HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS PETROLEUM NEWS BAKKEN MINING NEWS

Providing coverage of Alaska and northern Canada's oil and gas industry
January 2005

Vol. 10, No. 4 Week of January 23, 2005

MEET ALASKA 2005: Political window of opportunity offers hope for Alaska

A Republican-controlled Congress and a Republican president offer best chance in years for pro-Alaska measures, including opening the coastal plain of ANWR and heavy oil incentives

Rose Ragsdale

Petroleum News Contributing Writer

With George Bush in the White House and a Republican-controlled Congress, the Alaska delegation’s prospects for getting Congress to open the coastal plain of the Arctic National Wildlife Refuge to oil drilling are bright as are chances for securing other pro-energy legislation this session.

“The prospects for getting the Senate to approve drilling on the Arctic coastal plain are better than they’ve ever been before,” Alaska’s senior Sen. Ted Stevens told reporters Jan. 7.

A report that appeared in the Anchorage Daily News Jan. 8 cast a more cautionary slant on the senator’s comments. But the news article was misleading, said Stevens’ spokeswoman Courtney Schikora Boone Jan. 13.

“The senator was asked whether ConocoPhillips withdrawing its membership from Arctic Power was a sign that an ANWR bill’s chances of getting through Congress had diminished,” Boone said. “Sen. Stevens said ConocoPhillips withdrawal was not significant, and he pointed out that BP has not been a member of the organization for quite a while.”

Stevens told reporters that the pro-ANWR movement did not need more lobbyists in Washington, D.C., at this time because the senators have made up their minds. What’s needed, he said, is for the delegation to put the measure in the right bill so it can be put before the Senate in the right way, Boone said.

The Anchorage Daily News reporter’s “interpretation that the senator’s remarks were more cautious than before was misleading, and his take on what the senator said was more inflammatory than his comments actually were,” Boone observed.

What did Stevens have to say about the Daily News report?

“It’s typical reporting of the Anchorage Daily News and he wishes he could be surprised at their reporting style,” Boone said.

Getting ANWR drilling won’t be easy

Stevens did reiterate earlier assessments by ANWR lobbyists that opening the coastal plain for drilling will be no shoo-in, according to the Daily News report.

He said difficult national issues, such as changes to the Social Security system and the huge federal deficit, will steal time and effort that otherwise might have been available to get an ANWR measure to the president, who has vowed to sign one.

“I can’t tell whether we’re going to be able to overcome a minority again this time,” Stevens said, referring to the ability of a minority of senators — mostly Democrats, but a few moderate Republicans — to block ANWR legislation.

“The question is how can we get it to the floor?” Stevens said. “We have so many national issues out there right at the beginning of this Congress that are going to take a lot of time. And ANWR will take some time.”

Sen. Lisa Murkowski, R-Alaska, is encouraged by the chances this session for getting a bill through Congress that would allow exploration of the refuge’s 1.5-million-acre coastal plain, Murkowski spokesman Elliott Bundy said Jan. 12.

Murkowski plans to push for ANWR, heavy oil incentives and other energy measures this year that would benefit Alaska and the nation, he said.

John Katz, special counsel for the governor’s office in Washington, D.C., is also excited about ANWR’s chances. “While it’s not a foregone conclusion, we have the best opportunity to get legislation opening ANWR to exploration enacted since President Clinton vetoed a budget reconciliation package that included ANWR in 1995,” he said recently.

Senate makeup is key

A larger majority of Republicans in the Senate bodes well for the bill’s changes. Republican ranks ballooned to 55 vs. 45 Democrats in the Senate, while the House of Representatives retained its solid GOP majority.

“Getting a few more positive votes in the Senate is nothing to sneeze at,” said pro-ANWR lobbyist Roger Herrera.

Still, sides in the Senate debate will not fall out entirely along party lines, said Katz, who has promoted pro-ANWR legislation for more than 25 years. “Not all of the Republicans will support it and not all of the Democrats will oppose it,” he said.

The House of Representatives, however, remains solidly behind ANWR, Katz said. He observed that the House passed pro-ANWR legislation twice in 2004.

“If anything, the House is more resolved than ever to getting the legislation passed,” Herrera said.

However, pro-ANWR forces expect a tough fight ahead in the Senate.

ANWR is roughly the size of South Carolina and extends from south of the Brooks Mountain Range to the shores of Arctic Ocean. The coastal plain, which is about 1/18 of the entire refuge in size, is believed to hold vast quantities of recoverable oil.

Environmentalists argue that oil drilling on the coastal plain would disrupt wildlife, especially the Porcupine Caribou Herd in the area.

Picking the best strategy

Many observers believe the legislation will be introduced in the Senate during the budget reconciliation process next spring, between March 15 and April 15. If that happens, the legislation could avoid a Democratic filibuster and require only 50 votes to win approval. A similar effort last year was defeated 52-48.

“We may or may not have enough votes to defeat a filibuster,” said Katz, but it’s pretty clear that we have the votes to pass it in a budget reconciliation bill.”

Still, speculation is futile given that anything can happen in the Senate, said Herrera.

“It would be logical to tackle it through budget reconciliation, but logic is rarely the driver in the U.S. Senate,” he said. “They may decide to go for the dreaded 60 votes.”

Katz said Alaska Gov. Frank Murkowski, along with the state’s Congrssional delegation, plans to be very active in lobbying for ANWR during the next few months.

“We have a lot of homework yet to do,” he said. “We don’t want to assume anything.”

Democrats unwilling to compromise

The Senate debate over ANWR, whenever it erupts, will be different without the strident voice of former Democratic Leader Sen. Tom Daschle, who lost his bid for re-election in South Dakota. The election also could clear the way for Congress to pass several pieces of energy legislation, thanks in part to Daschle’s defeat, according to the National Association of Manufacturers.

“But I don’t think Daschle’s defeat will be the ultimate difference for ANWR even though he was an acute strategist,” Herrera said. “Whoever takes his place will be equally bulldoggish about opposing us.”

The Democrats’ intransigence on ANWR is sad, Herrera said, because it leaves no room for compromise. “I don’t see any willingness among the opponents to talk this thing out. The sad thing is there are many opportunities for compromise on this issue, but you can’t have a negotiation with yourself.”

Still, ANWR has won powerful proponents in Sen. Pete Domenici, R-N.M., who chairs the Senate Energy Committee, and Rep. Richard W. Pombo, R-Calif., who heads the House Resources Committee.

As for extraneous issues that have dogged the ANWR debate in the past, Herrera expects them to work in favor of the legislation this time.

Among the issues are the balance of payments deficit and concerns about world oil supplies. Opening ANWR would help cut the deficit, and it would diminish concerns about world oil supplies, Herrera said.

Katz said growing awareness and concerns of the general public about the price of fuel and how tenuous the world situation is in light of recent supply disruptions will help the cause.

“It’s the best alignment of events and circumstance favoring ANWR in a long time,” he added.

Heavy oil incentives could make a comeback in 2005

Stripped from the energy bill last fall, heavy oil incentives could make a comeback this year. The tax credits are designed to spur development of the difficult-to-produce crude. Sen. Murkowski said she will pursue the provision later this year because she believes it should be a part of the nation’s comprehensive energy policy, and it would benefit Alaska.

Murkowski, who will continue to serve as a member of the Senate Energy Committee, said the credits are aimed at encouraging the oil companies to produce Alaska’s vast quantities of heavy oil, which heretofore have remained in the ground because of the high cost of extraction.

Alaska Gov. Frank Murkowski also put heavy oil incentive on his list of priorities for 2005 because of its potential benefits for Alaska and the nation as a whole.

“We will pursue this incentive in the next Congress,” Katz said. “However, it is too early to know how energy incentives will be addressed, if at all, during Congressional consideration of future tax bills and comprehensive energy policy.”

The incentives, which would allow Alaska oil producers to take a couple of dollars in tax credits for every barrel of heavy oil produced on the North Slope, failed to survive Conference Committee negotiations in September and October.

It was dropped from the Conference Committee report on the Corporate Tax Bill, along with many other energy incentives, Katz said.

“There were two principal reasons,” Katz said. “First, several members of the Conference Committee were concerned about the total cost of the Corporate Tax bill. So, most of the energy related provisions were deleted (but not accelerated depreciation for the gas pipeline and the tax credit for the conditioning plant).”

In addition, Rep. Bill Thomas, R-Calif., who chairs of the House Ways and Means Committee, opposed an expansion of the existing incentives for heavy oil because of how it might impact heavy oil producers in his home district of Bakersfield, Calif., who benefit from existing incentives.

Though the thick, gritty and low API crude accounts for a relatively modest percentage of total Alaska North Slope output, heavy oil could play a key role in forestalling a freefall in Alaska oil production in the future, economists say.

BP and ConocoPhillips have stepped up efforts in recent years to produce crude from West Sak and Schrader Bluff, two giant heavy oil fields that overlie the Kuparuk and Milne Point fields on the North Slope. West Sak is estimated to have roughly 25 billion barrels of heavy oil in place and Schrader Bluff some 3 billion barrels in place.

Thanks to higher oil prices and new directional drilling techniques that result in lower-cost wells, development of heavy oil in the two fields has intensified despite the loss of the tax incentive, said Dan Dickinson, director of the Tax Division in the Alaska Department of Revenue.

“If you look at the state revenue forecast, you will see that heavy oil development plays a fairly robust part in it,” Dickinson said.

West Sak: A rising star

The state’s 2004 revenue forecast includes an upward revision in projections for heavy oil production from West Sak.

“We have accelerated and increased production from West Sak due to the successful application of drilling technology used to complete horizontal multilateral wells and the sanctioning of a new drill site at J Pad,” the forecast said.

West Sak is projected to produce close to 80,000 barrels of oil per day by 2010. Heavy oil could account for roughly 8 percent of total ANS output in 2010 and as much as 12 percent by 2015.

Dickinson said his division views West Sak heavy oil production as the “bright spot” at Kuparuk.

“It’s an interesting thing that the economic limit factor doesn’t recognize viscosity of oil or the new technology required to get it out of the ground,” he said. “As BP and ConocoPhillips invest in West Sak, the field could have a higher ELF in Kuparuk than the mother field.”

The ELF is a formula that the state uses to calculate effective tax rates on North Slope oil fields. It typically results in lower effective tax rates for smaller, low-production fields and higher tax rates for larger, highly productive fields.

Dickinson said heavy oil tax credits, by themselves, won’t make a big difference in encouraging the production of heavy oil. But in combination with high prices and new technology, the provisions could be significant at the margins.

“Higher prices are always going to be a bigger incentive than tax credits,” he added.






Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
[email protected] --- http://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©2013 All rights reserved. The content of this article and web site may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.