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Independents argue value of tax credits Brooks Range Petroleum, Caelus, Great Bear tell working group credits support development, exploration on Alaska’s North Slope KRISTEN NELSON Petroleum News
Three Alaska North Slope independents - one in production, one in development and one in exploration - told the Senate Oil and Gas Tax Credit Working Group Oct. 13 that the state’s tax credit program supports work they are doing and will result in barrels produced.
Bart Armfield, chief operating officer of Brooks Range Petroleum, which is developing Mustang at the South Miluveach unit west of the Kuparuk River unit, said the company had a funding agreement with ING on Mustang development when the governor vetoed a portion of tax credit monies. That deferral of payment resulted in delay and created uncertainty. It delayed funding from the agreement, funds were frozen and accounts payable delayed.
This caused support industry delays and cash-flow interruptions, he said, and overall project delays.
It also elevated project cost impacts with erratic schedule objectives.
He said the administration did reach out to critical support providers and lenders to calm fears.
The administration has said that it considers tax credits an obligation and that payment has just been deferred.
Armfield said credits are critical to offset barriers to entry, including the oil price, the high cost of entry and execution, the lack of infrastructure and asset access, the narrow operational window on the North Slope, extended project timelines and the discovery to monetization period.
He said that without the tax credits, the Mustang project would have struggled to access affordable project capital. Armfield also said that not funding the credits is a retroactive tax change and a fundamental change to the state’s tax system.
Concurrence on barriers to entry Pat Galvin, chief commercial officer and general counsel for Great Bear Petroleum, also discussed barriers to entry on the North Slope, including lack of data, the short and unpredictable winter exploration season, permitting complexity and delays and the high cost environment.
Great Bear is in the exploration phase and Galvin said the number of exploration wells is directly related to tax credits. He urged legislators to keep the tax credits, arguing that they are part of a North Slope exploration policy that is working, including the state’s areawide leasing program, exploration incentive credits, net operating loss credits, tax credit certification payments and collaterization of tax credit certificates.
Combined, these have resulted in a diversified group of North Slope explorers, recent discoveries and new production coming online, he said, and elimination or reduction of tax credits will likely slow or stop exploration, with a lower likelihood of new discoveries.
And if momentum is stopped, getting it back will take a long time, Galvin said.
Successful exploration will result in significant cash flow to the state and as the major resource owner across the North Slope, the state has a greater chance of success than any individual explorer, he said, and the state’s risk is reduced if the number of exploration wells increases.
Expansion beyond existing production Caelus Energy Alaska, which acquired and operates the Oooguruk field developed by Pioneer, is expanding that producing field and also preparing to explore in Smith Bay.
Pat Foley, senior vice president of the company’s Alaska operations, and Matt Musselman, senior vice president of business development for the company, told the working group that Caelus has a seasoned management team with a proven track record, led by CEO Jim Musselman.
Caelus has completed construction of the Nuna drill site at Oooguruk and mobilized the Doyon Arctic Fox drilling rig by barge to Smith Bay where one to two exploration wells are planned this winter.
Senate Bill 21 made Alaska more competitive, Foley said, and was critical to Caelus’ obtaining the first large scale equity commitment.
He said the significance of the state’s tax credit programs cannot be overstated.
The Smith Bay exploration program would not have happened without exploration incentive credits, Foley said, and carry forward annual loss credits are critical for new developments such as Nuna, while credit programs support continued Oooguruk development.
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