Thoughts on Alaska Oil & Gas

In an interview published in this week’s Petroleum News (“Wielechowski remains critical of HB 110“), Senator Bill Wielechowski argues that, under their state oil & gas leases, producers are required to undertake additional drilling when they can make a “reasonable profit.”  (“I think you need to look at the legal obligation the companies incur when they take out a lease. Their obligations require them to develop the lease when they can make a reasonable profit.”).

This repeats an argument I first heard the Senator make repeatedly at a debate earlier this month with Senator Cathy Giessel and which he then repeated in a subsequent, extended exchange on Facebook following that debate.  (“The leases … say they must produce, drill, develop when they can make a reasonable profit.”)

The problem?  The leases which cover the vast majority of the existing North Slope fields don’t say what Senator Wielechowski says they do. Continue reading →

In this week’s Petroleum News, Alan Bailey reports on the presentation on the Norway oil model last week before the Alaska World Affairs Council.  These pages previously have provided a copy of the slide deck accompanying the presentation.  Now, read Alan’s take on the discussion on the pages of the Petroleum News or here.

From the article:

Bradford Keithley, partner in the oil and gas practice of Perkins Coie LLP, attributed the decline in Alaska oil production to a parallel decline in Alaska oil investment.

“We’re shorting investment by roughly half of what we need to do in terms of getting production up,” he said.

Keithley said that, from his perspective, one of the biggest factors in encouraging oil industry investment in Norway is the Norwegian government’s own investment in the country’s oil and gas fields. Petoro, a company wholly owned by the Norwegian government, invests along with private industry as a working interest owner in every Norwegian field, with the government providing its share of development capital and subsequently earning its share of field profits. The extent of government financial participation in different fields varies, depending on the risks involved, but averages about 20 percent, Keithley said.

In Alaska, the government tries to drive the oil industry from the back seat through regulation, trying to push oil companies into doing what appears to be in the state’s interests, while sometimes pushing for actions that industry does not see as good investments, Keithley said. Under the Norwegian system, however, government and industry interests tend to be aligned, he said. …

The result [in Norway] is to generate more investment, both on the government side and on the side of private industry, Keithley said.

“It grows the pie, rather than what we do in Alaska, which is fight about what share everyone gets of the existing pie,” he said.

Read the remainder of the article on the pages of the Petroleum News or here.

Separately, there also will be presentations this coming week on the same subject before two legislative committees in Juneau.  House Economic Development, Trade & Tourism is holding a hearing Thursday at 10:15 am on HCR 19, “Acknowledging the lessons learned from the 2011 Norway Policy Tour and encouraging investment in the state’s oil and gas industry,” followed by a “Lunch & Learn” before House Resources at noon, Thursday, on “Lessons Learned from Norway.”