Alaska’s most important oil company is telling the Legislature while it makes good money in Alaska under current tax rates, the state is going to have to make it even more profitable if it wants to increase its chances of more investment.
ConocoPhillips Alaska Vice President for External Affairs Scott Jepsen told legislators what is particularly troubling to the company when it makes investment decisions is the “progressivity” in Alaska’s Clear and Equitable Share Act oil tax regime.
ACES’ progressivity means tax rates go up when profits rise, and that makes the state less likely to attract investment, he said.
“ACES puts a haircut on your long-term profitability,” said Jepsen, discouraging investment in Alaska in favor of more profitable jurisdictions.
Under questioning from Sen. Bill Wielechowski, D-Anchorage, Jepsen acknowledged the company told Wall Street it was making “very good returns” on investments it was currently making in Alaska.
To encourage more development, though, the state should reduce taxes at high profit levels, he said.
“You can have a project that had a good rate of return,” but doesn’t get approved because “you don’t see the kind of upside you see elsewhere,” Jepsen said.
That’s because of Alaska’s progressivity, said Bob Heinrich, ConocoPhillips Alaska vice-president for finance.
“Progressivity is the problem, from ConocoPhillips perspective,” he said.
Even lower taxes are not always enough, Jepsen said. Sometimes there are problems with getting permits for projects, while other times there are projects the company would like to do but the camps are already full of workers busy doing other things, Jepsen said.
“There are a lot of people on the (North) Slope right now, bed space is at a premium,” he said.
Jepsen declined to identify projects that have been stopped by ACES, or to provide specific returns the company needs to justify new projects.
He called that information “proprietary.”
Jepsen also declined to promise any new projects if Parnell’s proposal is adopted, but said it would likely change the risk-reward ratio overall.
Even Parnell’s House Bill 110, now stalled in the Senate, may not be enough, he said.
“We view the governor’s proposal as a good first step,” he said.
ConocoPhillips is the largest oil producer in Alaska, operating the Kuparuk and Alpine fields and owning a share of the huge Prudhoe Bay field. It recently won federal approval to develop the CD5 development west of Alpine in the National Petroleum Reserve-Alaska.
Alaska has been trying to spur new exploration, with some apparent success, with Parnell saying he also wants to provide incentives to the oil companies to pump the remaining oil from the state’s aging reservoirs at a faster rate.
Jepsen agreed that was the best way to boost production.
“There’s no better place to look for oil than where you’ve already found it,” he said.
Jepsen also provided an update with what ConocoPhillips was doing with the fields it already operates, including Kuparuk, where it is learning how to develop its viscous and heavy oil at the West Sak Field.
“They’re just extraordinary challenges from a commercial and technical perspective,” Jepsen said.
Lower taxes may mean more development there, he said.
ConocoPhillips also discovered the Alpine field on the western North Slope, and is continuing to expand and develop it, Jepsen said.
It was the largest onshore discovery in the U.S. since the 1970s.
Resources Committee member Sen. Hollis French, D-Anchorage, used the discussion of Alpine to mention that he’d toured it a number of years ago.
French, a critic of Parnell’s tax cuts, said he still remembered who it was who showed him around Alpine.
“A guy named Sean Parnell was our tour guide from ConocoPhillips,” French said.
After Parnell served in the Legislature in 1990s he worked as ConocoPhillips’ governmental affairs director in Alaska.
• Contact reporter Pat Forgey at 523-2250 or at firstname.lastname@example.org.