Company executives’ tax worries

Alaska managers of oil companies operating in the state, when talking to the Society of Petroleum Engineers Western Regional Meeting on May 24 about their responses to current low oil prices, all expressed their concerns about the impact of uncertainty and instability in Alaska’s fiscal situation.

The state Legislature is currently debating possible changes to the state’s oil tax laws as a means of addressing a state budget shortfall.

Janet Weiss, president of BP Exploration (Alaska) Inc., said that new investment in the state will require a stable fiscal regime and that current uncertainty over the tax situation is her biggest worry, despite the current challenges her company faces with low oil prices.

Joe Marushack, president of ConocoPhillips Alaska, commented that oil industry taxes in Alaska, with now the sixth change in the last 11 years, are the most unstable of any he has seen anywhere in the world.

The oil industry tends to be very capital intensive, with capital investment rather than labor costs dominating the accounting books, Marushack said. But the North Slope is a particularly expensive place to operate and, therefore, a challenging investment region, he said. And despite those high costs, to attract investment a company has to achieve a margin that makes the economics work. That margin is directly related to the taxes that a company has to pay, Marushack said

David Wilkins, senior vice president of Hilcorp Alaska, said that his company has many prospects that it could drill but that the fiscal uncertainty is causing the company to take a pause.

“If you want to kill momentum in an industry, just continue to change the fiscal financial structure,” Wilkins said.

- ALAN BAILEY