Legislature(2011 - 2012)BUTROVICH 205
03/18/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB49 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 49 | TELECONFERENCED | |
SB 49-PRODUCTION TAX ON OIL AND GAS
3:35:14 PM
CO-CHAIR PASKVAN announced the hearing on SB 49 would continue
and that they would next hear a presentation on petroleum fiscal
design from Bob George with Gaffney Cline & Associates.
BOB GEORGE, Vice President and General Manager, Gaffney Cline &
Associates (GCA), consultants for the Administration, said they
are a global petroleum consultant based in Houston. He said he
has about 38 years of experience in the industry; his original
training was as a geologist, but his main area of experience is
more on the commercial and strategic side of the business. His
work often involves two aspects of things, the evaluation work
relative to acquisitions and divestitures and finance raising
and fiduciary reporting and dispute resolution. Clients for this
type of work include major oil companies, independent oil
companies, banks, financial institutions and taxation agencies
such as the IRS. Other major areas of work he undertakes with
governments, ministers and national oil companies advising them
in areas such as petroleum policy, licensing and fiscal design.
Clients are from a number of major producing countries such as
Venezuela, Brazil, Saudi Arabia, Kuwait and Mexico and he is
currently engaged by the minister of oil in Iraq.
3:38:57 PM
He said GCA was first engaged by the Alaska Department of
Revenue (DOR) in the middle of 2007 when they did a comparative
analysis of several countries' fiscal regimes. Following that,
they engaged in ACES in 2008; they provided support on gas line
economics, the AGIA conference and subsequently the special
legislative hearings in the 2008. Since then, they have provided
ongoing support for the department on a number of mostly fiscal
issues. They are currently engaged by the DOR for two more
years.
3:40:20 PM
At ease from 3:40 PM to 3:41 PM.
3:40:50 PM
MR. GEORGE said he would address some issues and follow on
comments made by his colleague, Rich Roggerio, about a month
ago. He wanted to go to issues that are facing everyone at the
moment. He showed a slide of the production history and short
term production outlook for the North Slope. It showed nothing
new, but brings out the question everyone is wrestling with if
the decline is a "function of nature or of nurture." Is the
fiscal, contractual and regulatory system governing it?
SENATOR STEDMAN asked if this was a normal-type production curve
one would expect to see in any oil basin around the globe.
MR. GEORGE answered that it's not unusual to see this kind of a
production curve. There are different shaped profiles,
particularly in areas of more closely managed operations (North
Sea, for instance), but some fields do get a "second life."
SENATOR STEDMAN remarked that he could have modeled this when
the North Slope basin first was opened.
MR. GEORGE agreed that the model is not an unusual shape.
SENATOR STEDMAN asked when he does a model to figure out the
fiscal system or a subcomponent of it along the way, would he
use a model like this for timing and cash flow.
MR. GEORGE replied that you would be important to assume a
period of building production, whether you're applying it to a
field or to a basin, and then some sort of plateau duration. You
would assume a period where the thing would decline away. It may
be a relatively steady decline or areas of build-up could happen
two or three more times, perhaps not quite as high as the peak,
but coming up again before falling off at some late stage.
SENATOR STEDMAN asked if sometime in the timeframe similar to
where we are now, it could be expected that there would be a
review of the fiscal policy to see if the decline could be
stemmed to extend the life of a basin.
MR. GEORGE replied yes, that has happened in a number of
countries and continues to happen.
3:46:24 PM
SENATOR FRENCH said it's almost like Alaska has two different
universes, the Prudhoe universe and then everything else.
Without Prudhoe, the highest year of production in 1988 had
about 500,000 other oil barrels flowing into the pipeline. Today
there is about 350,000 other oil barrels, an extremely modest
rate of decline over those years. He asked to what degree they
are looking for smaller fields to fill the pipe besides Prudhoe
or are they trying to resurrect Prudhoe.
MR. GEORGE replied that you would typically expect some form of
distribution of size that would provide a fairly broad spread;
one particularly big outlier and lots of small ones is not
unusual. Yes, you would expect to find more. Some people think
the North Slope still has significant volumes to find. The Gulf
of Mexico, for example, is where people have gone back to find
more after everyone thought they were played out.
SENATOR FRENCH asked with respect to just the Prudhoe reservoir,
has there ever been a reservoir that didn't decline over time.
MR. GEORGE replied he didn't know that specific answer, but the
question goes to the mechanism of pressure depletion in the
reservoir. If it's a completely closed system, no; it will
decline. If you have very strong support from an aquifer, for
example, or a way of artificially keeping pressure you could
hold the rate up, but over time one would expect to see a
decline.
3:49:04 PM
SENATOR WIELECHOWSKI thanked him for his advice in the past
saying it had been invaluable in helping to develop ACES. He
asked if this slide took into account the impacts of Repsol's
announcement to spend $768 million in Alaska exploration; he
also asked him to talk about the shale oil and if he thought it
(and other companies) could potentially bump up the decline
period.
MR. GEORGE answered no, the profile does not take into account
any of the exploration; it takes into account discovered
resources and those that are being developed or evaluated.
The shale oil resources are difficult to comment on. Alaska has
very rich source rock, but whether it's oil or gas is a huge
question. Oil is more difficult to flow than gas out of the
resource plays; its pathway has to be created. The key issue in
this particular case, and in every single case, is going to be
the evaluation work, and the drilling and then the stimulation
of completion of the wells to see what sort of rates can be
flowed out. Wells that are being stimulated like this start at a
rate and then decline very rapidly and then typically have a
long tail. But one of the problems the industry has is that it's
all so new that a long tail is being projected, but there isn't
enough of a track record to say for sure.
He said he doesn't know if shale oil/gas will add significant
volumes. Three years ago, the 2008 AGIA conference had a lot of
gas outlooks for the Lower 48 and gas pricing. At the time it
was a fairly high price. You didn't hear one peep in the whole
of that conference about the impact of shale gas on the Lower 48
supply. The extent of opportunities has taken the industry by
surprise.
CO-CHAIR PASKVAN recapped that the first slide depicts what is
in part a normal life-cycle of a large petroleum basin.
MR. GEORGE agreed that it is not unusual.
3:53:59 PM
Slide 3 was on fiscal system design and the only point he wanted
to make is that this is not an exact science; nothing in it is
black and white. It uses a lot of judgment. They try to build in
flexibility to be able to accommodate changing environmental
factors.
CO-CHAIR PASKVAN asked him to explain "basin maturity."
MR. GEORGE replied that it's the degree to which you think you
have information with regards to how well you know a basin; the
more you do there the more you understand it. That perception of
maturity can change as new information comes to light. Sometimes
you're not as mature as you thought you were or sometimes things
start declining a lot faster than you originally thought. It's a
concept of the expected lifespan of a basin or an area.
CO-CHAIR PASKVAN asked if he has an opinion on the maturity of
the North Slope Prudhoe/Kuparuk region for conventional oil.
MR. GEORGE replied the area of the North Slope that has been
developed is probably into a fairly well-known stage; maturity
still has some complexities, though, because a lot of oil and
gas resource has been discovered, but it is not subject to
commercial exploitation at the moment; heavy oil would be a good
example. The volumes that are known to exist in the ground are
very large, but the degree to which they may be extracted
commercially is a subject of greater question. That could change
the perception of maturity if the key to oil and gas is unlocked
in the relatively near future. Another life there is possible.
3:58:39 PM
MR. GEORGE said it's not unusual for fiscal systems to change
(slide 4). Companies are concerned about the issue of stability
and if they feel comfortable that if they make an investment,
things are going to remain at least within a reasonable band
close enough that they will get the levels of return they
expected going into something. A lot of change was seen in
Alaska in the 2005-08 window where fiscal regimes were set up in
an era when people had a $20-oil mentality.
SENATOR MCGUIRE asked how other governments mix the two goals of
getting its fair share and attracting investment/industry.
MR. GEORGE replied these goals are a "continuous competitive
tension" with pulls from both directions. It is easy to
overreach; it is difficult to say whether Alaska has done that.
The timeframe has been so short especially when global issues
are changing all the time. Competition isn't always a question
of doing it either here or there; companies operate in different
countries at the same time. Alaska might want it now; it might
not want to wait and therefore make some changes. It's not good
to swing too wildly between end points. But he thought the
tension would always continue.
SENATOR WIELECHOWSKI asked how Alaska's government take compares
to government take in countries like Venezuela, Brazil, Kuwait
and Iraq.
MR. GEORGE replied that it would be less than on an average
basis than in Venezuela, but Venezuela has a lot of other issues
right now. When GCA was down there through the mid-1990s, things
were opening up and they were making it easier for the
companies. They were creating structures that would allow a
sharing that attracted a lot of money into the country.
In Brazil currently, the Alaska take would not be dissimilar,
but possibly higher at current oil prices. Brazil is not geared
to oil price in the way that Alaska's fiscal regime is where the
progressivity has worked well. Iraq's fiscal regime where the
take is north of 90 percent is very different. What is actually
happening is that a number of contracts there are in existing
oil fields, one of which is doing around 1 million barrels a
day. The 90 percent is basically being kept by the host country.
Saudi Arabia's fiscal system was structured for the gas
industry; they have activity but no gas production under it. The
rates went higher than here, but they were also based on a rate
of return concept and started out with somewhat lower rates.
Kuwait has a service contract structure with a lot of known
resource being developed on behalf of the government and an
exact answer is not possible, but probably higher. Most of those
structures are where you get your money back and then an element
of profit on top of that.
4:08:13 PM
How do you justify the change? Mr. George said when he does
these things he likes to see a range of outcomes and build a
mental picture of where the responsiveness is and where
difficult areas are. Then the subjective calculations are trying
to make judgments as to where in fact things may go, always a
difficult thing to do.
CO-CHAIR PASKVAN asked if it's accurate, whether it's an
objective or a subjective calculation, that it should be
overlaid on the basin maturity concept they previously
described.
MR. GEORGE answered yes. He added that maturity is perhaps a
surrogate word for expectation, the degree to which you feel you
know something.
4:10:31 PM
He said it's hard to say which fiscal system is the best; you
hope that you've done the best you can but "shifting sands...."
You are continually assessing your competitive position and
making sure you're fulfilling all the things you do under the
guise generally of maximizing the value or the benefits of the
resource in question to your home jurisdiction, whatever it
happens to be.
SENATOR MCGUIRE said she had introduced a bill setting up a
competitiveness review panel so there would be a continual
annual assessment of those things. She has observed over the
last decade that the state doesn't do this very well and asked
where he had seen this done well and what kind of system has he
used to assess that world-wide competitiveness.
MR. GEORGE answered that a number of different approaches are
used and some seems to appear during times of "seeming crises."
Under various systems regulatory bodies prepare reports; for
instance, the UK, Denmark and Norway do regular annual reports
that appear on a website.
SENATOR MCGUIRE said Alaska's problem is that it is ranked in
the bottom tier of the private reports that have been published
for competitiveness. Lawmakers get frustrated in trying to
figure out exactly what the ranking is based on. It could be
climate, difficult access to resource, fiscal regime, regulatory
process et cetera. This bill tries to factor in all the things
from a private sector point of view. She asked if he looks at
any particular universal guide or book and if when looking at
these regimes, does anyone divide competitiveness with respect
to exploration and production.
MR. GEOREGE answered that he didn't know of a single book or
annual review that anyone would call definitive. But the more
factors brought in the more subjectivity is brought in as well,
and people will tend to go with things that can be treated
mathematically, because you get an answer that comes out.
SENATOR MCGUIRE said the credit regime that is in place amounts
to upwards of $4 billion and seems to be incentivizing
exploration very well, but it has not led to any increased
production; in fact, there is a decline that is expected to
continue for the next 10 years. Alaska might want to keep part
of the fiscal system it has and repair another part of it. She
asked if there is any assessment that tells one that a certain
fiscal regime has it right when it comes to the producing phases
as well exploration.
MR. GEORGE replied that he didn't know of any. Time is needed to
look at successful countries; however, those manage for very
different circumstances. For instance, UK and Norway manage
their resources in the North Sea differently. UK has 50-60
million people and Norway has 4 or 5 million. In one it's a
major part of the economy and in the other it's maybe 5 percent.
4:20:02 PM
SENATOR WIELECHOWSKI said when Gaffney Cline presented to the
House Resources Committee in February they used a slide called
"Producers View of Fiscal Systems" that is not in this
presentation and one of the headlines says "never met a tax they
liked." Then he talked about Illinois and how it has the lowest
government take, but nobody investments there because it doesn't
have very much oil. Then it had Iraq that has the highest
government take but lots of investment. The slide also said to
always make comparisons to the Lower 48 as a best place to
invest; he remembered talking about this quite a bit in the ACES
debate. So, he want to know who our peers are. He heard over and
over again that it was not appropriate to compare us to the
Lower 48, because they aren't sovereign jurisdictions. And that
it was more appropriate for Alaska to compare itself to places
like Norway, UK or Russia. "Is that still your view of things?"
MR. GEORGE replied yes. There are two components to that. One is
the sort of comparison that Alaska owns the resource and
therefore has a very different duty in looking at it compared to
most of the rest of the US where private land owners are the
financial beneficiaries. Another element is a structural one
within the industry where companies tend to put their budgets in
"regional pots." He said it wasn't irrelevant to look at other
parts of the Lower 48, but Alaska manages its resource much more
comparably to other nations.
4:22:32 PM
MR. GEORGE went to slide 6 labeled "Where is Alaska today?"
1. Production continues to decline despite unprecedented prices.
2. TAPS (either operational limit or economic limit) - very
important because it is the one connection the market.
3. Heavy oil potential under assessment; Alaska has a lot of
known resource. The technology and economics of unlocking it are
critical.
4. New plays (shale oil) on the verge of being unlocked?
5. New resources viewed by some as "stranded" access to
infrastructure.
6. Logistical challenges and high costs remain.
7. Long lead times to bring on new fields.
8. Large dominant players - incumbents and new entrants - a lot
of new players with different parameters.
4:25:24 PM
He went to Slide 7 labeled "Future Scenarios for Alaska."
1. Requires many assumptions that lead to "noise" time that
changes focus from discussing and understand root causes and the
real issues
2. Lack of planning data
CO-CHAIR PASKVAN said it seems like Alaska doesn't have the data
transparency that many other regimes have, and he asked him to
comment on Alaska's need for that.
MR. GEORGE separated the question into two parts, the data and
the transparency. He further wanted to separate out the idea of
financial data that belongs to taxpayers (generally backward
looking) and the operational or planning data that is not
related to the economics of anything particularly and is more
forward-looking. The matrix is between the way information is
provided and the disclosure, which may or may not occur as a
result. This was a 2007 issue with the ACES hearings. He
understands that it has improved significantly, but he didn't
know if it is as good as other nations. He didn't think so yet.
UK regulations allow the ministry to ask for "pretty much
anything they want" and they do ask for "quite a
lot...particularly in the early stages of field development...."
They will see the development plans and the production outlook
and alternatives. But the disclosure on that is relatively
limited. So, for planning purposes they have a lot, but what
goes into the public domain is much less. So, if you're talking
about transparency that is slightly harder to answer.
He said Norway requires that companies report twice a year on a
spreadsheet of a forecast. You can't see all the numbers
underneath it, but you can see the form of reporting by going
onto the website. Iraq is one country that would substitute for
a lot of others where everything you do is subject to submitting
plans and having them approved so that the regulator knows
what's going on. But the disclosure on that is relatively
limited; it doesn't go outside of the ministry, for the most
part. He hoped that answer helped.
CO-CHAIR PASKVAN said he would invite him back for more
specifics.
MR. GEORGE said he is on the road for the next two weeks, but
would work with the committee.
4:30:17 PM
SENATOR WIELECHOWSKI said the February presentation also had a
section that said "lack of data transparency that many regimes
have" and another that talked about data transparency and that
Alaska relative to other regimes is handicapped in its decision-
making by the small amount of either confidential or reliable
public data on energy operations. Has that situation been
alleviated in the last month? Is it still a handicap for Alaska?
He has asked the Department of Revenue on ways to close the gaps
on data transparency for the last three weeks and is still
waiting for the information.
MR. GEORGE commented that it is his understanding is that it is
improved from where it was in 2007, but it wasn't at a very good
level then. It probably has a lot further to go to be comparable
to most other countries outside of the US including Canada.
Again, he said he would separate transparency from data
provision and taxpayer from planning and operational data.
4:32:11 PM
MR. GEORGE went to Slide 8 labeled "The Importance of Oil to
Alaska."
· In Alaska (2010) oil taxes and royalties account for almost
90 percent of unrestricted general fund revenue. Scale is
different for the different parties.
· For the Big 3 (2010) Alaska profits and production
accounted for 5 - 30 percent of their "economy."
4:32:59 PM
Some big questions are:
1. Is it necessary to change ACES?
2. Will I get the same investment and production if I do not?
3. If I get more investment and production, how much more
4. Will TAPS obtain oil from "somewhere" to keep flowing
regardless?
5. How can I delay before being comfortable that I know the
likely outcomes?
6. What can I influence? How?
4:34:55 PM
Slide 10: Some very high level metrics:
- Difference between 3 and 6 percent decline. Companies have
indicated that 3 percent ought to be achievable given the right
level of investment. It depends on when you take the TAPS
economic limit to be; maybe it's 1.5-2 billion barrels.
- 150,000 barrels of oil per day difference in production for 20
years (the level between the 3 and the 6 percent decline) is the
difference of 1 billion barrels of oil.
- Delays cost money; value halves depending on the discount rate
used somewhere between plus or minus 10 years.
- $100 a barrel (today's market price) is worth approximately
$40 to the state and under the ACES regime about $30 depending
on whether it's a new field or an existing field under SB 49.
- At $150/barrel it's worth somewhere between $50 to $75.
- Put another way, getting 150,000 barrels a day for 20 years
would be worth about $30 billion to the state.
4:37:08 PM
SENATOR FRENCH asked what that 150,000 barrels would be worth to
the industry.
MR. GEORGE said that is a good question and he had the number,
but not in his head. He'd get it for him.
- Changing to SB 49 if the state would have got it anyway costs
$10 million to $25 million.
- What's the value of delaying, getting something you might
otherwise get, leaving aside the issue of what happens with
TAPS, about $20 billion to $40 billion.
- Examine the "what if" economic impacts to try and assess some
possible goalposts:
- what happens if the North Slope generally declines at 6
percent a year and what happens if it performs according to the
DOR fall 2010 forecast - and the difference between those over
the time to 2050 is a bit under 2 billion barrels
- Do nothing and decline is actually around 6 percent -
relatively early demise to TAPS but through making a change you
are able to achieve a profile like the department's and you
manage to keep TAPS going longer through appropriate investment,
there is about a $100 billion potential gain
4:39:35 PM
SENATOR WIELECHOWSKI asked why he chose a 6 percent decline when
the DOR is predicting 2 or 4 percent.
MR. GEORGE replied the decline depends on the shorter term or
the longer term. The average of 3 percent is out to 2040. The 6
percent is the average level for the last two or three years.
It's a number the industry has used in prior times for current
investment; but at higher levels they say they can hold it at 3
percent.
SENATOR WIELECHOWSKI said his model also assumed no new major
investment and he asked if he could remodel this taking into
account the $768 million that Repsol has said they plan on
investing on the North Slope as well as the investment proposals
made by Great Bear.
MR. GEORGE replied that he could make those assumptions.
SENATOR WIELECHOWSKI asked why he used an undiscounted cash flow
for this slide. Is that standard practice for a business when
comparing two different investment scenarios over time?
MR. GEORGE replied no. But he agreed when one is making
investment decisions one wouldn't look at the undiscounted
numbers. The reason it was done at the time is to try and get
away from issues of what discount rate to use for the state and
whether it would be the same for the company. He said you would
get absolute numbers for the same general picture if you used a
discount rate.
SENATOR WIELECHOWSKI asked if he could use a discounted slide
flow.
MR. GEORGE answered that he would be happy to look at a couple
of discount rates rather than saying this is the right one. It's
a sensitive issue for individual parties as to what the
appropriate discount rate is.
CO-CHAIR PASKVAN returned to slide 10 that indicates at $100 a
barrel the state's take is approximately $40. Some people are
saying the state's take at $100 a barrel is 82 percent. Why are
some saying it's $40 and others are saying it's 82 percent?
MR. GEORGE apologized for not providing enough explanation. That
$40 was over the life of an investment assuming $100 a barrel.
It takes out the factor of costs coming out as well. Some other
number is typically a share of the revenue after costs.
SENATOR WIELECHOWSKI asked what TAPS enhancement he is referring
to in slide 14.
MR. GEORGE replied whatever would be necessary to keep it
flowing through to 2050; it's non-specific. The object on these
was to try and set out some goalposts at each end of the field
that said what if this or that.
SENATOR WIELECHOWSKI asked what fields will be discovered under
SB 49 that will not be discovered under ACES.
MR. GEORGE replied that is not what "discovered" means there. It
means the existing producing fields and the existing discovered
fields, as well.
SENATOR WIELECHOWSKI asked if they pass SB 49, which fields
would be developed as opposed to if it doesn't pass.
MR. GEORGE replied that he didn't know.
SENATOR WIELECHOWSKI asked if he could predict how much more oil
will be produced under SB 49 as opposed to ACES.
MR. GEORGE replied that he would love to be able to tell him,
but he didn't know what the difference would be.
4:46:10 PM
CO-CHAIR PASKVAN said he just did a rough calculation that at
600,000 barrels a day or 200 million barrels per year it takes
five years to pump 1 billion barrels. That means it takes us 40
years to pump 8 billion barrels. On page 14 out 40 years from
now, that 8 billion barrels - the reserves are currently 5
billion barrels and then the undiscovered potential recovery are
another 4 billion barrels. So we only have 9 billion barrels
whether they're incentivized or not according to the facts. So,
if we're out 40 years pumping 600,000 barrels, we're within a
billion barrels of the end of the reserves in the end of
undiscovered potentially recoverable. Is that accurate?
MR. GEORGE replied that the actual ultimate recovery under SB 49
column is about 5-5.5 billion barrels; it's not constant at
600,000 a day (going back to slide 13).
CO-CHAIR PASKVAN asked if this is total or total plus enhanced.
MR. GEORGE replied the assumption in this set of slides is that
5.5 billion barrels is what you achieve for total production.
CO-CHAIR PASKVAN said then that total assumes all of the known
reserves currently.
MR. GEORGE replied you have to be careful using the term
"reserves," because it also is a term of art and has certain
connotations. It is certainly not all the reserves and resources
that are known to be out there. It is certain fields that are
either currently producing or under development or are under
appraisal and are identified by the DOR in its fall forecast. It
doesn't have any heavy oil for example.
SENATOR WIELECHOWSKI said under assumptions for continued
decline slide 14 says that no new major investments will occur.
Being that since they passed ACES three years ago, the state has
seen a 50 percent increase in capital investment on the North
Slope and have projections of continued increases on capital
expenditures in 2011 and 2012, he asked if Mr. George could
recreate this slide assuming the new level of investments they
have actually seen in the last four years.
MR. GEORGE replied that he would be happy to look at some
additional cases and some additional assumptions.
SENATOR WIELECHOWSKI asked, "When are you assuming that TAPS
will cease it carry oil in this assumption?"
MR. GEORGE answered in these particular examples, the bar that
has 95 on it assumes that TAPS ceases to operate at 250,000
barrels a day; the one that says 110 goes to 200,000 barrels a
day.
SENATOR WIELECHOWSKI asked at what year they achieve 250,000
barrels per day.
MR. GEORGE replied in the mid and late 2020s.
SENATOR WIELECHOWSKI asked what it would cost to enhance TAPS to
carry 250,000 barrels per day and what the cost benefit analysis
would be if the oil companies would strand 250,000 barrels
versus making the adjustments to enhance that.
MR. GEORGE replied that he had done no work on that; he didn't
know if it's a very easy question to answer. But he accepts that
it is a very important one.
CO-CHAIR PASKVAN asked what volume of reserves would still be
left in the ground and what is the volume of undiscovered
potentially recoverable that would still be left in the ground
after a shut down under either scenario on slide 14.
MR. GEORGE replied that he would have to get back to him. It
depends on shutting down to what level. If you took it down all
the way to zero he could get the answer fairly quickly, but it's
the difference between 200,000 and 250,000 and some other level
where you're able to operate it down to. He didn't think anyone
could answer how much undiscovered oil is not there.
SENATOR WIELECHOWSKI asked if companies would leave the large
amounts of oil and shale oil in the Chukchi and Beaufort Seas
stranded.
MR. GEORGE answered no; he didn't think anyone would leave
anything stranded if they thought there was a viable economic
proposition and regulatory regime that would allow them to get
after those wells.
4:54:12 PM
MR. GEORGE recapped that the goalpost at one end under those two
conditions might be $100 billion of upside and asked on the
downside what happens if you make a change such as SB 49 but
nothing changes and you carry on with the 6 percent decline
before TAPS abandonment. Then you've foregone about $20 billion
in fiscal take for the state. If you make no change or you kept
ACES and you got the investment necessary to do what provides
the DOR profile, the difference is $50 billion.
SENATOR FRENCH asked when the two lines cross where Alaska
starts giving the money back this year and starts getting the
increased production tax value in future years.
MR. GEORGE replied the expectation as to when you might start to
get more, at relatively small volumes you could do it in a year
or two afterwards if it's infield activity. In terms of revenue
from new exploration, a little bit longer. The North Slope needs
a long lead time from discovery, planning et cetera and ten
years might not be an unreasonable expectation for starting to
get meaningful flows from exploration activity there.
SENATOR FRENCH said when you start calculating in the time value
of money it gets harder and harder.
MR. GEORGE replied that it depends on the volume you attract at
the end of the day; it is very volume-dependent.
SENATOR WIELECHOWSKI said if he is reading these numbers
correctly, they have heard varying numbers about what SB 49 will
actually cost the state. From Mr. George's testimony and what he
reads, this slide says that from 2011-2020 if SB 49 passes, it
will cost the state $20 billion; and from 2011-2050 it will cost
the state $50 billion. "Is that accurate?"
MR. GEORGE replied that would be if nothing changed as a result
of SB 49 passing.
SENATOR WIELECHOWSKI asked if this passes and everything stays
the same, the state loses $50 billion from 2011-2050 and then
Mr. George testified that he didn't know that SB 49 will add a
single drop of oil in production or that it will result in a
single new exploration well being drilled.
MR. GEORGE replied he wasn't sure that he would put it quite
like that. He didn't know exactly what result it would have. He
assumed directionally it will give improvement because there is
more money in the system. He didn't know what would come out at
the end of the day. That is a question the companies have to
give a better indication of.
4:59:49 PM
CO-CHAIR PASKVAN found no further questions and thanked Mr.
George; he adjourned the meeting at 4:59 PM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| GCA Senate Resources 20110318.pdf |
SRES 3/18/2011 3:30:00 PM |