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Vol. 14, No. 4 Week of January 25, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Arctic Directory: Alaska is ‘open for business’

And the proof, DNR Commissioner Irwin says, is our oil and gas industry’s expansion into new areas

Tom Irwin Commissioner, Alaska Department of Natural Resources

In recent weeks, Alaskans have heard rumblings about obstacles to resource development.

Although a very small minority of leaseholders in Cook Inlet have drawn attention to their inability to kick-start oil and gas projects, Alaskans should be encouraged to hear the good news about where progress has occurred. The story is simple—responsible stewardship is working!

Managing Alaska’s precious natural resources is a responsibility Gov. Sarah Palin’s administration takes seriously. Acting as a good partner, which means providing predictable and reliable guidance to our resource development industries, expecting them to live up to their part of the bargain as we live up to our commitments, and ensuring Alaskans receive a reasonable share of the revenues, is essential to Alaska’s economic health.

The state of Alaska, through its Division of Oil and Gas, manages more than 1,700 oil and gas leases. Through a combination of royalty payments, lease bonus bids, and rental fees, the state received some $3.3 billion in nontax oil and gas revenue in FY 2008.

Of this amount, $834 million was deposited into the Permanent Fund.

But royalty revenue can only be generated if development occurs. Of those 1,700 leases, only 3 percent were relinquished or revoked because development commitments were not upheld. Most of those relinquished leases were subsequently made available to new developers, attracting the attention of multiple bidders.

As development occurs, leaseholders provide the state with updates and additional commitments to drill and produce the land under contract.

These plans of exploration, plans of development and plans of operation are submitted by lessees. By and large the state approves them, sometimes with suggested amendments, but always with one thought in mind — is this plan appropriately aggressive so that Alaskans will see jobs and revenue from the management of this land?

In 2008, the Division of Oil and Gas processed and approved more than 200 such work plans. Last year, more than 100 wells were drilled in the approximately 50 producing units in Alaska, with the same level of activity planned for 2009. We are working hard to ensure the state’s resources are actively developed!

Our commitment to development is further demonstrated through the royalty modification program and has resulted in major activity.

This past summer, Pioneer Natural Resources announced the start-up of the North Slope’s first independently operated oil field, Oooguruk, noting the important role played by the state’s willingness to reduce its royalty share and financially stimulate development. Through a cooperative cost-and-risk-sharing effort between the state and industry, this world-class field is being developed.

Likewise, Italian energy giant Eni has sanctioned some $2 billion in project capital for the development of the Nikaitchuq field, neighboring Oooguruk.

Another first in a year of major milestones is Anadarko Petroleum’s natural gas exploration project in the Gubik field, south of Prudhoe Bay. For decades, North Slope producers discovered gas as a consequence of oil exploration. For the first time ever, Anadarko’s project will target natural gas with an eye toward either selling it to a local utility, shipping it in the larger gas pipeline, or both.

Production increasing

Finally, because of the tremendous tax benefits enjoyed by investors resulting from Alaska’s net profits production tax arrangement (ACES), a modest increase in production has been realized during the past 12 months.

While the price of a barrel of oil is beyond state control, Alaska is sharing in that “price risk” in important ways. Each and every Alaskan contributes, through investment tax credits, when energy investors spend money. Tax deductions for capital and operating expenses lower the initial investment obstacle, making more development possible. When prices are bullish, Alaskans benefit, and when prices fall Alaskans pitch in to spur investment by accepting less tax revenue.

Alaskans should be proud of the banner year we’ve experienced. Milestones like Pioneer’s Oooguruk unit, Eni’s Nikaitchuq project, dozens of new plans of development and billions of dollars in revenue tell the real story about Alaska’s ability to attract investors and manage its resources.

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