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.
Comments (16)
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How about instead of offering lower royalty payments in hope of increased development we instead say that as deveopment is increased, the royalty rate would decrease? Otherwise, perhaps it is time for new players that are willing to act like capitalists, take risks, and earn just rewards.
Note to Legislature
The oil company reps " were extremely reluctant to promise they would provide new production, particularly above the current oil production rate".
It sounds like the Oil Companies agree - reducing taxes isn't going to help. Time to move on.
Parnell: Anyone want to buy my pig in a poke?
The oil companies refuse to provide information that has been requested. They refuse to define "meaningful." But they'll know it when they see it- just like something else.
They have been so used to having Bill Allen do their dirty work with the legislature in Room 604 that they don't know how to act in an open and transparent manner in the light of day.
They are making money in Alaska- meaningful, significant amounts of money.
Go Stedman, Hoffman, and Olsen. You represent Alaskans- Parnell "meaningfully" represents his former and future employer.
ps The oil companies won't commit to new production no matter how big the tax reduction is, because they can smell a huge gift from Parnell like a shark can smell blood in the water.
They want a reduction? The state can reserve X amount of the oil revenue stream in some type of tax incentive/credit account which is guaranteed to go to oil companies after they actually make the huge incremental investments that they claim will increase production.
Pig in a poke
ratfishtime - I think you have a customer who lives right here in Juneau - in a big white house
My hope is...
Over the past year the State Senate has invested a lot of time, money and effort to gather as much information and as many facts as they could regarding oil in Alaska. They have hired independent, objective oil consultants, they have listened to testimony including that of the oil companies. Their bill should be ready soon for the House to evaluate. It will the the product of a bipartisan Senate, and especially the Resources and Finance committee.
I hope this time the House does not try to rush through their proposals along strict party lines as they did last year with HB110. I hope that each member looks at the Senate bill in light of what is best for all Alaskans, and not just the oil industry or their political party.
I got an idea!
Give me 2 billion each year and I will hire, oh 15,000 Alaskans to do all kinds of cool stuff! Like work in schools teaching children, plowing roads, libarian stuff, making art, building buildings, roads, and hydroprojects, and all kinds of other great stuff to make Alaska a better place.
I promise: cross my heart and hope to die.
@Rough Cut
Why are your posts not visible to me? They appear as "..."
They STILL promise nothing in return!
Note the vague language of the big three; "...might increase production..." , "significant results...that are difficult to predict" , "maybe we could (increase production) but I can't give ya a game plan on how to get there..."
Translation: They promise nothing in return for us giving them $2 billion/year.
Ya know, tomorrow, I am going to my landlord and ask him, "Hey Joe, instead of $900/month, I want my rent to be $4/month. In exchange for the decrease, I might paint your entire building, install new carpet, and hell, I might even pave your parking lot. But I can't promise I'll do any of those things. It all depends on my cash flow for the month. Yes, I have billions of dollars in reserves, but that's tied up with other projects of mine, like bonuses I give myself every quarter. PLEASE Joe, I NEED this reduction, I really do! My Cadillac needs new sparkling rims and well, we're friends, aint we?..."
"...I mean, I know you could rent this place of mine for $1400/month instead of the $900/month I pay right now, but, if you lower it to $4/month for me, I can almost guarantee you big things!
What'ya say pal?"
Jo you just don't understand.
Our Governor said that the oil companies had "laid on the table" $14 billion dollars perhaps over ten or more years, if we just give them nearly $2 billion a year in tax reductions over that time.they may, or might or maybe repay our donation. No, they weren't promises, signed contracts, legal agreements.... just "items on the table."
Jo, maybe if you and I , like my father and many others years ago, shook hands and said, "This is what I promise I will do" and did it we would get along well. '
I remember growing up in a small town, and sitting at a 'soda fountain' in a drugstore next to me was the president of the local bank. It was decades ago when a thousand dollars was a great amount of money in the Midwest. The bank president said, if your father came into our bank today and said he wanted to borrow ten thousand dollars, we would give it to him with a handshake because his word is as good as any bank check. Those were the old days.
Time have changed. Its hard to get real handshakes a promises that are better than a bank's check.
What we get is is a Governor and oil companies saying, "Well just give us almost two billion dollars a year and we will see what we can do to repay your generosity." There aren't any handshakes between honest, trustful and reliable people - its like 'place your bets to see if I will do what I say or not.'
Jo, times have changed.
nostalgia
@Wally:
Yeah, nostalgia is great. But I'd prefer signed contracts if billions of dollars were on the table. Yes, times have changed.
And you're wrong. I think I understand everything that is going on here. It's greed. Greed only. Here's my perspective...
It's greed that motivates oil companies. And it wouldn't matter if our tax/royalty rates were the lowest in the world, the oil companies would still want them lower. It's what they do. They are insatiable.
And since they have a former employee/lobbyist in the Governor's seat, they know they have an ally and they are milking it for all it's worth. He said that tax cuts for big oil are his #1 priority this legislative session.
As such, a tax cut bill was rushed through the House with no real data to back it up. Thank God the Senate did its homework and realized that a majority of claims and information provided by our Governor and his oil buds were nothing more than lies, misinformation and scare tactics.
Typical.
It's all about greed.
And Alaskans woke up and see this for what it is, and we are screaming at the top of our lungs that we do not want ACES changed unless big oil can PROMISE increased production, increased throughput and increased revenue for us. They haven't promised any of this. And, what they hint at, what's on the table, is very, very vague and ambiguous.
And their collective past history has proven one thing: They can't be trusted.
And this is why handshakes no longer work.
Yes, time's have changed.
If we want to give them incentive to drill more, threaten to yank their leases unless they increase production by 20% and give the leases to their competitors.
Otherwise, leave ACES alone. Let them use their own billions to increase their own damn production. They don't need ours.
This is about greed only.
As oil goes up in price over
As oil goes up in price over time, that will be all the free-market inducement these hold-up artists need to "speed depletion", as they describe it. They are robbing us of the value of the remainder of the light "easy" oil in order to cover their development nut to get a jump on the NEW competitors lining up in Alaska. If the state is going to invest twenty billion on a dead-end "tax-incentive" scheme like this we would be better off using that capital to fund construction of the ANGDA B2F line to get Cook Inlet gas (that we DON`T HAVE TO TREAT!!!) to Fairbanks and the interior!!, and keep the tariff low for interior and railbelt gas-using Alaskans! ALL of them! At least that would return 12% per year to the state for the "20 billion investment"..rather than hope we see something in the next twenty years. That would be pure lunacy on Alaska`s part. When oil is 180 bucks a barrel you just watch them get those new gas/water treatment modules built. If I`m wrong please reply...If you agree reply anyway.
“The first step is to
“The first step is to increase the drilling pace,” Jepsen said". Wrong Mr. Jepsen. The first step is to build the B2F gasline to Fairbanks from Cook Inlet. The second step..decouple oil from gas taxes now while it`s all fresh in our minds, and before we tie our own hands or give away twenty billion dollars for nothing new, with a faulty tax concession based on fear and not facts. The TAPS line is only rated for 1.1 million barrels a day best case. Shell will bring in (700,000) barrels a day when it comes online. By then, worse case, we`ll be at a flow rate maybe (480,000 barrels a day from the unitized slope leases-estimating now..6% a year decline) from Prudhoe. Now that adds up to 1.2 million barrels a day WITHOUT us paying twenty billion for the governor`s mythical million barrels. I`d like to know where the Governor`s million barrels is coming from for one thing, and how is it going to get to market if there is no room left above the safe rated capacity of the TAPS line because of Shell`s 700,000 barrels of daily production? As long as Exxon/BP/Conoco are allowed to monopolize the Prudhoe "unit"`s water/gas treatment plant from fair access by Alaskan fiscal interests as they relate to new explorers and developers. That`s extortion in my book.
Oil
(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.),,,,,,,,,Sounds like blackmail to me..Their trying to wring out every last nickle they can before opening the taps a little more.Parnell should give them what they ask with the provision that the oil stays here.Then what ever we don't use then send it overseas.
Every dime
That goes back to the oil companies is a dime taken away from an Alaskan child or a Native elder. Say no to tax cuts for big oil. $130 a barrel is plenty for all.