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Operators say oil tax change will spur projects

Posted: April 28, 2013 - 9:54pm

North Slope oil operators are ramping up activities following the Legislature’s approval of changes to state oil production tax on April 14.

ConocoPhillips said it will put an additional drill rig to work in the Kuparuk River field, which the company operates, said Trond-Erik Johansen, president of ConocoPhillips Alaska Inc.

ConocoPhillips will also work with its partners in the Kuparuk field, with BP being the most important, to develop a new drill site on the southwest flank of the field. An exploration well, “Sharktooth,” was drilled in the area last year.

Johansen also said ConocoPhillips would begin permitting and engineering on its Moose’s Tooth Unit in the National Petroleum Reserve.

Moose’s Tooth is in the northeast part of the NPR-A and west of the Alpine field on the Colville River Delta, which ConocoPhillips also operates.

The company has made a number of medium-sized oil and gas discoveries at Moose’s Tooth in recent years with its partner, Anadarko Petroleum Corp.

Passage of the change in the state’s petroleum tax by legislators April 14 was important in encouraging ConocoPhillips to proceed with the projects, Johansen said.

“We have always believed that Alaska’s North Slope is a resource-rich area. But developing oil from the legacy (producing) fields and new satellite fields has become increasingly challenging, costly and technology-intensive,” he wrote in a statement.

“The new oil tax law makes the North Slope a more attractive business environment and should lead to more investment in oil-producing projects than we have seen in recent years,” Johansen said.

BP did not identify specific projects the company would pursue, but was upbeat about the tax change.

“As a package, this is an important step forward and will help us compete for more investment,” said Janet Weiss, BP Alaska region president. “This puts Alaska back in the game.

“We will change our long-term plans accordingly, seeking appropriate sanctions for additional activity.”

ExxonMobil was also positive on the change.

“We believe Senate Bill 21 provides significant progress towards making Alaska’s investment environment more globally competitive and could lead to additional investment and production,” company spokesman Patrick McGinn said.

“ExxonMobil is committed to Alaska and will continue to actively pursue attractive investment opportunities,” he said.

Meanwhile, independent companies active on the slope say they are now satisfied with the tax changes, after expressing concerns when the legislation was first introduced.

“We’re in a better place now than we were with ACES,” the current law, or even early versions of SB 21, said Bart Armfeld, chief operating officer for Brooks Range Petroleum. Initially, “the loss of capital investment tax credits (in early versions of SB 21) were an issue for us,” but alterative forms of tax credits developed by the House in the final weeks of the session make a big difference, Armfeld said.

Brooks Range is developing its small “Mustang” field west of the Kuparuk River field, which is expected to be in production late next year. The road and pad for Mustang were built this winter and facilities will be under construction in 2014. Mustang will produce about 15,000 barrels per day at peak, Armfeld said.

Pioneer Natural Resources, a major independent company that operates the small Oooguruk field, said it is also satisfied with the final form of SB 21 after concerns with early versions, said Casey Sullivan, a spokesman for Pioneer.

The company is developing what could be a major new project near the Oooguruk field that it has named Nuna. The company’s board will consider the project for final approval next fall.

Early versions of SB 21 eliminated a 20 percent capital investment tax credit that is in ACES, as well as the progressivity formula that drives up tax rates at higher oil prices.

The investment tax credit was very important to small companies like Brooks Range and even mid-sized independents like Pioneer because it provided a way for the companies to overcome very high costs of developing new North Slope projects.

The final version of SB 21 contains a combination of features to offset the loss of the tax credits, including a Loss Carry Forward credit that allows companies to get tax credits for losses incurred before production starts, and a Gross Revenue Exclusion feature for new fields that allows a portion of the production to be free of state tax.

Alaska’s tax on oil production is now among the highest among major oil-producing regions, Alaska Gov. Sean Parnell has said, and a reduction of the tax is needed to spur new industry investment.

Production has been declining on the North Slope by about 6 percent a year mainly due to flat to declining investment in new oil projects, Parnell has said.

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jake 04/29/13 - 09:08 pm
Cut backs in contract work force

Wonder why the big 4 are laying off contractors if there is so much work happening on the slope. Or is just a lot more office workers getting work and bonuses

Sam Von Pufendorf
Sam Von Pufendorf 04/30/13 - 07:58 am
Laying off?

First, the legislation just passed two weeks ago and the layoff's you write of more than likely took place prior to the bill being passed,
Second, additional contractors are arriving on the slope as turnaround season approaches. I am sure there will be a shortage of room availability by the time June arrives. Maintenance (TAR) work is projected to be at a near all time high in 2013.
Third, most projects don't start in the field, but are developed in an office by office workers (engineers, budgeting personnel, risk assessors etc). They are part of the employment base of any company and most of those employees are local as they don't work a 2X2 schedule. Therefore, those office workers and their bonuses put money back into the community through their purchases of products and services.
Fourth, eventually the field will feel the effects of forward looking projects. Sometimes those projects require field workers and sometimes they do not. Remember? The basis for this legislation was to put more oil through TAPS. More than likely, it will result in significant employment gains as well.
Finally, the tax bill that was passed in Cook Inlet took two years to start showing the effects or return on tax investment. I guess we should allow some time for the same to happen on the north slope.

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