Alaska Gov. Frank Murkowski’s decision to boost the state’s oil production taxes on small deposits in and near the Prudhoe Bay field appeared to be a bolt out of the blue when he announced it in his State of the State address Jan. 12. But a quick review of fiscal changes around the globe suggests that the move may be more in line with the actions of competing oil regions than one might imagine.
Murkowski changed the way Alaska calculates production taxes on Prudhoe satellites so that their tax rate is now comparable to that of the main Prudhoe reservoir, which has the highest tax rate on the North Slope. The change is estimated to generate $100 million to $150 million in additional revenues for the state this year.
Oil industry consultant Wood Mackenzie is aware of Murkowski’s action but the firm has not yet studied its implications in detail, “although it is something that we will be looking at in the future,” according to Scotland-based specialist David Barrowman.
Wood Mackenzie has noted hikes in government take from oil fields in at least four other oil producing countries in recent years though, Barrowman said.
Among the fiscal changes:
• The United Kingdom added a supplementary charge of 10 percent in 2002, which raised the minimum rate of take from 30 percent to 40 percent;
• Argentina introduced an export tax;
• Venezuela removed heavy oil royalty incentives; and
• Nigeria increased its share of government profit from oil production.
“However, it has not all been in the one direction,” Barrowman said. “Some governments provided (in some cases limited) incentives for exploration such as Norway, Australia and Indonesia.” (Alaska has also recently added exploration tax incentives to spur drilling.)
Barrowman said the impact of these changes is difficult to state as some changes are fairly recent, while with others, the exact impact can be unclear.
“For example in the (United Kingdom), industry responded negatively to the change, but in a period of rising prices the effect of increases in government take are not that straightforward to identify,” he said. “It is an area which would be interesting to investigate. Certainly people will give views on the impact on activity, but one would need to look at actual activity levels and try to separate out the impact of fiscal changes.”
Canada says never again
Greg Stringham, manager of government affairs for the Canadian Association of Petroleum Producers, said his membership already views Alaska as one of the least attractive oil regions in the world for investment based on assessments published by gas consultant Pedro van Meurs.
Murkowski’s move to increase oil production taxes presumably would make the state even less attractive for potential investment, he said.
As for precedents, Stringham said Canada has experienced more than its share of fiscal changes over the years, causing both negative and positive effects on industry activity and investment.
“Royalty regimes do change from time to time,” he said.
For example, Canada’s National Energy Program in 1980 was “devastating on the industry,” especially in Alberta. But analysts say the job losses and industry downturn associated with the National Energy Program had more to do with the sharp drop in oil prices during the period than with government policy.
Still, Canadian officials have vowed to never repeat the errors of that program.
“Lately, there have been more deductions than increases in (Canada’s) taxes and royalties, and very rarely have the changes been retroactive,” Stringham said. “Normally, fiscal changes are imposed on a transitional or go forward basis which gives industry a chance to make investment decisions after a fiscal change is made.”
No impact on Petro-Canada’s decisions
“It has no immediate impact on us,” said Susan Braungart, a spokeswoman for Petro-Canada in Calgary, Alberta. “It doesn’t impact our exploration or our investment decisions in Alaska. We’ve started initiating our exploration efforts in the NPR-A, now that a judge’s ruling allows us to do that.
“And we continue to monitor our interests in the Foothills area as it relates to the development of a gas pipeline,” she added.
Petro-Canada will spend C$45 million in 2005 on its long-term natural gas supply in Alaska and the Mackenzie Delta, a spokeswoman said Jan. 25. The company holds leases on about 700,000 acres in the National Petroleum Reserve-Alaska and the North Slope Foothills Area.
