February 18, 1999 --- Vol. 5, No. 8February 1999

BP wants less regressive taxes

Sir John Browne, CEO of BP Amoco p.l.c., told the Institute of Petroleum in London Feb. 16 that tax regimes like those in Alaska are barriers to new activity.

Browne was talking about current low oil prices and commented that "at these prices there is no excess economic rent, and there are no windfall profits.

"That means," he said, "that at these prices the continued existence of a separate tax regime for oil and gas in areas like North Sea and Alaska - above and beyond a standard corporation tax charge on profits - is a barrier to new activity and is therefore a tax on investment and employment. A change in that approach to taxation would provide a real encouragement to the development of the remaining resources in the North Sea and in a number of other places around the world. I think it's important to make that case, as clearly as possible, but of course it isn't a solution in itself."

BP Exploration (Alaska) Inc. spokesman Paul Laird said that in general BP's concern with the Alaska fiscal system is "that three out of four kinds of taxes we pay in Alaska are regressive. That is," he said, "they're based on the wellhead value of the oil and the state's take as a percentage of the wellhead value of oil gets higher and higher as the price of oil gets lower and lower" and as industry's share of profits on the oil also get lower and lower.

The regressive taxes, he said, include the production or severance tax, royalties and property tax. The only tax with a basis in profitability is the corporate income tax.

Laird said that in a low-price environment "that kind of taxation discourages investment here."

He said BP doesn't have a specific proposal for fixing this regressive tax situation and hasn't discussed with anyone a specific proposal, but that the company thinks "it's in our best interest and the state's to look at the long term and work on a way to make Alaska's fiscal system more competitive at low oil prices."

BP cuts Alaska budget by one-third

BP Exploration (Alaska) Inc.'s overall spending in Alaska for 1999 will be $1.6 billion, down a third from $2.4 billion for 1998. The company has said that its Alaska operations must be cash neutral in 1999, with income matching outgo.

"Capital is going from about $750 million in 1998 to about $400 million this year," BP Exploration (Alaska) spokesman Paul Laird told PNA Feb. 18. The primary components of that reduction, he said, are the Northstar module construction deferral, the deferral for at least a year of Liberty (BP's proposed offshore project southeast of Endicott), drilling reductions announced earlier and a slower pace of Schrader Bluff viscous oil development.

Shared Services Drilling, Laird said, is now projected to drill only about 50 penetrations in 1999, down from 130 penetrations projected earlier.

While development work at Schrader Bluff is not being suspended, he said, only one new well and three sidetracks are planned in 1999.

Laird said the $400 million in capital spending for 1999 includes: Northstar gravel work, which is contingent on getting the Corps of Engineers permit in time to do that work this year; drilling; and BP's share of the completion of the Prudhoe Bay MIX project and the Point McIntyre enhanced oil recovery project.

The rest of the spending, Laird said, is on lifting costs, overhead, taxes and transportation. Taxes and royalties, he said, are going down because of lower crude oil prices and lower production; transportation costs are going down because of lower throughput; and lifting costs are going down because of efficiencies.

Worldwide, BP Amoco will spend $7 billion in 1999, down from $10.1 billion in 1998.

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