BP Exploration (Alaska)’s 2009 balance sheet provides a pretty good example of how the progressive nature of Alaska production taxes impacts profits for a major oil company.
BP earned $1.89 billion in Alaska in 2009, down around 3 percent from the $1.95 billion the company earned in 2008. Those somewhat level year-over-year results came as oil production fell 8 percent and total annual revenue fell 35 percent from last year.
The reason? Taxation fell 64 percent as a result of progressive elements in the Alaska tax code that rise and fall along with oil prices, which backed off from 2008’s record highs.
BP Exploration (Alaska) brought in $5.04 billion in revenues in 2009, down from $7.76 billion in 2008. Meanwhile, the subsidiary paid around $1.2 billion in taxes last year, compared to almost $3.3 billion in 2008. Put another way, taxes ate up 42.3 percent of BP Exploration (Alaska)’s revenues in 2008, but took 23.5 percent in 2009. As a result, the company’s profit margin was 37.5 percent in 2009, compared to 25 percent in 2008.
The numbers are instructive because 2009 was the first time oil companies posted earnings for two consecutive years under the same tax structure in Alaska since 2005.
In 2006, the state passed the Petroleum Production Tax, or PPT. In late 2007, it passed Alaska’s Clear and Equitable Share, or ACES, which changed the basic tax rate and certain progressive elements, as well as making retroactive revisions. As a result, it’s been difficult to measure how the tax code operates under different economic environments.
Last year was the first time since 2004 that BP paid less tax in Alaska than the year before, but the fifth year in a row the company’s tax burden topped $1 billion. It’s also the lowest profits BP has reported in Alaska since 2004, when oil was below $40 a barrel.
The delivered price of Alaska North Slope crude is currently around $80 a barrel.
ConocoPhillips, the largest producer in the state, earned $1.54 billion in Alaska last year, a 33 percent decline from $2.31 billion in 2008. ConocoPhillips produced 235,000 barrels per day on average in Alaska last year, down 3.7 percent from 244,000 bpd in 2008.
Production declines continueBP Exploration (Alaska) produced 181,000 barrels of liquids a day in 2009, down about 8 percent from 197,000 bpd in 2008 and down 13.4 percent from 209,000 bpd in 2007.
The company’s average production rates declined 4.2 percent at Prudhoe Bay, 11.1 percent at Milne Point and 6.3 percent at Kuparuk. Production declines sped up in 2009 at Prudhoe Bay and Milne Point compared to 2008, but slowed somewhat at Kuparuk.
The company produced 58 million cubic feet of gas per day in Alaska last year, up 42.5 percent from 41 million cubic feet per day in 2008 and up 5.5 percent from 55 million cubic feet per day in 2007.
BP operates Prudhoe Bay, the largest oil field in North America, as well as 14 other North Slope oil fields, and holds a major share in six other fields. BP also owns four North Slope pipelines, including the largest share of the trans-Alaska oil pipeline.
In its financial filing, BP said the reconfiguration of the fourth and final pump station on the pipeline would begin this year with installation planned for 2012. Alyeska Pipeline Service Co., the consortium that runs the pipeline, is in the middle of a multiyear project called Strategic Reconfiguration to upgrade and automate operations. The company brought two of the reconfigured pump stations online in 2007 and a third in May 2009.