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Olson, Chenault talk oil taxes, gas pipeline

Posted: March 23, 2013 - 8:28pm

Two lawmakers from the Kenai Peninsula contend the Alaska State Legislature is closer than ever to making historic decisions on two hot button issues — a rework of the state’s oil tax system and building a gas pipeline from the North Slope.

“I think we are closer than we were in the past,” Rep. Kurt Olson, R-Soldotna, said. “... I think we’ve got a real shot at it. I think people are tired of us not doing anything.”

Olson made his comments in an interview Saturday after a town hall meeting at the George A. Navarre Borough Administration building’s assembly chambers where he and House Speaker Mike Chenault, R-Nikiski, earlier gave an update on legislative progress, heard residents’ concerns and answered questions.

Other than education-related subjects, oil taxes and gas pipeline issues dominated the mid-morning discussion. Chenault said he hopes the Legislature can wrap up on time — avoiding a summer special session — but conceded that debates on oil taxes and a gas pipeline could keep lawmakers away longer.

“I think we’ll get the operating budget, which is the only thing that we have to have done and we’ll get a capital budget done, but other than that, we’ll just see,” he said.

He said he is also optimistic House Bill 4 — his effort to help the Alaska Gasline Development Corporation usher to open season a gas pipeline — will pass the Senate.

“I don’t think there is anything in there that’s a poison pill,” he said. “We just have to get people to understand what the bill actually does and how it moves Alaska forward.”

Chenault was asked by a resident why anyone would oppose his HB4. The Nikiski Republican said he could think of many — size, location and “it’s not the right color,” he jested.

“Right now you actually have a city that is funding an ... ad campaign — you’ve probably seen the ads on TV — saying to call your legislator, tell him to vote against House Bill 4 because it is too small, it doesn’t benefit all Alaskans, it won’t raise revenue,” he said.

But, the pipeline is a sure bet to “heat Alaskan homes, Alaskan businesses, fuel Alaska’s economy and if there is any left, ship it somewhere else where we can make more money,” Chenault said.

He said some of the bill’s biggest push back last session came from Fairbanks-area lawmakers.

“Fortunately a couple of them aren’t there now,” he said. “That may be part of it. Their idea was to run a pipeline from Cook Inlet, a place that doesn’t have gas mind you, to Fairbanks, a place that doesn’t have gas. It made no sense.”

Some say the state shouldn’t be looking at a gas line because of the estimates of Cook Inlet’s resources, Chenault said. However, uncertainties plague that answer — where is it located, when will it be discovered, how long before it is place on the market and the cost.

If the cost of investment is too high, companies won’t drill and the area, he said, can only hope producers put more gas in the market based on the results of their oil drilling.

“They are not going to spend hundreds of millions of dollars to develop a gas field that they can only sell gas at in the middle of winter,” he said. “It makes no economic sense.”

That strengthens the pipeline’s case, especially considering recent utility threats of possible liquefied natural gas imports to meet demand, he said.

“If we don’t find gas in Cook Inlet and if a gas pipeline doesn’t get here in time, that may be the only option that’s out there,” he said of importing LNG. “I think it’ll be a sad day for Alaskans whenever we import LNG from a foreign country to fuel our energy needs when we have 35Ts of known gas sitting at Prudhoe Bay.”

Both Olson and Chenault said they have not seen Senate Bill 21, an oil tax overhaul approved by the Senate on Wednesday. However, both representatives said it was time for action.

“The majority feel ACES should be modified,” Chenault said. “We talk about, ‘We need to take our time, we need to consider it, we need to think about it.’ For those that weren’t here, ACES was passed across the House and the Senate floor in 30 days ... we have taken four years looking at ACES and modifications to it.”

Continued declining oil production and lack of new investment “spells disaster in a short period of time,” for the state’s finances, he said.

“I don’t think that puts us up against a wall that we have to (pass oil tax reform),” he said. “But, people are concerned that we are going to be deficit spending if we pass the bill. We are going to be deficit spending if we don’t pass the bill.”

Said Chenault, “I’m willing to give up a little bit today to increase the production to last into the future.”

Olson said the only thing keeping the state afloat is the current high price of oil.

“I’ve been through three cycles — it is amazing how fast it can drop when something happens world wide that has an impact,” he said. “We could be back down to below $40 in six months and not even know it. Well, we would know it because we’d be broke.”

Brian Smith can be reached at brian.smith@peninsulaclarion.com.

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Norseman
3151
Points
Norseman 03/24/13 - 10:10 am
9
1
We are now owned lock, stock,

We are now owned lock, stock, and barrel by big oil. They have placed their shills in office, no more envelopes passing hands in hotel rooms.

From the guv on down, they have been able to get exactly what they want, and all legally.

Amazing when you are the richest corporations this world has ever seen how easy it is to take over a state. We are now a puppet state with big oil pulling all the strings.

robert white
378
Points
robert white 03/24/13 - 10:50 am
4
1
big oil

Jobs for everyone after you leave office!!!

WinchesterM1
161
Points
WinchesterM1 03/24/13 - 11:00 am
7
1
Your little low pressure/dry

Your little low pressure/dry gas only gasline to Nikiski get`s gas alright Mr Chenault.. it get`s gas to Nikiski for Conoco for that "extra" gas you passingly refer to, to be exported to Japan and Korea for 400% profit, while we Alaskans get stuck paying that tariff on a ten-billion dollar snafu that mainly benefits Conoco, and kills the possibility of a FAR MORE economical export-aimed project. You must think we`re all stupid out here to buy this "gas to Alaskans first" baloney your peddling along with Rep. Hawker? (married to a Conoco executive).
And you want the people of Alaska to pay the TEN BILLION to build a gasline that will not deliver the quality gas liquids we need for value-added jobs in this state?
Why don`t you ever address those points Mr Chenault? I think we know. Conoco is running your show. And the Senate just gave away the ten billion you were eyeballing to the oil companies TOO....with SB21. No wonder they showered money on you and the rest of these birds.
Remember legislators who took VECO money
Posted: Sunday, October 28, 2007

The following 12 legislators all have four things in common: 1) Every one of them has taken more than $10,000 from VECO;
2) When VECO owner Bill Allen asked to be relieved of his requirement to register as a lobbyist, they crafted and passed legislation ending Allen's requirement to register;
3) When presented with hundreds of pages of evidence of VECO's bribery, each of them refused to respond;
4) When asked to admit or deny under oath whether or not they had taken advantage of the illegal polling, services that VECO Vice President Rick Smith admitted having provided to more than 100 of the company's favored candidates, every one of the still seated legislators below refused comment.

Sound off on the important issues at

Rep. Mike Chenault, R-Nikiski, $32,000; Rep. Ralph Samuels, R-Anchorage, $10,250; Rep. Mike Hawker, R-Anchorage, $21,350; Sen. Lesil McGuire, R-Anchorage, $17,550; Sen. Lyda Green, R-Wasilla, $18,000; Rep. Kevin Meyer, R-Anchorage, $23,350; Sen. John Cowdery, R-Anchorage, $45,200; Sen. Con Bunde, R-Anchorage, $18,650; Rep. John Coghill, R-North Pole, $10,480; Rep. Richard Foster, D-Nome, $16,750; Sen. Fred Dyson, R-Eagle River, $21,700; and Sen. Gary Stevens, R-Kodiak, $14,275.

Watch closely as they go to bat for everything VECO fought for - and remember them next election.

Ray Metcalfe

Juneau
http://juneauempire.com/stories/102807/let_20071028011.shtml

Raoulduke
3012
Points
Raoulduke 03/24/13 - 11:19 am
5
0
owned

THEY(oil corporations) did not place any ELECTED shill into office.Unfortunately! The ALASKAN voter did over,and over again i.e.-Don Young.The oil corporations have been able to buy the ALASKAN's elected,and manipulate the the legislature in their(oil corporations) favor. The Alaskan thinks.They have gotten a great deal with the people.They have elected.Who have been nothing more than thieves,and liars.The Alaska legislature isn't anything more. Than a playground of graft,and corruption.Good ol' uncle Ted Stevens openly admitted to such acts,but the crook got off on a technicality.Which does not make him innocent.So! When the Alaskan quits being suckered.Then there may be a difference,but I think.The Legislature will have passed to many laws favoring the oil folks by then.Once again the Alaskan will lose.Instead of exerting energies against the federal government.Exert them against the government in your own back yard.

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 03/26/13 - 07:16 am
3
2
Oil Price

While oil prices "could" go up, or they "could" go down, there is no way to predict long term trades in the energy market. Short term markets are more predictable, but not fool proof. For example. the oil crash of the 1980's was not foreseen by most in the markets. The price of oil dropped by 56% in five years and held relatively stable for a short term. World events, which fall out of our control, may effect prices more than we would like. Yes, the price of oil "could" go up, but the cost of producing that commodity will rise with it and revenue to the state will remain steady of go down. There is no provision that states the oil companies must maintain production even if a negative impact is to be absorbed by the producers.

The short term forecast for world oil prices (through 2014) indicate a flat price per barrel. While the price may be steady, other factors concerning Prudhoe Bay and North Slope production are not.

1)Production continues to decline, therefore revenue to the state will follow that same decline provided the Energy Information Administration (EIA) forecasts are ballpark.

2)The same amount of fluids will still be produced from North Slope wells, only less of those fluids will be oil and more will be water.

3)Gas production for re-injection will remain the same.

4)Equipment required for production will remain the same with possible additions to handle an ever growing volume of produced water to be re-injected.

5)Maintenance costs will continue to grow as the field ages. Miles of pipe replacement, compressor rebuilds and technological additions will cut into the economics of operating the assets.

Although I have no answer for the current tax issue, I have a fairly good understanding of the two linked issues: A) Stimulate increased production by opening new areas of opportunity or a competitive business climate or B) Learning how to maintain state provided services without oil revenue which is at some point inevitable.

Sources:
http://www.eia.gov/forecasts/steo/report/prices.cfm

http://www.tax.alaska.gov/sourcesbook/AlaskaProduction.pdf

WinchesterM1
161
Points
WinchesterM1 03/24/13 - 03:14 pm
6
3
Will oil-tax cut spawn Alaska

Will oil-tax cut spawn Alaska doomsday prepping?
Brad Faulkner
March 23, 2013

If the oil-tax cut championed by Gov. Sean Parnell becomes law, everyone in Alaska will take a hit. Education funding will flatten or decline. Capital projects will decline. Revenue sharing will disappear. The Permanent Fund dividend will disappear as the fund itself is raided to pay for basic services.

In 1975, right out of high school, I went to work on the pipeline for a year. I then worked my way through Harvard University in the oil field. After college, I held a number of jobs in Prudhoe from field engineer to maintenance scheduling supervisor field wide for SOHIO. These were the early days when liquor flowed and tongues were loose. We had just built the pipeline and were building out the field.

Prudhoe is an elephant field. Kuparuk, Alpine and all other currently producing fields pale in comparison. Like every field, Prudhoe has a predictable decline curve. Production has been declining since 1987. Gas injection and sea water injection have helped slow the decline, but decline is inevitable.

The oil companies know this. To plan for the inevitable they set aside a 600 million barrel warehouse field on the eastern edge of the main Prudhoe structure. Essentially they warehoused this oil to keep the pipeline full through the main field’s declining years. Think of it as an oilfield IRA. This is “proprietary information.” I am not even sure how I know it. I have just known it for decades. The oil companies know it for sure. I expect the state reservoir people know it. Why we, the owners of the oil, are not allowed to know what is in the ground before making tax policy is a matter for another day. Trust me, it is there.

I have heard an oil field described as a glass of water that you put a straw into. This is wrong. It is many glasses. Sucking on a straw in one glass won’t change the level in the other glasses. Many sub-fields at varying pressures and depths make up the Prudhoe Bay structure. Under a previous tax regime called the Economic Limit Factor, most of the oil leaving Kuparuk and Prudhoe had zero production taxes. The producers used sleight-of-hand accounting to juggle these sub-fields to pay zero taxes on most of the oil.

The best thing Frank Murkowski did as governor was declare all sub-fields within the main Prudhoe structure one unit.

The bipartisan coalition worked really hard last year to come up with some much-needed changes to ACES which was killed in the House. Now the Senate is working on the governor’s bill, SB 21. This bill could have been written in a Houston boardroom. SB 21 allows major tax breaks for new portions of legacy fields. It is specifically written to exempt the 600 million barrel warehouse field that has been known about for 40 years. Trust me again, the majority of “new oil” entering the pipeline in the next decade will come from this single field. It is adjacent infrastructure and will be easy to develop. The oil companies are following the plan of 35 years ago to keep pipeline throughput viable. This governor wants to call it “new oil” and the Republican-controlled Senate is ready to play along.

Calling the warehouse field “new oil” will cost the state $10-12 billion at current prices. SB 21 ensures deficit budgets as early as next year. Within a decade our budget reserve will be gone. Within a decade we will be instituting a state income tax.

During that decade, everyone in Alaska will take a hit. Education funding will flatten or decline. Capital projects will decline. Revenue sharing will disappear. The Permanent Fund dividend will disappear as the fund itself is raided to pay for basic services. Every person in the state will feel the pinch of SB 21. To call the warehouse field “new oil” is a farce of epic proportion.

Does anyone really believe that the biggest oil companies in the world did not have an end game play for the biggest oil field in North America? Six hundred million barrels equals 164,000 barrels a day for 10 years. The pipeline will be full enough. During that 10 years they will suck the last drop of light oil out of the main Prudhoe structure. That is their end game. That has been the plan for 35 years.

I cannot prove any of this because we Alaskans, the owners of the oil, do not get to see the well logs, but I am paying with my job to write this piece. Do not give tax breaks to new areas of legacy fields. Time will prove me right and the state will be many billions richer.

Brad Faulkner is a Homer resident. He writes: “My last job in Prudhoe was as a boat captain for Alaska Clean Seas in 2009. In 2010 I was a task force leader of about 25 boats cleaning up the Gulf Spill. Last season I was a spill response boat captain for the Shell effort in the Beaufort.”

The views expressed here are the writer's own.

radiokenai
562
Points
radiokenai 03/24/13 - 04:16 pm
0
0
Hey, how about opening up ANWR?
Unpublished

Then all this sniveling and bickering about "Where is my PFD?" and "They are stealing my oil" would go away!

Unbelievable that people can't do math. If you have a mammoth field...that turns the curve to decline in 1987...oil is not going to produce itself!

The key is tax breaks for exploration and common sense.

We are hamstringed because a bunch of Liberal jackasses in office believe the North Slope is a Valley of Horses. I say bring their tree hugging self up to Prudhoe during the wintertime for a good dose of cool reality...heck bring them up there in the summertime for a mosquito swatting good time in the tundra!

Our problem is not Taxes, or Bribery, it is not PFD, delcline or gasses....it is the Federal Government and the biggest idiot the people have ever elected as a President. A true Embarrassement for the United States of America!

How dare that bafoon wave his finger at Americans as he deceipts a Nation! Makes me want to vomit everytime I hear the name barack (sort of sounds like a cross between a burp and a fart)

We can start by impeaching that jackwagon, then vote out the bunny huggers and greenpeacers so we can develope fields and create good jobs for Alaskans.

You can start by signing up for the NRA!

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 03/24/13 - 05:18 pm
3
2
A credible source?

"This is 'proprietary information.' I am not even sure how I know it. I have just known it for decades. The oil companies know it for sure. I expect the state reservoir people know it."...
"I cannot prove any of this because we Alaskans, the owners of the oil, do not get to see the well logs..."

Not exactly solid sources! But there are some of us that believe, "if it's on the internet, it has to be true!" Mr Faulkner doesn't even give a snippet of a clue as to where he may have gotten his information other than back in "the early days when liquor flowed and tongues were loose." Therefore, in my opinion, Brian has less than credible information and his article serves as little more than an op-ed with no actual facts.

Information that is known:
600 million barrels would last roughly 4.2 years at the perceived minimum flow of the TAPS (400 thousand bb/pd. Current production is about 600 thousand bb/pd)
"Heavy oil" (oil that is a technological challenge to recover) accounts for again the amount that has already been recovered in light oil. Heavy oil is not only difficult to harvest, it presents challenges in shipping as well. To date, the only logical answer is to cut the heavy oil with the lighter oil to make it more fluid or less viscous. If you have no light oil, the lack of technology may deprive us of 3-10 Bbo,or 10 - 30% of heavy oil known to be in place.
Formations such as Lisburn that contain tight formation oil hold 3 - 6 billion barrels of oil but need some technological advances to tap that resource as well.

http://www.aoga.org/wp-content/uploads/2011/01/8.-Pospisil-Heavy-Viscous...

http://juneauempire.com/stories/031111/sta_797844568.shtml

http://www.blm.gov/pgdata/etc/medialib/blm/ak/aktest/ofr.Par.49987.File.... page 9

These projects will take significant investment to make them happen.

WinchesterM1
161
Points
WinchesterM1 03/24/13 - 11:17 pm
2
3
That`s why they are making 29

That`s why they are making 29 bucks a barrel... because Alaska and ACES has made their investments lucrative. Do you know what super-critical water does to your heavy oil my friend?

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 03/25/13 - 09:21 am
2
1
Abandoned hearsay

Winchester, I'm happy to see you've abandoned hearsay and have moved on to facts.
Supercritical water has been used in the extraction of heavy and very heavy oil with limited success vs return on investment. Since supercritical water is, in essence, steam, it is very cost prohibitive in arctic conditions.
However, wellbore heaters have been used in the Peace River Tar Sands of Canada with some success.
Regardless of method, current technology uses heat for the extraction of heavy oil and in arctic conditions, that will be a challenge.
Definition of supercritical fluid: A fluid at a temperature and pressure above its critical point; also, a fluid above its critical temperature regardless of pressure.
The critical temperature of water is 705 degree F at 3200 psi. That in itself will provide some technical challenges to be utilized on a large scale.

http://www.halliburton.com/ps/default.aspx?navid=2243&pageid=4257

http://www.shell.com/global/future-energy/innovation/innovative-thinking...

http://www.youtube.com/watch?v=29oy1UCHJIE

4FIVE4
61
Points
4FIVE4 03/26/13 - 02:16 pm
4
0
OIL Company Reps.

Its almost useless to try to change these guy's opinions. They don't answer to constituants, they only answer to the richest companies in the world. This gas line wouldn't even be posible without ACES. The oil companies are making a boatload of money - and so is the state. ACES works as its supposed to. They have already stated that this billion dollar giveaway is " a good start". Said Chenault, “I’m willing to give up a little bit today to increase the production to last into the future.” Where did they promise to put more oil in the line? Oh yeah, they didn't! They want ALL the money to keep us hard working Alaskan's at their mercy. If they don't think Alaska looks attractive to them, they CAN leave. There are hundreds of oil companies that would line up far a shot at our oil. Its what the big three are charging them to use the pipeline that keeps them from bringing the oil to market.
I voted against oil reps in my district! Did you? Get informed and WAKE UP PEOPLE AND VOTE!!

WinchesterM1
161
Points
WinchesterM1 03/26/13 - 03:30 pm
3
1
Raoulduke
3012
Points
Raoulduke 03/27/13 - 04:47 am
5
0
Reps

Alaska needs to change the names of their Legislators to "OIL COMPANY REPS".The oil companies seems to be the people for which they truly are employed.

AK49er
131
Points
AK49er 03/27/13 - 09:47 pm
6
1
oil taxation

A big "Thumbs Up" to Norseman and Winchester. My sentiments exactly.
After nearly forty years in Alaska, virtually my entire adult life, all I can say is what a long, strange trip it's been.
This state has constantly been torn by forces of development, greed, boom and bust. And now corporations have the same rights as citizens. Is it any wonder our elected leaders have so many among them who are clearly there to serve their biggest campaign contributors, rather than the citizens? And now led by a smarmy lawyer occupying the governor's mansion, who's never met a resource extraction project he doesn't like.
Thankfully, there are still some legislators in Juneau with integrity. Unfortunately, they don't have the numbers when it comes down to a vote.
Welcome to the Owned State.

bob99507
361
Points
bob99507 03/28/13 - 07:23 am
0
0
Jobs

The fact that 1/3 of the jobs in Alaska are oil related might have some bearing as to why the people elected are for development. I have worked in the oil industry all my life I vote that way.

http://www.akrdc.org/images/industryHeaders/oil.jpg

Raoulduke
3012
Points
Raoulduke 03/31/13 - 06:20 am
0
0
1/3

Unfortunately! The elected are willing to give away billion's of dollars of ALASKAN monies to oil corporations with NO promise of DEVELOPMENT. Just how much Alaskan monies have been lost in this fashion? I prefer to vote for the BENEFIT of Alaskan's,not to line the pockets of the elected.

Raoulduke
3012
Points
Raoulduke 03/31/13 - 09:07 am
0
0
imports?

The possibility of "LNG IMPORTS" Alaskan's does there seem to be something wrong with this statement? Importing something this state can manufacture.Something is truly rotten ,and it isn't in Denmark.It is in Alaska's Legislature.

wings
44
Points
wings 04/02/13 - 11:36 am
0
0
What you get for your vote!

Yes, Bob, and you will leave when the oil runs out, leaving the state in worse shape for your vote and your money. You, like the other 1/3 jobs in the state of Alaska, work for your creature comforts off the backs of the "OTHERS" who live here. The tax money Alaska government GIVES to the oil companies, comes from ALL the tax payers of Alaska. Two thirds of those people plan to stay in Alaska after the oil rush is over. What will you do if you stay, hunt, fish, and garden with the rest of us? Maybe you can drill us a few good water wells.

bob99507
361
Points
bob99507 04/06/13 - 06:38 am
0
0
wings

I have been in this state since 1953 and plan on staying. So you don't know what you are talking about. As far as the rest of it I already do that. You can hand dig a well if you want that's what we used to do.

jford
1748
Points
jford 09/03/14 - 11:42 am
0
0
Follow up on Chenault's big talk

The latest updated reports say:

"The update notes that the state’s current revenue forecast indicates Alaska may need to rely on savings in the coming years to offset revenue shortfalls caused by falling oil production."

Played for fools.

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