Study shows high profits for state oil

Report coincides with debate on whether to hike oil industry taxes

Posted: Wednesday, February 02, 2005

Despite the high cost of doing business in Alaska, the state is among the more profitable places to drill for oil in the world, according to an oil and gas industry report released on Tuesday.

After taxes, the state ranks among the top 30 percent of oil-producing regions for profitability, the report said.

The finding created a light buzz in the Alaska Capitol on Tuesday afternoon, and some said they were surprised at the state's high ranking.

"If you had the returns (the study) is talking about here ... you'd think there would be more investment" in Alaska's resources, said Judy Brady, executive director of the Alaska Oil and Gas Association.

The report came out as state leaders debate whether to restructure taxes on the oil industry. Gov. Frank Murkowski recently raised taxes on some North Slope fields. The governor's tax hike is expected to bring the state an additional $150 million a year, but Democrats are calling for further oil tax reform.

Brady and leaders of the Legislative Budget and Audit Committee said the study needs a thorough analysis.

"It's not fair to make any conclusions now," Brady said.

"We're still evaluating," said Sen. Gene Therriault, R-North Pole.

Therriault, chairman of the Joint Legislative Budget and Audit Committee, said the details released from the study on Tuesday "could very well be the one glimpse under the (study's) cover that the general public gets."

Getting access to the confidential study, conducted by global energy consulting firm Wood Mackenzie, cost the state $50,000. Legislators must sign a confidentiality agreement before they read the study. So far, only five or six legislators have signed the agreement.

While the bulk of the report is confidential, the consulting firm consented to disclosure of the findings released Tuesday.

The study ranks Alaska and other oil provinces more than 150 different ways. It is about two-and-a-half inches thick and "chock-full of information," Therriault said.

In 2002, Wood Mackenzie ranked Alaska highest among the oil regions in terms of costs to the oil and gas industry. But its status has changed somewhat in the latest study.

The 2004 study ranks Alaska as the seventh most expensive out of 58 oil regions.

The committee recently hired the state's former chief petroleum economist, Chuck Logsdon, of Palmer, to evaluate the study.

So far, the numbers on profitability and costs are catching the most interest.

In 2002, Wood Mackenzie ranked Alaska 55 out of 61 among the oil provinces in terms of profitability.

In 2004, the Edinburgh, Scotland consulting firm ranked Alaska 14 out of 53 among other oil provinces for profitability when oil sells at $35 per barrel. At $16 per barrel, Alaska was ranked 15 out of 49 oil provinces for profitability.

Rep. Les Gara, D-Anchorage, said those numbers aren't surprising and provide more evidence that Alaska is a "junior partner" with the oil industry. He noted that Alaska drew $1 billion less in oil revenues than the oil companies made in profits in the last fiscal year.

Gara is proposing legislation this session to reform oil taxes to bring more revenue to the state. "Money is flooding out of our state and nobody is doing anything about it."

Brady, executive director of the oil and gas association, said she is still reviewing the figures to see what they mean. She said her association's board was surprised by the 2004 findings on profitability.

"The board saw it and said - whoa, really?" Brady said.

• Elizabeth Bluemink can be reached at

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