Legislators, Oil Companies Look For Ways To Extend TAPS Life

As legislators move back to Juneau for the ninety-day session that gets underway next week,  members are preparing to spend a lot of attention on oil taxes – particularly Governor Parnell’s desire to lower the state’s share of profits from their current level.  After narrowly passing the House during last year’s session, the bill will begin in the Senate where members will have to decide what to believe in the swirl of  information and opinions surrounding the issue.

The governor has put the entire weight of his office behind House Bill 110.  That’s the plan that is estimated to cut oil company taxes by about $2-Billion a year.   In return, the administration hopes to see more industry emphasis on exploration and production that would get more North Slope oil to market.

There’s been no shortage of  input from various quarters in the past year.  But the one unchallenged point is that – now – the TransAlaska Pipeline system is operating at less than a third of its potential.  And with worries about the pipeline not having enough oil to keep it open,  the governor says that lower taxes would help fill it up again.

The major oil companies have so far been vague in making a commitment to fulfill the governor’s goal of increased production.   But B-P has now directly linked the tax cut with specific developments — something they wouldn’t do during last year’s session.  Steve Rinehart is the company’s spokesman in Alaska.  He says a meaningful tax change will bring increased investment in the state.

And we have named specific projects that we think will result.  One of those is the proposed I-Pad development.  I think that would be the biggest production pad of Prudhoe Bay with about fifty wells and an 80-million barrel target.  We want to move forward on these kinds of projects, but the economic  environment here has to allow that to happen.

The most recent issue that lawmakers have to work through is conflicting estimates of the point at which the pipeline will have to close.

B-P,  the company that owns the largest share of the pipeline,  has issued two estimates of when the line would reach its shut-down point.  And those estimates are raising doubts.   Senator Hollis French says one claim came in court proceedings that showed the pipeline couldn’t operate if daily oil flow dropped below 300-thousand barrels a day. That would reduce it’s taxable value.   The other claim told the  U-S Securities and Exchange Commission that it would operate with as little as 135-thousand barrels a day – a much longer expectation of life that would increase stock value.

French says that’s the problem that comes up when someone tells two different things to different people.

If that were your neighbor telling you two different things back to back, you wouldn’t trust that neighbor anymore.  And if it were a big company called B-P,  you have a hard time trusting that company,  when they can tell the S-E-C, ‘Oh, the pipeline is good to 135-thousand,’  and they can tell a state judge, ‘No, the pipeline is only good to 300-thousand.’   That’s two very different answers to the exact same question.

He says the issue effects the credibility of any promises or claims made by the company.

Rinehart points out that the court has not accused the company of giving any false information about the low-flow reports and blames a legal error in its not being a part of the tax record – adding that the low-ball report was considered by the court.  He says none of the options in either estimate are good.

As a practical matter, serious operational challenges arise as flow drops.  And those challenges just get worse as it heads toward 300-thousand barrels a day.  And nobody should want flow to go anywhere near that low.

Deputy Revenue Commissioner Bruce Tangeman says the administration is looking beyond the different lifespan estimates.   He says there’s little argument that the state is losing money – and the goal is to get more oil in the pipeline.

He says other oil sources in the U-S are seeing increases in production — Alaska is in the middle of a trend downward, and the governor wants to see that turned around while oil prices are still high.   He says the state is not competitive right now.

The bottom line is nobody is saying that we’re running out of a resource.   Everybody agrees no matter what side of the debate you’re coming from that we have significant resources up there,   So, the urgency is, the window’s open right now with significant oil prices and we’re not taking advantage of it.

Tangeman says people in Alaska, Texas, North Dakota and Alberta are all talking about pipeline issues.  The only difference is that elsewhere, companies are looking for ways to build more pipelines – in Alaska they’re talking about Doomsday scenarios.

The issue will be at the top of priorities during the session that begins next week.   French says the Senate Resources Committee – of which he is a member – plans a major rewrite of the governor’s plan.

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