Governor tours oil and gas division

Posted: Wednesday, December 04, 2002

ANCHORAGE (AP) -- On his first full day in office Gov. Frank Murkowski met with officials in the state Division of Oil and Gas, an agency that oversees the state's most important revenue stream.

''This is where the state's cash flow comes from,'' Murkowski said Tuesday.

This year the state will collect $1.3 billion in oil taxes and royalties. That's more than 80 percent of the state's general revenue, but still more than $700 million short of what the state needs to pay for services.

Murkowski campaigned on a no-tax platform and pledged not to use money from the Permanent Fund without a vote of the people. Instead, he vowed that new revenues would come from greater resource development.

Murkowski laid out a detailed oil and gas development policy that he says will spur investment in the North Slope and increase oil production by 3 percent per year beginning in 2005.

That would mean roughly an additional $30 million per year in revenue. Meanwhile, the gap between state spending and revenues is expected to grow to more than $1 billion in three year.

The governor's proposals include faster permitting, access to facilities and tax breaks to cut costs of drilling exploration wells.

Ken Thompson, a former Arco oil executive who helped devise Murkowski's policy, says changes will help reorient Alaska's policies toward the smaller companies investing on the Slope.

Thompson forecast an additional 217,000 barrels a day of production and $390 million in additional state revenue from the oil fields by 2010. He concedes it is an optimistic scenario and would not completely solve the state's revenue problems.

The state's oil ills are compounded by falling production at the North Slope's big fields, Prudhoe Bay, Kuparuk and Endicott, said Mark Myers, head of the Oil and Gas Division.

Smaller deposits at the edge of the giant fields and heavy oil reserves are helping to prop up production, but achieving 1 million barrels per day requires new discoveries.

''I think the oil is out there. In order to do it, you've got to have more exploration wells drilled,'' Myers said.

As major companies, such as Exxon Mobil and BP, have cut back exploring in Alaska, smaller companies have picked up the hunt.

Murkowski's proposals could help the newcomers, said Ken Boyd, a consultant and the former director of the state Oil and Gas Division.

But Boyd questioned some of Murkowski's proposals, such as allowing companies to recover 50 percent of exploration costs through tax breaks.

''Incentives should be based on science and economics,'' Boyd said. ''The state should only give incentives to gain something in return.''

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