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New exploration plans under consideration
Kristen Nelson Petroleum News Editor-in-Chief
Cheryl Frasca, director of the Alaska governor’s Office of Management and Budget, and Tom Irwin, commissioner of the Alaska Department of Natural Resources, told the Anchorage Chamber of Commerce July 7 that the governor wants the Constitutional Budget Reserve to be “used strategically” to meet the state’s budget gap until state income can be increased from resource development, primarily oil.
Why primarily oil? Because, Frasca said, the infrastructure and the tax framework are in place.
With a cap of $400,000 a year to be drawn from the reserve, it took a combination of spending cuts and new revenues from the Legislature, and vetoes from the governor, to hold the line this year, Frasca said. The administration is trying to do business differently, she said, to look at every program the state delivers and ask: Should we do it? Can private industry do it? Is the program effective? And, is it worth the dollars being spent?
In addition to spending reductions this year, there will need to be more next year. “It doesn’t look like it gets any easier,” she said. Incentive already working The governor pushed for incentives for the oil and gas industry to help attract investment to Alaska, Frasca said. One of the incentives passed last session, that for exploration incentives, came about after it was brought to the governor’s attention near the end of the session that Alaska ranked close to the bottom of oil provinces offering exploration incentives, and partially as a result of that, only three exploration wells were planned for the upcoming winter of 2003-04. The package the administration introduced and the Legislature passed offers severance tax relief for up to 40 percent of the cost of an exploration well or seismic survey.
“Since the tax incentive took effect on July 1st, it is our understanding that there are a number of new exploration activities being considered for Alaska,” she said.
In the coming five years, Frasca said, increased revenues from resource development will come primarily from oil, since that is the major source of state revenues now. The governor has identified oil as a growth area because the tax structure is in place and a lot of the infrastructure is in place, she said.
Irwin said the state, like any business, has to work on the details. “And that’s the approach we’re really taking,” he said. With the support of the governor, the Legislator and the commissioners, “we’re looking at all the issues,” he said.
It started with the incentive for exploration. “We don’t see exploration like in Alberta — 2,500-plus exploration wells in 2002 — an incredible difference.” The state needs to attack all of the issues behind that difference, he said. What can we learn from other places? What are they doing, he asked.
“Alaska’s competing in a world market,” he said, and companies “don’t come because they love us … companies come here because they want to make a profit.”
Those companies look at rate of return and economic analyses and cash flow, “and we’ve got to make a difference in Alaska to compete,” he said.
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