Alaska is now attracting more interest from the world’s petroleum and minerals industries, Alaska Natural Resources Commissioner Dan Sullivan says.
However, the state still has a lingering reputation as a tough place to do business that is casting a long shadow, he said. Sullivan spoke to business and community leaders in Anchorage Sept. 6 at the Resource Development Council’s first fall bi-weekly meeting of 2012.
“Alaska’s reputation still isn’t the greatest,” Sullivan said. “I believe this is ‘old thinking’ but the conventional wisdom is still that this is a difficult place to do business, to invest, to get permits, and that the government is hostile.”
Sullivan and other state officials are chipping away at the bad reputation but it’s slow going. What doesn’t help is that lot of Alaskans “are living a little in the past,” he said.
“As long as the pipeline was over 1 million barrels a day we didn’t have to hustle. But we’re in a different era now,” Sullivan said, with the oil in the trans-Alaska pipeline system less than 600,000 barrels per day.
“We have the resource base but we now need to hustle,” he said. “Capital is going all over the world.”
Taxes come up a lot in the commissioner’s discussions with potential investors.
“We can only tell them we’re working on it,” Sullivan said.
Gov. Sean Parnell has proposed adjustments to the state’s oil production tax, which is among the highest in the world, but the proposals bogged down in the Legislature in 2011 and 2012 sessions.
Sullivan is on the road a lot, speaking at energy and minerals conferences and knocking on doors at corporate offices.
He was in Houston at the North America Prospect Expo, better known as NAPE, from Aug. 20 to Aug. 24.
This week he was scheduled to be in Tokyo at the LNG Producer-Consumer Conference, a major event sponsored by Japan’s Ministry of Economy, Trade and Industry, or METI. He also plans to stop in South Korea for other gas-related meetings.
There was one positive development at the NAPE Houston conference. A major private equity investor, Tudor, Pickering & Holt, sponsored a luncheon focused on Alaska, giving Sullivan a stage to pitch the state to 60 potential investors.
In Tokyo, Sullivan will be able to test the waters before an expected Sept. 30 report by North Slope producers on a major Alaska LNG project, and also gauge reaction by Japanese companies to Russian President Vladimir Putin’s promise to develop a major LNG project at Vladivostok to supply Japan (Russia already ships LNG to Japan from Sakhalin).
Sullivan says his message is received with interest and that 50 percent of the “cold calls” he makes to corporate executives result in requests for more detailed information.
Inevitably, the negatives come up, though. Costs are high, taxes are high, lawsuits are many, and the regulatory environment is tough.
There’s not a lot the state can do about high costs in remote operating environments, and while progress is being made in streamlining state permit procedures, Alaska has to reinforce its message that environmental standards are high.
That is actually a positive, Sullivan said.
A lot of negative press comes with Shell’s long effort to get its Arctic offshore exploration approved by the federal government, which now appears to be happening.
But there is also the government’s apparent inability to complete its decision on the Point Thomson environmental impact statement for the multi-billion-dollar gas and condensate project. If that goes past mid-October, ExxonMobil will be unable to mobilize in time to start construction this winter. As many as 1,000 jobs could be created for Point Thomson construction this winter.
Sullivan said he and other state officials are making phone calls daily to get the Point Thomson EIS decision out in September, the original goal of the U.S. Army Corps of Engineers.
“Those guys are getting sick of my phone calls,” he said.
All that said, Alaska has some big selling points. The sheer size of the resource base is one, but there are others. For example, Alaska’s North Slope is the only place where a company can pursue a shale oil resource as well as a conventional oil resource.
“You won’t find 100-million-barrel conventional oil finds in the Bakken (N.D.) shale oil region, but you will here,” Sullivan told the RDC.
There are also actions by some major companies on the North Slope that haven’t been widely noticed, the commissioner said. One is ConocoPhillips’ acquisition of a large acreage position south of Point Thomson in a 2010 state lease sale, and Shell’s acquisition of state leases in near-shore submerged lands within the state’s three-mile offshore territorial limit, Sullivan said.
Results of the state’s December, 2011 area-wide lease sale were encouraging, too. The state received more than 300 bids from more than 15 bidders including companies new to Alaska like Repsol and Royale Energy, Sullivan said.
“It was one of the most successful sales in recent Alaska history,” he said.
Cook Inlet state lease sales have seen a steady increase in companies bidding and new firms entering the basin, with the 2011 lease sale particularly strong.
The next North Slope area-wide lease sale is set for Nov. 7 and, like last year, will be held in coordination with the U.S. Bureau of Land Management in offering National Petroleum Reserve-Alaska leases.
On the permitting and regulatory reform front, the state and the North Slope Borough recently signed a Memorandum of Understanding to coordinate permitting actions, Sullivan said. This will help remove any stumbling blocks between a developer having to get permits from state agencies as well as the borough, which is the regional municipal government for the North Slope.