southwest Alaska from 1954 to 1956. The crews explored the coastline near the village of Cold Bay and observed an outcrop of Upper Triassic carbonates, a particular formation of exposed layers along the Bear Creek anticline, the angular unconformity of which suggested the subsurface geology might be an ideal trap for crude oil.

Surface seeps of crude had been found across the region for more than a century, which only bolstered Humble’s confidence.

On April 25, 1957, Humble formed a partnership with Shell, agreeing to drill three wells on Shell’s leases at Bear Creek, Ugashik Creek and Wide Bay in return for a 50 percent interest in the 250,000-acre field. Drilling on the Bear Creek No. 1 well began in September that year, and by the end of 1957 the well had reached a depth of 6,585 feet.

Humble’s annual report summed up the effort in a single sentence: “The remote location, severe cold and high winds have presented unusual difficulties.”

Humble President Morgan Davis (a past AAPG president) spoke to the Anchorage Chamber of Commerce in August 1958, proudly hailing the Bear Creek well and stating that Alaska had “real promise” in the oil business. Humble was eager, he stated, “to have a try at the riskiest and most expensive kind of hunting your state has to offer: wildcatting for oil.”

Davis’s visit came just as Alaska was preparing to enter the union as the 49th state. His confidence buoyed hopes for the economic future of Alaska.

“Our company’s policy has never dictated that we enter into an area such as Alaska on a short-term basis,” he said, “nor that we pull out if our first ventures prove unsuccessful.”

A Bad Choice?

Tough times were ahead for Bear Creek, however, and Davis would eat his words soon enough.

Of the five total drill-stem tests conducted at different depths, only one recovered a consistent show of crude oil. Humble geologists came to suspect the Bear Creek No. 1 well did not penetrate the Triassic strata associated with the exposed outcrop at Cold Bay. By March 1959, Humble and Shell agreed to plug the well.

At a total depth of 14,375 feet and a cost of $7 million, Bear Creek No. 1 was the most expensive dry hole in company history. A company vice president said simply, “We made a bad choice there.”

“The year 1958 presented many difficult problems for the domestic petroleum industry,” Davis dryly noted in a shareholder report. “Weak demand, large inventories and excessive imports created downward pressures on prices of both products and crude oil.”

The company’s exploration expenses decreased from $235.4 million in 1957 to $154.9 million in 1958, while the number of completed wells dropped from 867 to 557 in the same period. That the company was now drilling for oil in new, high-risk regions such as Alaska was reflected in the “dry hole costs,” which accounted for a record 45 percent of total drilling expenditures in 1958.

On July 19, 1960, Humble announced it was closing its Anchorage office and sending 11 of its 12 employees back to Houston. A lone scout would remain in Alaska to monitor the progress of the other oil companies exploring in the state.

“I can’t deny this indicates a definite downgrading of interest in Alaska by Humble,” stated geologist Fred Sollars, who cited the region’s high operating costs and the downturn in world oil demand as the principle reasons behind the move.

Delayed Gratification

Just four years later, however, Humble entered into a 50-50 Alaska partnership with the Richfield Oil Company of Los Angeles. And just four years after that, the companies drilled an exploration well on the Alaska North Slope near a small, unremarkable cove called Prudhoe Bay.

The discovery of the continent’s largest oil reservoir set off an exploration and development frenzy that transformed the intertwined histories of the oil industry and the state of Alaska.

Humble’s $20 million investment in 1964 would bring billions in revenue to the company in the ensuing decades. Furthermore, the success of Humble – renamed Exxon in 1973 – forged an inexorable bond between the company and the state, a partnership of sorts in which both parties found their respective self-interest (i.e., maximizing revenue) simultaneously aligned and in conflict.

To say that Exxon has exerted an influence on the history of Alaska since 1968 is an understatement. The reverse also is clearly true.

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Historical Highlights

Historical Highlights - Ross Coen

Ross Coen is a doctorate student in history at the University of Washington  where he studies the political and technological history of resource development in Alaska  and the Arctic. This article is excerpted from his 2012 book, “Breaking Ice for Arctic Oil,” which examines the history of ExxonMobil’s oil transportation systems in Alaska.

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