The Alaska Legislature is recruiting an oil and economics expert to verify information contained in a top secret report comparing Alaska’s competitiveness to that of 65 other oil and gas producing regions worldwide, a consultant for the Legislative Budget and Audit Committee told Petroleum News Jan. 19.
Bonnie Robson, former deputy director of the state Division of Oil and Gas, said additional expertise is needed to evaluate conclusions and methodology used by international consultant Wood Mackenzie Ltd. in preparing the report, “Global Oil and Gas: Risks and Rewards 2004.” The committee purchased access to the report for 25,000 pounds (roughly $45,000 to $50,000).
Robson, who is under contract to advise the Legislature on issues related to developing a gas pipeline from Alaska’s North Slope, said additional help is needed because data in the report and the implications of that information could be used by state lawmakers to make major policy decisions.
“We want assistance combing through the report, crunching the numbers and pulling out information pertinent to the state of Alaska,” Sen. Gene Therriault, R-North Pole, said Jan. 19.
Therriault, who chairs the state Legislative Budget and Audit Committee, a joint committee of both houses of the Legislature, said the report should give state lawmakers a better understanding of “where we are and why we’re in those positions.”
An economics expert with a knowledge of Alaska’s oil and tax regime “will be brought on board soon, and the mechanics of that will take up to another week,” Robson said Jan. 19.
The 2002 Wood Mackenzie study ranked Alaska 55 out of 61 oil provinces when it came to profitability.
The state came in dead last in the total cost of doing business and it ranked 36 out of 61 in terms of taxes and royalties, which put it at 55 for overall profitability per barrel of oil as compared to its competitors for investment.
Price tag for global report a bargain
She also said Alaska got a bargain in the 2004 global report. “The amount of information received is tremendous for a relatively low price,” she said. “It’s a question of whether to pay many multiples of $50,000 for a report or to acquire this report under the condition of confidentiality and then see if more work is needed.”
The report looks at oil and gas producing nations around the globe, including Alaska and three other regions in North America: Gulf of Mexico deepwater, Canada’s Arctic and East Coast offshore. It compares the regions in 150 different ways, including field development and operating costs, rate of return for producers, and governments’ relative tax rates from 1994 until 2003.
“Wood Mackenzie is a leader in doing this type of analysis, but their work still needs to be verified for accuracy of methodology,” Robson said.
The Legislature, along with oil and gas companies worldwide, signed up for the report from Wood Mackenzie, which frequently markets such studies to customers looking for independent research on oil and gas issues.
“It’s raw data for reviewing when it comes to developing new policies governing our oil and gas industry,” Therriault said. As examples of how the report might be used, Therriault cited the possibility of the Legislature approving future incentives for oil exploration and development of the gas pipeline.
Confidentiality makes some legislators nervous
But Alaska lawmakers and government staffers will not be allowed to read the report unless they promise to keep the information confidential.
The confidentially requirement is a common practice among independent research firms, but it’s not often that legislators are required to sign such pledges, Therriault said.
“Personally, it will be the first time I have signed a confidentiality agreement,” he said. “It means you have to be very guarded about what you say and to whom” you say it.
A leak of what Wood MacKenzie analysts describe as “proprietary” data could compromise its value to the firm’s other clients, Robson said. “There may be some very substantial financial penalty” if information in the report is disclosed, she said.
Therriault said some Alaska lawmakers are bothered by having to think about what they say because of the report’s confidentiality requirement, while others are worried about information not made public being used in making public policy decisions.
Some data may be made public
The Legislature will seek permission from Wood Mackenzie to release some information to the public, especially data pertinent to Alaska’s competitiveness, he said.
“Wood Mackenzie has indicated a willingness to release selective data regarding Alaska’s rankings versus the other 65 oil-producing regions,” Robson said.
Still, Wood Mackenzie refused to make public the entire report in response to a recent public records request, she said.
The 2004 report is similar to a document Wood Mackenzie prepared in 2002 comparing 61 regions. It included an analysis of Alaska done at the request of one of its clients, Robson said. The Alaska Oil and Gas Association acquired that comparison, which ranked Alaska dead last in global competitiveness based on the cost of doing business among the 61 regions. The state also placed 36th based on government take in taxes and royalties and 55th in overall profitability.
AOGA distributed the data to legislators last year to bolster the oil industry’s argument that an increase in state taxes would hurt Alaska’s competitiveness for future industry investment. The industry association also subscribed to the 2004 report, as did Alaska producers ConocoPhillips, BP and Anadarko.
Robson said the 2002 comparison assumed oil prices of $19.50 per barrel, but oil prices have been substantially higher during the past two years. The 2004 report includes comparisons that assume low, middle and high oil prices.
Depending on the conclusions reached by the state’s new expert, the Legislature may seek additional study of the subject; ask Wood Mackenzie to disclose more information about its methodology and data; or start from scratch with a brand new study of Alaska’s global competitiveness, Robson said.
“The LB&A Committee will make the decisions, but it’s premature to say what will be done,” she added.
