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Van Dyke report on industry upbeat Revenues soar; State of Alaska, ExxonMobil in arbitration over marine transportation costs; viability of areawide permitting questioned Alan Bailey Petroleum News
In a presentation to the House Oil and Gas Committee on Jan. 18, Bill Van Dyke, acting director of Alaska’s Division of Oil and Gas, reviewed his division’s activities during the past year. Van Dyke highlighted a big jump in state oil and gas revenues during fiscal year 2005.
“In FY05 royalties, bonuses, rents and settlements contributed $1.9 billion … and almost $500 million to the Permanent Fund,” Van Dyke said. “FY05 was a big jump from FY04.”
In calendar year 2005 the state collected more than $2 billion. Those increases resulted from increases in oil prices — oil production remained flat, Van Dyke said. Marine oil transportation costs, TAPS Van Dyke commented on the division’s auditing efforts that have mainly focused on marine oil transportation costs and the U.S. west coast value of oil, two factors that impact state royalties and production tax.
“We’ve been able to recover a significant amount of revenue,” Van Dyke said.
Van Dyke also said that the state has entered arbitration in the marine transportation cost component of a re-entry of the royalty settlement with ExxonMobil. The state has already prevailed on the oil destination value component of the settlement. But, arbitration on the transportation component could take another year to complete.
Resolution will entail an increase in transportation costs, since both sides have adopted positions involving higher costs. That increase will in turn reduce some of the increase in royalties resulting from settlement of the destination value part of the settlement.
“We have an offer in. ExxonMobil has an offer in,” Van Dyke said, “Whichever side wins, transportation costs are going to go up, which means our revenue goes down.”
Van Dyke commented that there is scope for reduction in the tariffs on the trans-Alaska pipeline, another major oil transportation cost component.
“There’s no reason that … the (TAPS) rate can’t go down substantially from where it is today and the line can operate just fine,” he said. Production continues to decline State revenues and associated oil transportation costs also need to be viewed against a background of declining production.
“The production trend off the North Slope is in the most likely case a slow steady decline, unless we find a big major new field,” Van Dyke said.
Just slowing down the rate of decline will take a lot of effort — new development, new wells, new investment, Van Dyke said. Several companies are looking at new developments on the North Slope, including Pioneer Natural Resources’ Oooguruk project and Kerr-McGee’s Nikaitchuq project and ConocoPhillips developments in the Colville Delta.
Van Dyke also mentioned that new units have recently been established on the North Slope. He also noted the increase in well work in legacy fields such as Prudhoe Bay and Kuparuk and the progress being made in developing viscous oil accumulations.
Van Dyke said that there aren’t as many exploration wells being drilled as the division would like to see.
“We’re working on that,” he said. “It’s just a matter of getting the right budgets in line and getting new entrants active.”
Van Dyke commented that several new companies have come into the North Slope oil and gas industry in recent years.
He also said that the Cook Inlet gas industry doing well, with continuing demand from utilities such as Enstar.
“Cook Inlet gas exploration is continuing with quite a few companies active,” he said.
On the other hand there is very limited Cook Inlet oil exploration, especially with the need for a jack-up rig. Incentive programs Van Dyke reviewed the various state incentive programs, such as royalty reduction, exploration incentive credits, discovery royalties and tax incentives.
“There’s a preliminary (royalty reduction) decision out there right now for Pioneer’s project at Oooguruk,” he said. “… We’re taking public comments on that.”
The royalty reduction program in the Cook Inlet is working well to keep those oil platforms alive, Van Dyke said.
And there has been a lot of activity in the tax incentive program for exploration.
State revenue from federal land Rep. Ralph Samuels questioned what the state would receive in return for tax credits on exploration done in federal land, if the state’s ELF (economic limit factor) formula reduced production taxes to zero.
Van Dyke said that companies would still have to pay property tax and income tax. And, under federal revenue sharing statutes, the state receives 50 percent of revenues from NPR-A and 90 percent of revenues from federal lands elsewhere in the state.
However, Rep. Norman Rokeberg commented that there is an issue regarding how much of the NPR-A royalty the state realizes, versus how much goes to the North Slope Borough.
Rokeberg was referring to a federally-mandated arrangement whereby annually the North Slope communities can apply to the state for grants paid for from state income from the NPR-A revenue sharing — this year the total amount claimed exceeds the funds available.
“The North Slope Borough has an impact statement which was delivered today to the tune of $5.8 million or something, when the amount available is $4.5 million,” Rokeberg said. Staff cuts don’t make sense Van Dyke said that the division’s staff has been particularly busy in the past year as a result of new companies entering the Alaska oil and gas industry, coupled with more oil and gas pools coming on stream. He expressed concern that supplemental funding to cover work associated with the North Slope gas line runs out at the end of this fiscal year.
“If we don’t get that money replenished … we’ll lose 13 people, that’s about 15 percent of our staff,” Van Dyke said. “… I just don’t think now’s time to take a 15 percent cut in oil and gas activity.”
Van Dyke said that the state is in the process of developing a computer system to support permit applications.
“That will hopefully be done within the next year,” he said.
But he said that he is not aware of any systemic problems with state permitting procedures.
“It would be difficult to write general permits or areawide permits, because they’re so location specific and they’re so project specific,” he said, presumably in response to recent suggestions for that type of approach to permitting. “We have some general permits for exploration, things like ice roads, things like seismic surveys,” he added.
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