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Reserves continue to make Alaska attractive Costs high, taxes moderate, for low overall return on investment; state now attracting medium-sized, not big players The Associated Press
Alaska remains the most costly place on the planet to produce oil and gas but the state could take steps to attract major oil company investment, according to the head of the Alaska Oil and Gas Association.
Judy Brady spoke May 25 to the Kenai chapter of The Alliance, a trade organization representing nearly 400 businesses, organizations and individuals that derive their livelihood from providing products and services to oil and other natural resource companies.
Brady based her remarks in part on a 2002 study by Wood Mackenzie of Edinburgh, Scotland, an international energy consulting firm. The firm is working on an update for 2004 that could change Alaska’s ranking.
Two years ago, Alaska ranked last out of 60 oil- and gas-producing regions in 50 countries in costs for producing oil and gas.
Alaska’s ranking was based on North Slope fields starting up production since 1995, although earlier studies found that production costs at Prudhoe Bay and the Kuparuk oil fields also are among the highest in the world.
Despite the expense, Alaska was not the least profitable region. The state ranked slightly above average in “total government take” of both federal and state royalties, taxes and net profit shares of oil and gas production. When both costs and “government take” were considered together, Alaska ranked 55th in “post-take value” per barrel of oil. Alaska ranks low on overall investment return “Of the places you could go, according to this study, there are five or six places you would make less than if you go to Alaska and there are 55 or 56 places you would make more,” Brady said.
Oil and gas companies are looking to invest where they can get the best return. With so many other more profitable places to go in the world, she said, it’s difficult to make a boardroom pitch for investing in Alaska.
The state’s saving grace, according to Brady, is that Alaska has relatively high reserves compared to other parts of the world.
“We’re going to continue to be attractive if we have those reserves,” she said.
Current high oil prices make production more profitable, but do not make Alaska fields more attractive for investment since a producer will get that same price anywhere on the globe, Brady said. Medium-sized companies interested now Oil companies remain interested in investing in Alaska, she said, but the size of the companies has changed.
“We’re not getting the big players we used to get,” said Brady. The companies investing are medium-size regional companies. To continue attracting investment, especially from larger companies, Brady said, the state could do a couple of things: create a “steady” tax system and streamline the permitting process.
The state and federal “total government take” of 64 percent, with the state accounting for 47 percent, of oil and gas revenue is not excessive compared to other areas around the globe.
“It’s not that our taxes are terribly high here, they’re in the middle,” said Brady. However, the tax rate combined with the high cost of doing business in the state “pushes us over the edge,” she said.
Alaska has attributes that cannot easily be quantified that the study did not consider, such as political stability, Brady said. The pressure on oil companies to produce steady returns on investments has ratcheted up to the point that they are willing to commit to regions with questionable stability they would not have considered exploring five years ago, Brady said.
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