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February 24, 2016 --- Vol. 22, No. 8February 2016

COP Alaska dodges cuts; proposed fiscal mods could change that

On Feb. 22, ConocoPhillips announced yet another capital spending cut for its worldwide oil and gas exploration and production operations. In anticipation of continued low oil prices, the Houston-based major reduced its 2016 capital budget from the previously announced $7.7 billion to $6.4 billion, a decrease of 37 percent compared with 2015 capital expenditures of $10.1 billion.

In Alaska, however, company officials still expect only a slight decrease in spending; so far, they are sticking with the $1.3 billion capex previously released, ConocoPhillips Alaska spokeswoman Natalie Lowman told Petroleum News Feb. 24.

"In late 2015 we announced a 2016 capital budget of $1.3 billion. In light of current oil prices, we expect to see a slight decrease but we haven't announced what that number will be," she said.

"However, in 2016 we anticipate levels of spending higher than our capital budget was in 2012 - prior to oil tax reform and when oil prices were in excess of $100 per barrel. Our decision to invest differentially in Alaska despite low oil prices has been positively influenced by tax reform passed in 2013 and ratified by the voters in 2014," she said.

ConocoPhillips Alaska's 2015 capital spend was $1.4 billion, "essentially on par with our 2014 capital spend of $1.6 billion. This compares with a 41 percent reduction in the corporation's worldwide 2015 capital spend," Lowman said.

Company officials, however, have expressed concern about possible increases in the tax burden imposed upon the industry by the state of Alaska,

Officials in Houston obviously keep a close eye on such changes when making spending decisions because in the parent company's annual report, filed with the Securities Exchange Commission Feb. 22, ConocoPhillips noted that in 2015, the United Kingdom enacted tax legislation that reduced its UK corporate tax rate by 12 percent, while Alberta enacted legislation increasing the company's overall Canadian corporate tax rate by 2 percent.

"Our management carefully considers these events when evaluating projects or determining the level of activity in such countries," the report said.

ConocoPhillips Alaska reported a 49 percent tax rate for 2015 and a 48 percent tax rate for the fourth quarter, paying a total of $673 million in taxes and royalties last year, of which $665 million went to the state of Alaska.

- KAY CASHMAN

See story in Feb. 28 issue, available online Friday, Feb. 26 at www.PetroleumNews.com

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