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Oil tax bill appears dead in Senate ConocoPhillips’ Mulva urges passage, highlights possible projects; Senate president says body not ‘do nothing’; more work needed Kristen Nelson Petroleum News
If the governor’s oil tax bill wasn’t dead before then, Senate President Gary Stevens nailed the coffin lid down when he took to the floor of the Senate April 11 to defend the Senate against the governor’s “do-nothing Senate” tag. Stevens said that since the Senate had accomplished a number of things, the governor must be referring to the body’s failure to pass the oil tax bill and said while he would not accept the do-nothing description, he would accept the charge that the Senate would do nothing to harm the people of Alaska.
He said there were parts of the governor’s bill — reduced progressivity at the high end and bracketed tax rates — that he thinks should be looked out, but said time was needed for adequate study of the results of the governor’s proposal.
Stevens also said that reports the Legislature has ordered wouldn’t be available before the end of session on April 17.
The bill passed the House at the end of March, but so far has only had a hearing in Senate Labor and Commerce. Senate Resources did hold some hearings on the Senate version of the governor’s bill, but Stevens, who sits on the Resources Committee, has said in the past that he didn’t think there were the votes needed to move the bill from the committee.
As the Alaska Legislature rolled toward adjournment, proponents of the bill brought out the big guns.
Jim Mulva, chairman CEO of ConocoPhillips, joined former Alaska Gov. Tony Knowles at a Make Alaska Competitive Coalition presentation April 7 at a Resource Development Council breakfast meeting. The coalition scheduled BP Exploration (Alaska) president John Minge to address a noontime crowd April 14.
Partnership urged Knowles urged partnership between the state and industry and said he had worked across party lines and with industry during low oil prices and low state revenues in the late 1990s to make tax changes to provide incentives for more drilling. Those policy changes and the resulting investments from the oil companies succeeded in putting more oil in the pipeline and inspired ARCO’s slogan of “no decline after ’99,” Knowles said
Today, he said, Alaska North Slope production is declining; easy oil, in the state’s older fields, is gone; and production is going to cost more. Knowles cited exploration as “the most important bellwether” of future production and reminded the audience that only one North Slope exploration well is being drilled this year.
And while the oil price is high today — and along with it the state’s revenues — he said “the issue is not about today’s prosperity but what we are doing today to ensure tomorrow’s prosperity.”
Knowles said Alaska knows the formula for change: “Tough, fair negotiations; commitments by both sides; an attitude of mutual respect guided by trust but verify; a tax system that provides balanced returns and fair incentives to both new and legacy fields; and opening state and federal exploration areas.”
New investments key Mulva said he had three key messages: “new investments are the key to a sustainable future for Alaska”; the state is at a crossroads and the time is now for the industry and Alaska to align around a common goal of increasing production; and third, “ConocoPhillips remains committed to advancing major projects and activities here, if Alaska’s business environment is improved.”
Huge resources remain on Alaska’s North Slope as well as offshore, “but they cost a lot more to develop and they carry a great deal more risk — technical risk — than the oil fields that have been discovered in the past,” Mulva said.
Industry investments in recent years have been unable to stop the production decline, partly because more and more of those investments are required to maintain and operate the North Slope’s older pipelines and facilities “and not on developing new oil,” he said. Those investments are being made because with new technology the lives of existing fields can be extended and more oil produced than the companies ever thought, but it requires “a great deal of money.”
But Alaska can’t continue to live off past investments, many of them made years ago when, Mulva said, the state’s fiscal policy was more balanced.
The Alaska business environment has deteriorated over the past several years, he said: “We face increased litigation, numerous roadblocks with federal permits, tax pressure with the highest progressivity, progressivity surcharge of any OECD country. As a result, Alaska is not attracting as much investment as it should during periods of strong oil prices.”
What investments If there were changes to the production tax structure, what investments would ConocoPhillips make?
Short-term commitments the company could make include the Prudhoe Bay I pad gas partial processing plant which would cost $1.5-$2 billion, involve about 50 wells and additional facilities, and would lead to incremental Prudhoe Bay production.
There are also identified satellite projects the company would pursue, both for West Sak development at Kuparuk and for development of additional satellites already identified at Alpine.
“We’re willing to commit billions of dollars in investment, commit our technology and our people,” Mulva said. “So let’s step back, let’s develop the incentives, let’s work together because we want to do this again for the next 50 years.”
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