BP budgets $1.2 billion for '09

Budget a 33 percent increase from 2008 spending in Alaska

Posted: Thursday, December 04, 2008

ANCHORAGE - BP is budgeting $1.2 billion in capital expenditures for Alaska in 2009, a 33 percent increase from current year spending, according to the outgoing president of the local subsidiary.

But the company also expects a 10 percent drop in drilling at Prudhoe Bay next year.

The figures came nearly a year to the day after Alaska lawmakers revised the state production tax code in November 2007, increasing the tax rate but also expanding exploration credits. But they also come amid global financial uncertainty responsible for slashing oil prices to below $45 a barrel, down from their peak of $144 a barrel in July.

While both factors will certainly contribute to oil company investment in Alaska over the coming year, the exact nature of cause and effect is difficult to predict. BP blamed tax changes for a shrunken budget in 2008, but ended up overspending during the year.

Speaking at the annual conference of the Resource Development Council in Anchorage on Nov. 19, outgoing BP Exploration (Alaska) President Doug Suttles said both factors played a role as the company decided which projects would receive funding this year.

"Some of those are no longer attractive in today's market conditions, under today's cost structure and also under today's tax structure," Suttles said.

Even though oil prices have only returned to 2005 levels, Suttles said "the profit potential at $50" is less than it was even three years ago. He said costs have increased 15 to 20 percent per year, while taxation around the world has become more onerous for industry.

In addition to BP, the two-day conference featured presentations from ConocoPhillips, Eni, StatoilHydro, Anadarko, Pioneer Natural Resources, Chevron and Exxon, as well as a host of officials speaking on topics related to resource development in the north.

It can be difficult to verify if business decisions stem directly from a single source, be it tax changes or low commodity prices, but Suttles said current conditions prompted BP to defer construction projects in western Prudhoe Bay this year, including $1 billion toward I Pad and other regional projects, and a $120 million gas partial processing plant.

As proposed, I Pad would tap viscous and light oil resources in the western region of Prudhoe Bay, while the processing plant at nearby Z Pad would receive three-phase production of oil-gas-water from four surrounding pads and separate out some of the gas to enhance oil recovery on the west side of Prudhoe Bay.

In announcing the 2008 capital budget in January, Suttles said BP planned to spend $800 million in capital expenses for Alaska in 2008, a 16.7 percent increase from the 2007 budget, but $100 million less than the company planned to invest before the tax. But on Nov. 19, Suttles said BP ultimately invested $900 million in Alaska this year.

The discrepancy comes from unexpected costs, not an increase in projects, according to BP spokesman Steve Rinehart.

"A couple of things happened this year that we didn't exactly anticipate," Rinehart said. "One was the investment in Denali. The other was the cost increase of the transit line project."

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