I testified Monday (February 4) before the Senate Resources Committee on “Alaska’s Oil Resources: Economic Challenges & Opportunities.” The purpose of the hearing was to put the development of Alaska’s oil in a global context and, from that perspective, identify the oil & gas opportunities that Alaska has going forward and the challenges it faces in attracting the investment necessary to achieve those opportunities.
After an introduction, the presentation was divided into three areas:
- “Understanding the global oil & gas industry;”
- “What is happening in Alaska – and why;” and
- “Where do we go from here.”
As I explained, there are great opportunities remaining in Alaska, but as an Arctic area among other things, Alaska is a challenged location and, to be successful in attracting the level of long-term investment necessary to realize those opportunities, Alaska must appreciate that it operates in an increasingly competitive global context and respond accordingly.
The presentation emphasized that the most important tool through which Alaska state government is able to influence investment is the state’s fiscal policy. I explained that includes more than tax policy, and ultimately centers around the state’s plan — and ability — to control the spending side of state government in order to provide industry with comfort that it won’t be subject to future tax increases (what I sometimes refer to elsewhere as “durability”).
As I have elsewhere in other pieces on these pages (see, e.g., “Alaska Fiscal & Oil Policy| Where the two worlds collide“), I emphasized that, looking at a 15-25 year time frame — the same time frame that industry looks to for pay out of its long-term investments — Alaska currently has a highly unstable fiscal structure. The presentation concluded largely by noting that until Alaska comes to grips with that structure, it is doubtful that Alaska will attract the type of long-term investment it needs to significantly slow its production declines, regardless of what it does about tax policy.
I also took a moment to focus on the need for — and potential benefits of — better aligning the interests of the state with its investors, and talked about looking at Petoro, the Norwegian co-investment vehicle, as a model. I have written about that also in a recent Alaska Business Monthly column (“Alaska Oil Policy| Achieving Alignment,” January 2013).
The materials I provided to the committee — including the slidedeck I used — are available at the hearing website. A video of the live testimony and questions are available by clicking on the picture above or on the Gavel-to-Gavel archive here. The hearing was attended by all but one member of the Committee; they stayed engaged and asked questions throughout. In my opinion, the hearing achieved its objective.