Industry: Incentives needed to spur oil, gas development

Posted: Sunday, February 13, 2005

Cook Inlet oil and gas industry leaders told state lawmakers Friday in Kenai that a better regulatory environment and a variety of incentives will help spur oil and gas development and exploration in the region.

The testimony was at a Joint Senate and House Resources Committee hearing. The hearing was part of a two-day program aimed at showing state legislators industrial operations in Cook Inlet and to gather information about what the state can do to promote exploration in the region.

This was the first event of its kind to come to Kenai.

The hearing was organized in response to an overall decline in proven oil and gas reserves in the Inlet and the fear of manufacturing leaving the area, particularly Agrium's North Kenai fertilizer plant which will close later this year.

"It's going to affect everybody that lives on the peninsula," said Sen. Tom Wagoner about Agrium's closure.

Agrium was not the only issue on the mind of the industry and legislators at the hearing.

Scott Jepsen, Cook Inlet assets manager for ConocoPhillips Alaska, said the company will probably need more gas for its Liquefied Natural Gas plant (LNG) in Nikiski to continue operations after its federal export license expires in 2009. He said it is too soon to say whether there is going to be enough gas to continue running, but that the company is always looking at ways to extend operations.

Steven Hansen, manager of Tesoro Alaska, said oil and gas operations in Cook Inlet are vital to the refinery's operations. Tesoro consumes all crude oil produced in the inlet. As that oil declines, the refinery will have to purchase more foreign oil at a higher price, he said.

"It's important that the oil and gas industry remains healthy," Hansen said.

Proven oil reserves in the inlet are projected to run out by 2016.

At the hearing, a variety of companies gave testimony calling on the state to provide a stable regulatory environment and incentives to explore in the area.

"Sustained growth requires consistency and stability," said John Zager, general manager for Unocal Alaska.

Dan Seamount, commissioner of the Alaska Oil and Gas Conservation Commission, said there is still a lot of potential to recover more oil from the region. One way to achieve this, he said, is to keep the offshore infrastructure and use it to recover more oil from developed reservoirs.

"There are lots of identified prospects within reach," Seamount said.

The following are some of the ways industry called on the state to help:

n Provide tax incentive credits for new exploration in the inlet;

n Create a stable tax environment;

n Do not make changes to the National Pollutant Discharge Elimination System permit. This is the permit that allows certain materials to be discharged from offshore platforms into the Inlet;

n Provide more clear guidelines for dismantling oil platforms in Cook Inlet;

n Provide more royalty incentives; and

n Reduce the amount of red tape during the new exploration permitting process.

Earlier in the day, the legislators and state officials toured one of XTO Energy's offshore oil platforms, Agrium and the LNG plant.

On an Agrium tour, Wagoner was approached by plant employees to discuss the future of the plant and the community.

Loren Hollers, an operator, implored the senator to help save manufacturing in the area.

"You cannot have a strong economy without manufacturing," Hollers said. "The value-added manufacturing plant (Agrium) we have is this close to being gone."

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