Oil companies ask for tax relief

Big three producers make no promises; get cool reception

Posted: Thursday, February 17, 2011

Alaska’s big three oil producers appeared before the Alaska Legislature Wednesday to support Gov. Sean Parnell’s call for reducing oil taxes, but didn’t provide the commitments for more oil production and jobs that he’d asked for.

MICHAEL PENN / Juneau Empire
MICHAEL PENN / Juneau Empire

Instead, representatives of ConocoPhillips Co., BP PLC and Exxon Mobil Corp. called tax reductions an “important first step,” but said they might be asking for more tax reductions later.

All three companies said Alaska needed to reduce taxes in order to win the competitions within their companies for crucial investment dollars that will help slow the decline of oil production and fill the Trans-Alaska pipeline.

The problem, said BP-Alaska’s Claire Fitzpatrick, was an inability under the state’s ACES oil tax law to make high profits at high prices, what she called “insufficient upside.”

That’s causing BP’s executives to look elsewhere for places to spend the $20 billion it expects to invest this year, she said.

“From where I’m sitting, Alaska is not winning that competition,” she said.

All the companies said the state’s tax law, Alaska’s Clear and Equitable Share Act, discourages investment in Alaska and that Parnell’s bill should be passed.

“We support his effort to reform ACES,” she said.

They offered only general comments about what that would bring Alaska, however.

“We would expect economic activity in Alaska to increase,” said Dale Pittman, Alaska production manager for Exxon Mobil.

Members of the House Resources Committee appeared largely skeptical of the presentations and the requests for more than $1 billion a year in tax reductions.

“I haven’t heard any convincing evidence from any speaker that the investment will come back to Alaska and there will be more Alaska jobs,” said Rep. Scott Kawasaki, D-Fairbanks.

The companies said tax increases in recent years — first the Petroleum Profits Tax, and then the new ACES tax — have already limited activity in Alaska, and presented a host of examples of declining activity that coincided with imposition of the taxes.

Wendy King, ConocoPhillips’ vice-president for external affairs, said the company turned back leased acreage to the state after the taxes increased.

“We went to being one of the largest acreage holders on the North Slope to not being one,” she said.

The companies repeatedly contrasted activity in Alaska, such as well drilling, with the amount of activity in other regions with more favorable tax regimes, ranging from North Dakota to Uganda.

Committee Co-chairman Paul Seaton, R-Homer, said the companies’ drilling had actually declined prior to the tax changes when many new fields were essentially untaxed under the older Economic Limit Factor tax system.

“We’re having a hard time making this link between ACES and the development wells, when the number of them went down prior to the enactment of PPT and ACES,” he said.

The companies, though, said they’d been investing heavily to stem the decline of TAPS flow. Normal field decline is typically 10-16 percent a year, but in Alaska billions have been spent to reduce that amount.

“Even with that investment of $3-4 billion dollars a year, we’ve only been able to deliver a six percent decline rate,” King said.

Still, they said their efforts and typical field dynamics are slowing the rate of decline.

“The decline now is the flattest that it’s ever been,” Pittman said.

New oil production from offshore or the National Petroleum Reserve could provide new flow for the pipeline, but committee member Rep. Cathy Mużoz, R-Juneau, asked if the new federal inventory of land for possible wilderness designation might affect that.

ConocoPhillips’ King said the company was studying that issue, and it might.

“It appears that it could affect things that we already hold as leases,” she said.

The oil executives also offered some criticisms of Parnell’s bill, saying in several areas it didn’t go far enough or take effect soon enough.

King said one of the bill’s key provisions, reductions in ACES’ progressivity, or the way it increases taxes when oil prices are high, may not start soon enough.

BP’s Fitzpatrick said going with Parnell’s proposed tax reductions would move Alaska up on the ranking of the best places for oil companies to do business, but she couldn’t say how far.

“Would I like to see it go further? Yes I would,” she said.

If the Legislature adopts Parnell’s bill but there is little new development, the Legislature can always come back later and reduce ACES even more, she said

“If that’s not made you competitive enough, you can make further changes to make it more competitive,” Fitzpatrick said.

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

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