Northstar Island on the North Slope of Alaska. Photo credit:
Big oil giants, including
, and the
, managed to dodge a big tax hike in Alaska this week. While the
vote was closer than big oil likely wanted to see, Alaskans
decided not to repeal the 2013 "More Alaska Production" Act. The
law, which went into effect in January, reversed a progressive
tax system that the industry said was making it unappealing to
invest in Alaskan oil production. Now, these big oil companies
need to "put their money where their mouth is," according to Gov.
Sean Parnell, and invest to grow the state's oil production.
Less taxes and more production
Some have called the new law a big handout to big oil as the
state stands to lose $2 billion in tax revenue this year.
However, that tax break is designed to incentivize oil companies
to invest in the state to boost production. So far it appears
that the law is working. ConocoPhillips, for example, has doubled
its capital spending in Alaska over the past two years. As the
following slide notes, the company is specifically citing these
better fiscal terms as the reason why it has increased its
Source: ConocoPhillips Investor Presentation.
This additional capital has enabled ConocoPhillips to add two
rigs to its Kuparuk field in the North Slope. However, the
company isn't stopping there as it is investing to build another
drill site for a third rig in the Kuparuk River Field. Further,
it's planning the Greater Mosses Tooth #1 development in the
National Petroleum Reserve and the 1H Northeast West Sak, or
NEWS, development. These three additional projects represent
capital investments of upwards of $2 billion and would add 47,000
barrels of oil production per day by 2017 to the state if
approved. That's a big boost considering that statewide
production is down to around 500,000 barrels of oil production
ConocoPhillips isn't the only oil company that has already
taken advantage of the new tax laws. In the last year BP has
added two new drilling rigs to Alaska, which brought its fleet up
to nine. This was part of a billion dollars in new investments
the company is planning to make over the next few years. Further,
it is evaluating $3 billion in additional projects in Prudhoe
Bay's west end that could result in 110 new wells being drilled
in the state over the next decade. This is an investment that is
much more likely to move forward now that Alaska's 2013 tax law
won't be overturned.
Fueling Alaska's future
While the "More Alaska Production" Act is intended to provide a
boost to that state's sagging oil production, it could do more
than just entice companies to pursue new oil projects. One of the
biggest beneficiaries of the law not being repealed could be the
Alaska LNG project, which is a joint venture between
ConocoPhillips, BP, ExxonMobil,
and the state. The $45 billion-$65 billion liquefied natural gas
export project likely would not move forward if the law had been
repealed as it would have been a signal to energy companies that
the state isn't open for business. This project actually
represents more than four times the projected $10 billion in
additional oil investments that the oil tax law is expected to
produce over the next decade, so it's a really big deal for the
state to move forward with this project.
Liquified Natural Gas Plant in Kenai, Alaska. Source:
Alaska has immense natural gas deposits in the North Slope
that have yet to be developed. Further, most of the associated
natural gas that is produced in the state is reinjected into the
ground as there are few places for it to go other than
being flared off
. So, by developing its natural gas resources and exporting it to
places like Asia, Alaska stands to generate billions of dollars
in revenue, which should more than offset the lost oil taxes over
the long term.
Big oil gets to keep its big tax break in Alaska for now.
However, it will need to make good on its promises to grow
production in the state. While many producers have already
increased their investments, Alaska will need to see oil
production and jobs meaningfully increase in the near future or
else big oil likely won't be able to dodge a future attempt to
repeal this law.
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Big Oil Dodges Billions in Alaskan Taxes
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