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Providing coverage of Alaska and northern Canada's oil and gas industry
September 2007

Vol. 12, No. 39 Week of September 30, 2007

BP protests proposed tax

Suttles says Palin’s plan makes Alaska less competitive when investment needed for existing fields, new developments

Kristen Nelson

Petroleum News

A study of government take by Wood Mackenzie released in June ranked Alaska among the least fiscally stable regimes in the world, BP Exploration (Alaska) President Doug Suttles told the Alaska Support Industry Alliance in Anchorage Sept. 27.

Alaska ranked 99th out of 103 regimes, Suttles said, ahead of only Venezuela, Russia, Argentina and Bolivia, and that, he said, was before a new tax, Alaska’s Clear and Equitable Share or ACES, was proposed earlier in September by Alaska Gov. Sarah Palin.

The debate over taxes which has just begun is about more than taxes, he said: “It’s about the future. It’s not only about revenues — it’s about jobs in Alaska. It’s about jobs for today, it’s about jobs for the next 20 years and it’s about revenues for the next 30.”

ACES would be the third tax increase in three years for the Alaska oil and gas industry, he said.

The severance tax or production tax portion of BP’s annual tax bill in Alaska for last year would have been $180 million under the old production tax, he said; under the tax passed last year, the petroleum profits tax, PPT, BP paid more than $500 million, tripling the severance tax portion of its taxes.

“It’s absolutely critical that Alaska be competitive,” he said, because all investors have choices, and Alaska already has the highest tax rate in North America, 50 percent higher than Alberta.

Renewal of infrastructure

The low ranking for Alaska on fiscal stability is an issue because “Alaska oil production is on decline: It can only be slowed with one thing — the next investment,” he said.

Suttles said BP is proud of 30 years of production at Prudhoe Bay, but infrastructure at the field, like infrastructure at oil fields worldwide, was built to last 25 years. BP is “talking about another 30 to 50 years.”

“We should be really clear,” he said: “This is not an issue of maintenance. This is about renewal. Oil fields cannot last forever and their equipment cannot last forever. Considerable new investment will be required to make these fields perform their purpose over the next 50 years.”

No “single solution” will unlock the 50-year future that BP talks about in Alaska, he said. “Gas will not be enough; exploration will not be enough; it will take action on every single front.”

Partnership will be required and “a tremendous amount of money, a tremendous amount of human energy and a tremendous amount of knowledge.”

Investment will be required in existing fields, along with investment in infrastructure and finding and developing new oil and gas fields, “plus the development of fields we’ve previously found but have been unable to develop to date.”

And new technologies will be required, along with developing a workforce for the future.

BP spend $1.9 billion in ‘07

BP will spend almost $1.9 billion in Alaska this year, more than $700 million of that in capital programs, Suttles said.

The investment in existing fields is crucial, he said.

“The largest new discovery on the North Slope every year is infill drilling activity at our existing fields, in particular at Prudhoe Bay,” with almost 800 new wells drilled at Prudhoe in the last 10 years. New reserves added at Prudhoe since startup, almost 4 billion barrels, would make it the second largest field in the United States and the second largest field in Alaska, larger than Kuparuk, he said.

Across the slope, BP drilled 73 new wells last year, wells which added more than 70,000 bpd.

Exploration is important to keeping up Alaska’s production, but Suttles said an equally risky area for the industry is technology. The company is working on a plan to develop the Liberty field which will require the longest extended-reach wells ever drilled: almost 8 miles. “There’s no guarantee we’ll be successful. This is no different than, for instance, taking chances with exploration: this is about taking chances with technology.”

Heavy oil is another technology-dependent development. BP drilled the first heavy oil well on the North Slope at Milne Point this summer, he said, the Coho No. 1 at Milne Point. The well will be put on production this summer as BP tries to prove up a technology called CHOPS, cold heavy oil production with sand, a technology being used in Alberta which BP is “trying to adapt to Alaska’s conditions and our oil reservoirs.”

This, he said, is just one of the programs needed to keep Alaska successful.

Wood Mackenzie study

Wood Mackenzie looks at more than just fiscal stability, the ranking Suttles used to highlight concerns about how attractive Alaska is for investment.

The study, “Government Take: Comparing the attractiveness and stability of global fiscal terms,” provides information on how government take changes. Wood Mackenzie said the “study provides both investors and resource holders with a thorough analysis of the current government take, from both existing production and new investments, in over 100 countries.” The report includes up-to-date summaries of fiscal terms for more than 100 countries; tables ranking attractiveness of government take from both existing assets and new investments; and an index of the volatility of terms.






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