It’s nearly spring and soon the gardening season will be upon us. People across Southcentral Alaska and other parts of the state will begin planting seeds to grow flowers and vegetables that can be enjoyed at a future date. These are investments for the future, not unlike the investments the oil and gas industry makes year after year.
With Gov. Frank Murkowski’s 20/20 petroleum production tax (PPT) legislation, Alaska’s oil and gas industry would have the highest marginal tax rate in the U.S. Recent committee substitutes by the Alaska Legislature would raise those taxes even higher. Adoption of such high taxes would surely discourage companies from “planting” or investing in the state’s future. To follow the analogy farther, taxing at high rates now is like eating the seeds now for quick gratification instead of planting them for a long-term yield.
Alaska State Chamber of Commerce members across the state like to think in the long-term. They think about how the state can adopt a fiscal plan compatible with a modernizing, growing Alaska. They think about a plan built around a vibrant, growing economy that provides the best education and skills critical to today’s global economy. They think about a state that provides jobs and career opportunities that will keep our young folks here instead of migrating to the Lower 48.
Alaska’s economy has and will continue to be driven by the oil and gas industry, which now provides about 90 percent of the state’s revenues and is one of the state’s top private employers. What the industry has done over the past 30 years in the state is nothing short of astounding. They have invested $50 billion on the North Slope and its infrastructure to produce 15 billion barrels of oil and transport it to market. They have also created 34,000 jobs and a healthy oil and gas service and support industry; generated $120 billion in taxes for Alaska and the federal government, and provided the lion’s share to grow the permanent fund to $34 billion.
With that remarkable past, industry says the future can be even more exciting. It has laid out a 50-year plan that includes a $25 billion natural gas pipeline to Canada. It has identified about 17 billion barrels of recoverable oil and gas resources on the slope. Much of the slope’s easy-to-produce oil has already been recovered, however, and recovering those remaining barrels will require the very latest drilling methods and advanced recovery techniques.
Some of the oil is viscous and difficult to produce with conventional methods. Some oil lies in small pockets that require novel horizontal and multilateral drilling.
The industry has been trying to make legislators and others understand it is the natural decline of the North Slope big fields, not supposedly greedy multinational companies, that is the real enemy. We have a common cause. Stemming production decline requires continuous investment.
At the current time, investment of about $1.5 billion per year leads to about a 6 percent decline in North Slope production. Double that investment to $3 billion a year and North Slope production slows by only 3 percent per year. About half of the production and revenue currently forecast by the Department of Revenue over the next decade depends on investments yet to be made.
Left unattended, a garden will grow weeds that choke off healthy plants and prevent their growth. Similarly, if mature oil fields are not constantly tended, they begin to decline more rapidly into what is called a “death spiral.” Drilling of new wells, working over old wells, stimulating field recovery with water and gas, are just some of the actions that must be taken on a continuous basis to slow the decline and maximize recovery. Discontinuing investments for a few years and then resuming those investments when the price or tax regime improves doesn’t work very well with complex reservoir flow dynamics.
For three decades the oil and gas industry has clearly demonstrated its skillful use of people and technology on the North Slope, and I am confident it has the ability to recover those 17 billion barrels that are still there. I think most Alaska residents would agree that they want the industry to plant a garden that will reap harvests far into the future, which will include a natural gas pipeline.
Eric Britten is the chairman of the Board of the Alaska State Chamber of Commerce and a well-known Alaska businessman.
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