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State faces long road to 1 million barrels

Posted: February 16, 2012 - 12:12am
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Gov. Sean Parnell discusses oil taxes at a news conference in the state Capital building on Tuesday. The topic is currently being addressed in the Senate.  Klas Stolpe
Klas Stolpe
Gov. Sean Parnell discusses oil taxes at a news conference in the state Capital building on Tuesday. The topic is currently being addressed in the Senate.

JUNEAU — Alaska’s governor has set an audacious goal of nearly doubling the flow of oil through the trans-Alaska pipeline within a decade, saying a production increase is vital to the state’s economy. It’s bold, given production has been trending down since hitting a peak of 2.1 billion barrels a day in the late 1980s.

Part of Gov. Sean Parnell’s plan to do that, reducing taxes on oil companies to spur new development, began being dissected in earnest this month at the Capitol by a skeptical Senate, which refused to take up his bill last year and is working on its own version this year.

A public relations battle also is being played out on the state’s airwaves.

TV ads, such as one by ConocoPhillips, reference both the goal and tax changes. Reaching the goal “will take the state and the industry working together to make it happen, because the investments of the past cannot sustain our economy in the future,” the narrator in the ConocoPhillips’ ad, “Commitment,” says. She adds that with the “right business climate,” the company looks forward to another 50 years in the state.

ConocoPhillips and executives from the other two major producers, BP and Exxon Mobil Corp., submitted testimony for a Wednesday committee hearing on the tax issue.

Dale Pittman, Alaska production manager for Exxon Mobil, in a letter said the company is committed to Alaska, but added the production tax is too high to stimulate the additional investment needed to fully develop Alaska’s oil and gas resources in the coming decades.

While the tug-of-war between Parnell and the Senate plays out at the Capitol, the only thing clear is that achieving Parnell’s goal — if even possible — won’t be easy or entirely within the state’s control.

Lawmakers agree that stemming the production decline is important to the state’s future. Parnell’s Natural Resources Commissioner, Dan Sullivan, said that without federal support for development, meeting the governor’s goal will be very difficult.

Most of the land in Alaska is federally owned, and federally-controlled areas, like the Arctic National Wildlife Refuge, which is currently off limits to drilling, are included in the administration’s road map for hitting 1 million barrels a day. A group of state lawmakers traveled to Washington this week to urge passage of a U.S. House bill that would allow for drilling on the refuge’s coastal plain.

Parnell said he’s focusing on state resources right now, because that’s what the state has control over. The road map Sullivan has laid out — which he said is one of many possible scenarios — calls for developing state and federal resources and additional industry investment of “tens of billions of dollars.”

Sullivan has said investment, ideally, would come from all types of companies, including the majors, and new or increased production from legacy fields, like Prudhoe Bay, unconventional oil plays, smaller conventional pools and federal on-shore and offshore lands.

A consultant to the Legislature, Pedro van Meurs, this week said that the goal is attainable with resources on state lands only but would require major policy and fiscal changes, on an order greater than Parnell has even proposed, and at least $7.5 billion a year more than current levels in industry investment.

Estimates suggest vast stores of remaining oil and gas on the North Slope alone. While a focus has been on conventional, lighter oil, there is also, by one estimate, perhaps 20 billion barrels of known resource in heavy or thick oil in the region, but that’s tougher and more expensive to extract. Shell hopes to begin exploring in the Arctic this summer, but Sullivan has estimated that development from the region could be a decade off.

Parnell said companies have pledged at least $5 billion in new investments under his tax cut plan. Van Meurs said the three major oil companies are currently in what he calls harvest mode, which means they’re taking money from Alaska projects and reinvesting elsewhere.

Companies have complained that the state’s take, when oil prices are higher, is excessive and discourages new investment.

Sen. Tom Wagoner, R-Kenai, and co-chair of the Senate Resources Committee, has called Parnell’s goal artificially high.

He said Wednesday that he’d like to stem the production decline and level production to about 600,000 barrels a day. At that level, with current oil prices, the state should be OK financially, if it limits spending, he said.

Rep. Eric Feige, R-Chickaloon, co-chair of the House Resources Committee and a supporter of Parnell’s tax plan, said such a goal was good for Alaska.

“We have a lot of creative people in this country, and you throw that goal out there, and provide the conditions where it’s possible, people will certainly do their best to see if they can do it,” he said.

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