Category Archives: Reprints

The Oil & Gas Journal’s 2017 Midyear Forecast

This morning’s Midyear Forecast presentation from the staff of the Oil & Gas Journal was excellent.  For those that did not listen in and are interested in developing a better understanding of current industry trends (and where they may be taking us), the archived version (1hr, 30min) is available here. The Q&A session toward the end is especially good (and includes a discussion of the outlook for the Arctic).

We have included the slides above for those with less time or interested in only a quick overview.

The most important takeaway for us were the continued concerns around long-term supply (p. 44 of slidedeck to the end) combined with the analysis of the return of cost increases to shale development (p. 38).

At some point, the lack of investment in long term supply is going to have a significant effect even if you believe in reduced demand growth. And even if you believe in addition that shale can fill some or even most of the resulting supply shortfall as it develops, the uptick in cost of shale supply even at current demand levels indicates a significant potential for cost (and thus, price) growth as that occurs.

In short, we believe it affirms the long-term price projections we have been using in our work on Alaska fiscal issues.

Alaska Oil Tax Policy| Ships Passing in the Night (from the July 2012 Alaska Business Monthly)

Recently, I agreed to write a bi-monthly column on oil & gas issues for the Alaska Business Monthly.  This is the first column, originally published in the July 2012 print edition and available online here.  

Alaska’s approach to oil and gas taxes has taken a number of twists and turns over the last several years. The latest twist may largely be the result of ships passing in the night.

Background

Shortly following her election in 2006, Gov. Sarah Palin proposed a set of changes to the then-existing tax structure. She termed the package “Alaska’s Clear and Equitable Share,” or “ACES.”ACES changed a previous package of modifications which had been enacted in 2006.

Although he supported ACES at the time it was passed, late in his campaign for his own term in 2010 Gov. Parnell began generally to talk about what he then termed as the need for “tweaks” in ACES. Following his election, Parnell proposed a set of changes, which was introduced in the Alaska House of Representatives and subsequently referred to as “HB 110.” Continue reading

“Let’s call it … Alaska Oil Inc.” (Reprinted from Alaska Dispatch)

Let’s call it … Alaska Oil Inc.

Patti Epler | Sep 28, 2010

0927-alaskaoilIf the world’s biggest oil companies don’t want to pump what’s left of Alaska’s oil out of the ground, why not do it ourselves? We could create our own oil company — out of reach of the Legislature, of course — kick it off with a few billion dollars from a rainy day account, and put it to work on the North Slope.

It’s a simple premise for an obviously much more complex operation. But the idea pitched by Anchorage oil and gas attorney Brad Keithley at a recent weekend gathering of state, business and community leaders has generated a bit of a buzz.

Keithley says he’s gotten tired of hearing politicians say the state is running out of oil and that we need something else — a gas line primarily — to take its economic place.

“We’re not running out of oil, we’re running out of investment,” Keithley says.

As someone solidly in the oil companies’ corner, he blames the lackluster investment climate here on taxes and what he sees as the gouging of the industry that has come with ACES (Alaska’s Clear and Equitable Share), the 2007 state tax structure put in place by then-Gov. Sarah Palin with the help of legislative Democrats and now supported by Gov. Sean Parnell.

He points to industry reports that rank Alaska 129th out of 141 places in the world to make new investments in exploration and production. And he’s absolutely convinced the major North Slope producers will eventually walk away — at least for a considerable period of time — from billions of barrels that remain in the ground because the state’s tax system makes it a bad business deal. They simply won’t spend billions of dollars for new technology, equipment and infrastructure needed to get at heavy oil and the other difficult prospects that remain when they can get a better deal someplace else, he says.

“The decision about where to invest globally is based on ruthless economics,” Keithley says.

And yet, he says, there’s about as much oil left in Prudhoe Bay and neighboring fields as has been produced since operations began more than 30 years ago.

Alaska is uniquely dependent on oil revenue. It funds about 90 percent of the state’s budget and drives the economy. The state needs to develop the resource.

“The preference has been to have private companies take the risk but if they’re not investing here, then what?” he asks.

So now the pitch: The way Keithley sees it, there are two things the state can do to get the oil out of the ground. “The state can address the current investment climate to make Alaska more competitive and entice investment. Or we can do it ourselves.”

Doing it ourselves could look something like what happened in Norway 30 years ago. In 1972, when it couldn’t get major oil companies interested in exploring for and producing the country’s oil and gas resources, the government created Statoil, now one of the world’s biggest offshore oil and gas producers. A 2008 report by a Norwegian economic development agency said although the company has plays around the world, 85 percent of its revenue still comes from offshore operations in Norway.

“They knew they had oil but it wasn’t getting the attention from industry,” Keithley says. “So they created a state oil company that focused on developing the resource.”

Patience was one key to the company’s success, he says. A few dry holes in the beginning caused critics to contend it was a failure and waste of the public’s money. “But they drilled a few successful holes and it was off and running,” he says.

Norway also took control of the company out of the political arena, a factor that would be necessary in Alaska, too, Keithley says.


“If it becomes a political tool, it would fail,” he says, adding that legislative micromanagement would be a business nightmare.

To that end, Keithley also looks to the Alaska Railroad for inspiration. It’s a separate company initially funded by the state but that now generates its own revenue stream and operates independently with its own board of directors.

So would the state hire its own crew of geologists and engineers, roughnecks and roustabouts to drill, baby, drill on the North Slope? Maybe.

But there might be an easier way to dip the state toe in the oil pool.

“One way to think of it is to go in as an investor in resources and propose to partner with private companies” in exchange for an ownership interest, Keithley says.

He says that situation is known as “farming in” in the oil business, and he points to an example of that right here in Alaska. The Badami field was owned by BP, but the major oil company wasn’t finding it economically viable and shut it in a few years ago. So a small independent company, Savant Alaska, farmed in and has been developing the field. BP is still a partner.

Keithley, who represents BP along with other oil company clients in his job as an attorney at Perkins Coie, says he is not suggesting the state buy BP’s assets on the Slope, which have been rumored for months to be on the auction block.

But he does think industry would give a state investment serious consideration. “If somebody else is willing to put money in a tough environment industry would give it a fair assessment, a good hearing actually,” he says.

Keithley says he hasn’t given any thought to what it might cost the state to start its own oil company. And beyond noodling the idea into something he could talk about to a group of civic-minded policy wonks at a weekend retreat in Talkeetna, it’s not something he’s spent much time on, he says.

“I intended it in Talkeetna to be a thought-starter,” he says. “I didn’t intend it to be a definitive way forward.”

Scott Goldsmith, an economist with UAA’s Institute for Social and Economic Research, is one of those civic-minded wonks who was in the audience at the Talkeetna resort.

“I think it’s an intriguing idea that is worth studying,” he says. “The idea behind it is if the state really wants to get into the action, it’s another way.”

“In some ways it’s like getting some skin in the game,” he says, adding that it would require several billion dollars in capital investment.

“People were generally quite intrigued with the idea, I have to say. There was a sense among the groups that the Norwegians seemed to figure out how to do it, how to relate to the oil industry and get the maximum benefit out of their oil resources,” he says. “There wasn’t a lot of discussion on the pros and cons of it.”

He notes that the Permanent Fund is another example of a state-created company that operates independently. “The Permanent Fund corporation has been a growing success and is sort of an example of when things work.” Goldsmith also mentioned a few other state-backed ventures in communities around the state that haven’t worked so well.

State Department of Natural Resources officials didn’t return calls for comment. But Harold Heinze, who heads the voter-instituted independent Alaska Natural Gas Development Authority, was largely skeptical.

Heinze, a former president of ARCO Alaska Inc., says if you want to be in the oil business you have to be a good gambler and willing to take a lot of risks, especially when you have to make decisions on prospects that are 50-50 at best. “You’ve got to be smarter than the coin,” he says.

“It’s very difficult to see how that would work for a state entity, and neither our state bureaucracy or political system seems well attuned to risk,” he says.

He also cautions against competing with the private sector and points out that Statoil started out as more of a service and support company. “In Alaska, that would run straight into a very strong private sector.”

Mainly, he wonders what the state could do that the biggest oil companies in the world say they cannot. “There is a risk to ignoring the reading of the tea leaves by the industry. Especially when more than one company waltzes away from it, you ought to take a hard look.”

Contact Patti Epler at patti(at)alaskadispatch.com.


Reprinted from “The Link,” the Alaska Support Industry Alliance member newsletter

Entire article reprinted from “The Link,” 3d Quarter 2010, Alaska Support Industry Alliance (http://alaskaalliance.com/pdf/3rd_quarter_2010_link1.pdf)Written by The Alliance Staff.

ACES: The gift that keeps on taking (jobs and investment)

Oil and gas employment in Alaska has tumbled to its lowest level since late 2007 after a year when 1,500 jobs were lost and unemployment claims in the support sector more than doubled. Data compiled by the Alaska Department of Labor & Workforce Development’s Research & Analysis Section show that since a modest rebound during the first quarter of 2010, oil and gas employment fell again in the second quarter and by mid-year stood at its lowest level in 30 months.

In all, 1,700 oil and gas jobs have been lost since employment peaked at 13,700 in December 2008. Preliminary data had oil and gas employment at 12,000 in June this year – down 200 from May and 700 from February.

Continue reading