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Black Gold: Alaska oil profits high, despite Palin-era taxes

ConocoPhillips reports much higher profits in Alaska compared to rest of the country

Posted: Monday, February 01, 2010

Alaska's big three oil producers and their allies are seeking tax cuts they say will make additional drilling in Alaska more profitable to the companies and could encourage more investment in the state's oil fields.

The companies have said high taxes are driving away investment, but they may be doing better in Alaska than they're letting on, however.

ConocoPhillips Co. data for 2009 released last week revealed that the company was highly profitable in Alaska but lost money elsewhere in the country.

ConocoPhillips' Securities and Exchange Commission filings are unusual among the state's oil producers because they provide specifics about Alaska operations. The state's other two major oil producers, BP and ExxonMobil Corp. haven't filed details about their Alaska operations.

For 2009, ConocoPhillips reported profits of $1.54 billion for its Alaska exploration and production operations, compared to a loss of $37 million for those operations elsewhere in the nation.

Other company operations, including refining and marketing, corporate overhead, chemicals and emerging businesses combined with the Alaska operations for a total company profit of $5.3 billion.

In Alaska, ConocoPhillips operates the huge Kuparuk oil field, the second-largest in the nation following Prudhoe Bay. It operates and has shares in other fields as well.

"It sounds like they're doing pretty well in Alaska, compared to the rest of the country," said House Minority Leader Rep. Beth Kerttula, D-Juneau.

"It is amazing how they try to tell us one thing, while their own reports show something else," she said.

Kerttula led House Democrats who allied in recent years with former Gov. Sarah Palin and some Republicans to revamp Alaska's oil taxes with the Alaska's Clear and Equitable Share act.

Brian Wenzel, ConocoPhillips' Vice-President of Finance for Alaska operations, said the profit disparity between Alaska and elsewhere in the United States were primarily due to the plunge in natural gas prices down south.

"ConocoPhillips' Lower 48 exploration and production earnings were negatively impacted by low 2009 natural gas prices. ConocoPhillips Alaska 2009 earnings are predominately from oil and LNG production with no impact from Lower 48 natural gas prices," he said.

The industry has recently been fighting back, running advertisements showing laid-off oil workers and blaming the tax increases that Wenzel said reached as high as 90 cents on each incremental dollar.

Rep. Charise Millet, R-Anchorage, has introduced legislation reducing the state's base tax rate from 25 percent to 20 percent, while Rep. Craig Johnson, R-Anchorage has introduced a bill for progressive taxing, where taxes increase along with oil prices.

It is that upside potential that oil companies bet on, spending money to drill new wells with the hope that they'll pay off big when oil prices rise, Helene Harding, ConocoPhillips' vice-president for Alaska North Slope Operations and Development said last fall.

Speaking to the Resource Development Council in Anchorage, Harding said that's the payday companies hope for when they decide where to invest their dollars. And that's what Alaska's tax reforms eliminated, she said.

"You take away the upside, (and) it is extremely hard to compete for dollars,' she said.

Department of Revenue Petroleum Economist Cherie Nienhaus said the state's tax law was intended to reduce oil taxes when prices decline to ensure Alaska remains a profitable place for business.

"I'm not surprised they are profitable despite the oil price decline, that's the way it was intended to work," she said.

Rep. David Guttenberg, D-Fairbanks, doubted reducing taxes would spur new development.

Under the old Economic Limit Factor tax system, many productive fields paid little or no tax regardless of development, he said.

"What economic development did they do when it was basically not taxed at all?" Guttenberg said.

Gov. Sean Parnell has come forward with his own proposal for tax reductions and incentives, but won't say how much it will cost or how much benefit it will bring.

Wenzel called Parnell's proposal "a step in the right direction," but said that to see long-term improvements in production and jobs the maximum tax rate will need to be lowered.

"Progressivity is one of their weakest arguments," Kerttula responded.

As ACES revisions to tax law were being crafted, the industry told the Legislature that the base rate was more important, but now they're saying the amount taken at high prices is more important.

"When oil is at astronomical prices, Alaskans deserve to benefit from that kind of windfall," Kerttula said.

Sen. Bert Stedman, R-Sitka, said the Legislature has begun a review of ACES, but that does not mean it will be changed.

"In the broader context we should always go back and look to see if it did what it was intended to do," he said.

• Contact reporter Pat Forgey at 586-4816 or patrick.forgey@juneauempire.com.



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