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Oil companies seek tax cuts, but promise little

Senate told cuts won't lead to 1 million barrels

Posted: March 22, 2012 - 12:11am

Alaska’s big oil companies appeared before the Legislature seeking tax breaks Wednesday, but reluctantly acknowledged that a tax cut proposal by Gov. Sean Parnell would not by itself get to his goal of 1 million barrels a day in production.

“I think the governor’s goal is very challenging goal, but that’s a good thing,” said Scott Jepsen, ConocoPhillips’ vice-president for external affairs for Alaska.

Pressed by legislators on the Senate Finance Committee on Wednesday, he and representatives of BP and Exxon Mobil said the change Parnell is proposing would make Alaska more competitive in seeking investment, but were extremely reluctant to promise they would provide new production, particularly above the current oil production rate.

And some expressed doubt it would even stop the decades-long decline in North Slope production.

North America’s biggest oil field, Prudhoe Bay, is still the best chance for getting more oil, they said.

“The first step is to increase the drilling pace,” Jepsen said.

Infill drilling, because of Prudhoe’s size, holds the potential for “some significant results.”

That’s difficult to predict, he said.

Jepsen said his company would be supportive of investing more in additional drilling to pump Prudhoe Bay’s remaining oil faster if taxes were lower.

In Prudhoe Bay, which is jointly owned by ConocoPhillips, BP, Exxon Mobil and others, it takes the agreement of the three big partners to approve big new investments.

ConocoPhillips operates the second-largest field, Kuparuk, which it co-owns with BP and other smaller players. Jepsen said both ConocoPhillips and BP, who have both been public in saying that they’d be more likely to invest more if taxes were lower, could do that without Exxon Mobil’s consent.

Sen. Bert Stedman, co-chairman of the Senate Finance Committee, asked if that field’s production, now at about 133,000 barrels per day, could be boosted to 250,000 to reach the governor’s goal.

Jepsen said it was unlikely with current technology.

“I don’t know that we could ever get to 250,000 barrels a day,” he said. I would hope with some new ideas maybe we could, but no, I can’t lay out a game plan to get there,”

One place where some gains may come is the West Sak field, which ConocoPhillips operates, but Jepsen didn’t provide specifics.

“After that you are getting into areas where you are getting into really pushing the ability to produce under existing technology,” he said. “I don’t mean to be too pessimistic.”

Reaching the governor’s goal will take developments in federal offshore waters, and the National Petroleum Reserve-Alaska, both places which Alaska’s severance tax doesn’t apply.

BP executive Damian Bilbao said whatever Alaska does, it should make sure the incentives of lower taxes apply to the existing “legacy” fields as well as new fields.

The Senate has been looking for ways to provide incentives for new oil production, but Bilbao said incentives should be aimed at additional drilling in places like Prudhoe and Kuparuk.

“It is those drilling rigs in those legacy fields each year that deliver the biggest discovery on the North Slope every year,” he said.

BP warned even Parnell’s House Bill 110, sidelined now for a more modest tax cut in Senate Bill 192, might not guarantee much.

Bilbao was adamant the state wouldn’t stabilize production at the current 600,000 barrels a day, without lowering taxes, but wouldn’t promise it under Parnell’s proposal either.

“The challenge to deliver a 600,000-barrel-a-day sustainable business is quite large and it is one that will not occur under ACES (Alaska’s Clear and Equitable Share),” he said.

He went on to say not only were taxes at high prices too high, but the state’s lowest 25 percent rate was also too high, he said.

That comment surprised Stedman. The 25 percent tax rate was what led VECO Corp. to bribe about 10 percent of the Alaska Legislature, and Stedman said he doubted it would be revisited.

“Guys went to federal jail over a 20-percent tax rate,” he said.

Exxon Mobil hasn’t pledged new investment as did its fellow Prudhoe Bay owners, but the company’s Dale Pittman said if Alaska lowered taxes, it would probably find more projects to invest in.

“More will immediately appear — there are more projects out there when we put on our engineers and geoscientists and technologists looking for those opportunities, they will come,” he said.

Sen. Joe Thomas, D-Fairbanks, said it didn’t sound like even Parnell’s tax proposal would hold Alaska oil production steady, and would do so at the cost of billions to the state.

• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.

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