ConocoPhillips’ release of its second quarter earnings statement last week set off some political theater in Alaska as legislators mounted the pulpit to denounce anew Gov. Sean Parnell’s proposed modification of state oil production taxes.
Second quarter profits by the company show that reducing taxes would be a big giveaway, state Sen. Hollis French and Rep. Les Gara, both Democrats from Anchorage, said in a press conference.
“ConocoPhillips is making over $5 million every day in Alaska profits. Alaska is a cash cow for them,” Gara said.
ConocoPhillips said the earnings illustrate just the opposite, that Alaska’s tax structure limits companies’ ability to take advantage of oil price increases, an impediment to new investment, company spokeswoman Natalie Lowman said. The price of crude oil went up substantially between the first and second quarters, but ConocoPhillips’ net income didn’t increase.
“Since we take all this risks of investment, this doesn’t seem equitable,” Lowman said.
State Natural Resources Commissioner Dan Sullivan jumped into the fray, saying that other oil producing states are booming with new activity, but not Alaska.
“The most important figure to watch is the declining throughput of oil through the Trans-Alaska Pipeline System. That number continues to go down,” Sullivan said July 28 in a statement. “North Dakota reports 158 active drill rigs. Texas has more than 860. We have only seven.”
ConocoPhillips is the only North Slope producing company that reports Alaska income separately from Lower 48 and worldwide earnings. The recent report showed that net income actually dropped, from $549 million in the first quarter to $490 million in the second quarter, according to the earnings statement.
Lowman said ConocoPhillips also paid the state an estimated $1.1 billion in royalties and taxes during the second quarter. First- and second-quarter net earnings in Alaska were reported as $1.04 billion, but the company paid the state about $1.9 billion in royalties and taxes for the same half-year period.
“This follows the historical trend that for every dollar of net income, ConocoPhillips has paid about twice that much to the state government,” Lowman said.
The earnings statement also showed Alaska income at more than that for ConocoPhillips’ Lower 48 production, with $490 million earned in Alaska in the second quarter and $327 million earned in the other states. First-quarter income showed the same difference, with $549 million earned in Alaska and $314 million earned in the Lower 48.
Lowman said the difference occurs because much of the company’s Lower 48 earnings are from natural gas production and gas prices are at very low levels compared with crude oil. However, Lower 48 crude oil earnings are also lower than Alaska oil earnings because of an unusual price difference between oil sold on the West Coast, where Alaska oil is landed, and oil sold in the Midwest, where prices have been depressed because of competition from Canadian oil.
ConocoPhillips’ average sales price per barrel was $113.75 per barrel for Alaska oil, but only $77.99 per barrel, on average, for oil sold from elsewhere in the U.S.
The company’s Alaska production was up in the second quarter to an average of 223,000 barrels per day compared with a 214,000 barrels per day average for the first quarter, but first-quarter production was likely depressed by an extended Trans-Alaska Pipeline System shutdown in early January due to a pipe leak at pump station 1.
Production averaged 230,000 barrels per day in 2010.
In their press conference, French and Gara said the major producing companies were overstating any negative effects of Alaska’s tax policies and that the exploration incentives in the state taw law was actually encouraging new investment.
The two noted several recent positive developments, including the announcement by Spanish oil company Repsol that it would spend $768 million to evaluate new prospects on state North Slope lands over the next three years.