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Providing coverage of Alaska and northern Canada's oil and gas industry
January 2016

Vol. 21, No. 2 Week of January 10, 2016

AOGA celebrates 50th anniversary

KAY CASHMAN

Petroleum News

Mark your calendar. Alaska’s lead oil and gas organization plans a celebration May 25 to kick off its 50th anniversary.

The Alaska Oil and Gas Association was founded in 1966, not long after the northernmost territory became the 49th state of the union.

Initially AOGA, which represents producers, explorers, refiners and pipeline companies doing business in the state, was as a chapter of the Western Oil and Gas Association, now known as the Western States Petroleum Organization.

The story of oil and gas exploration and production throughout Alaska began more than 100 years ago, but the milestone that meant the most to Alaskans occurred in 1957, when Richfield announced the discovery of the 250 million barrel Swanson River field on the Kenai Peninsula - the first truly commercial discovery in the state.

Crude averaged $3 a barrel that year. In the minds of Alaskans and some federal officials, Swanson River represented a small fortune; a sustainable resource that could provide a fledgling state with a secure economic base.

In 1959, the U.S. Congress granted Statehood to the Territory of Alaska.

1960: Oil revenues a whopping $10 million

In 1960, the Census Bureau estimated the population of the northernmost state to be 226,167.

State petroleum revenues that year were a whopping $10 million.

By 1961, they had increased to $26 million, some of which came from oil and gas lease sales in the Cook Inlet basin.

In 1964, the state of Alaska held its first Prudhoe Bay lease sale.

In 1968, Prudhoe Bay, the largest oil field in North America was discovered. State petroleum revenues rose to $52 million.

In 1969 Alaska received $900 million from a North Slope lease sale.

‘Clicking’ along’ until mid-1980’s price crash

“Things clicked along” until the mid-1980’s oil price crash, when the parent association “was going to slash the Alaska chapter’s budget,” Kara Moriarty, current CEO and president of AOGA, told Petroleum News in a Dec. 31 interview.

“We broke off and became the only standalone oil and gas trade association in Alaska … that’s still true today.”

It is “safe to say,” Moriarty noted, that since its inception in 1966, the non-profit has monitored and weighed in on every major federal and state policy issue impacting Alaska’s oil and gas industry, working closely with other stakeholders and government officials.

“Our mission has remained the same,” she said: “To foster the long-term viability of the oil and gas industry in Alaska.”

AOGA does not, however get involved in federal oil and gas issues that do not directly impact Alaska, Moriarty said, giving the recent export legislation as an example: “Alaska was already able to export oil.”

Present-day oil price environment challenging

How have low oil prices impacted AOGA’s members, the majority of which are oil and gas companies?

“It’s been challenging for everyone,” Moriarty said, although the association “does not engage in Alaska’s fiscal plan” debate, it does involve itself in tax policy changes prompted by decreasing state revenues.

Alaska’s current production tax, SB 21, was engineered to be robust across a broad range of prices, giving state coffers better protection at low oil prices than the previous tax policy.

No one can, with any certainty, predict what commodity prices are going to do and changing tax policy every time there is a major oil price fluctuation is a strong disincentive to oil company investment in the state, Moriarty said.

“It sends the wrong signal,” one of “instability,” to companies already pulling back on spending in the Lower 48 and the rest of the world.

One “key protection of SB 21 is that at today’s low prices, the state actually generates more production tax revenue than they would have under the former system,” Moriarty said. She added that another key component of SB 21 comes from directly incentivizing oil production through targeted tax credits, which have been successful, she said, pointing to the substantial increase in oil company investment on the North Slope.

“Since SB 21 became law projects that have been announced total more than $5 billion,” and Alaska oil production, which had been in decline, has stabilized and, in the last quarter of 2015, appears to have increased.

Alaska’s oil and gas policy generates not only tax revenue, but also royalties to the state as the land owner, royalties that feed the Alaska Permanent Fund.

“More importantly,” Moriarty said, maintaining or growing production also “provides essential job growth and economic stability” for Alaskans.

“Our friends in the Lower 48 are experiencing drill rigs going idle, job layoffs” and major reductions in capital spending by the oil industry, she wrote in an opinion piece a year ago.

Although oil prices have fallen about 35 percent since then, to approximately $35 a barrel, capital spending cuts by the industry in Alaska are minor compared to reductions in the Lower 48 and elsewhere.

“We need our elected officials to strongly reinforce the stability of our tax and regulatory policies,” she wrote a year ago - a position supported by AOGA today.

As for how the low commodity price environment is impacting the oil companies doing business in Alaska, Moriarty said AOGA members are focused on increasing the efficiency of oil and gas operations, while growing production in a safe manner.

If one drop of oil spills it has to be reported

One of the AOGA’s strengths is that its staff has historical and institutional knowledge crucial to the individual member companies, where executives are periodically rotated in and out of the state.

AOGA also works to educate the public about the oil and gas industry, an important task because “an overwhelming portion of the state’s unrestricted general fund, which is used to pay for education, public safety, road maintenance and more, comes from oil and gas taxes and royalties. … One-third of the jobs in Alaska are tied to the industry,” Moriarty said.

AOGA’s latest public education project is Brain-i-AK, a web site, www.brain-i-ak.com, where the public can ask questions about the industry. Answers are supplied by trusted third party sources, such as various state and federal agencies.

There is also a 10-question quiz that tests your basic knowledge of the state’s oil and gas industry, including some surprising ones, such as:

• Every one job in Alaska’s oil and gas industry creates _______ jobs in Alaska’s public and private sector.

Your choices: 2, 5, 12, 20.

The correct answer is 20.

• How large must an oil spill be on North Slope water or tundra before it must be reported?

Your choices: 1 drop, 1 liter, 1 gallon, 10 barrels.

The correct answer is 1 drop.

More information about AOGA can be found at www.aoga.org.






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