ConocoPhillips: Current Taxes Cut Long-Term Plans

Conoco-Philips late yesterday presented its oil production plans for the North Slope – and explained to the Senate Resources Committee the effects of the state’s current tax system on the company’s long-term outlook.

The company was the only major oil company to take part in the hearing – although B-P left open an appearance at some time in the future.

Scott Jepsen,  Conoco-Philips Alaska’s Vice President for External Affairs, pointed to the Kuparuk field – which it operates.   The field opened in 1981,  and he says the company has continued to find resources far beyond what was originally expected.

Jepsen said the company will likely move forward with a portion of its planned development on the slope whatever tax plan is in effect.   But he said decisions will be made at the corporate headquarters based on on a long list of factors.  The final decision include estimated profitability under the current tax – called Aces.

We also look at the long term cash flow the project generates as well as its long term income.  And one of the things Aces does, it puts a limit on what you’re going to generate in terms of cash flow and net income.   So the way Aces works,  you can have a project that has a good rate of return, but if you take a long term cash flow you get out of it,  you don’t see the kind of upside in Alaska that we see in other places.   Basically,  Aces puts a haircut on your long-term profitability.

Finance Co-chair Bert Stedman has said that part of the tax code rewrite going on now in the Senate will address tax rates when oil prices are high – anticipating that they need to be reduced to a so-far undetermined level.

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