Legislature(2011 - 2012)BUTROVICH 205
03/11/2011 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
3:35:34 PM
CO-CHAIR PASKVAN announced the committee would resume the
hearing on SB 49 and is now on page 12 of the sectional
analysis. He said that DOR Commissioner Butcher would present
the goals and rationale for SB 49, an explanation of the
production tax mechanism and more details about the bill's
individual components.
3:36:53 PM
BRIAN BUTCHER, Commissioner-designee, Department of Revenue
(DOR), introduced himself and said that Ms. Pollard would
continue with the sectional analysis of SB 49.
3:37:38 PM
SUSAN POLLARD, Assistant Attorney General, Department of Law
(DOL), said she had ended with the interest rate provisions that
apply to taxes of all types in SB 49 and explained that there
are a variety of conforming amendments.
SENATOR STEDMAN joined the committee.
MS. POLLARD said the last interest rate provision changes in
sections 21 and 22, and one change to AS 43.56 even out the oil
and gas properties tax interest rate between refunds and
payments for unpaid taxes.
Section 19 on page 13 changes the statute of limitations that
applies to returns under the oil and gas production tax from six
years to four. However, subsection (b), which deals with
adjustments that need to be made after a possible court or FERC
decision, is not changed.
SENATOR FRENCH asked what the rationale for the reduction is.
COMMISSIONER BUTCHER answered that ACES had three years and that
was changed to six years to give the department time to not just
move from ELF to PPT to ACES, but more, to move from gross to
net, which is a huge change for the audit division. They have
completed the first year of PPT and are currently three years
back but catching up quickly. Their reasoning is that four years
would be longer than the initial three, but shorter than the six
and it also wouldn't begin until 2014 - to make sure the
division could get completely caught up.
SENATOR FRENCH commented that there are seven owners on the
North Slope and six of those have been audited under PPT and one
has not. So, the state hadn't really completed an ACES return
yet.
COMMISSIONER BUTCHER replied that was correct. They are just
starting on the first year of 2007, which was available to them
in 2008.
SENATOR FRENCH said it sounds like he is saying if everything
works right, they will be caught up once this goes into effect;
but his concern is that it's always hard to go back and change
things if something doesn't work out. Maybe they should wait
until they have actually done a year or two of ACES returns and
then change the statute. "Has that crossed your mind?"
COMMISSIONER BUTCHER answered no. They just used 2014 to give
them a little added flexibility, but they don't think the extra
time will be needed.
SENATOR WIELECHOWSKI asked if they complete the audit of one
company before moving on to the next.
3:42:21 PM
LENNY DEES, Audit Master, Department of Revenue (DOR), answered
that they complete the audits by taxpayer and do them
simultaneously. This depends on the amount of staff that are
available; they have almost a full complement presently and have
started on 2007.
SENATOR WIELECHOWSKI asked if he expects the number of taxpayers
they have to audit to increase in the coming years.
MR. DEES answered if investment improves, yes. He added that a
special group of auditors reviews audits of companies that are
applying for tax credits in addition to the companies that file
tax liabilities every year.
SENATOR WIELECHOWSKI stated that since the passage of ACES,
Savant, Great Bear and Repsol have come on board, and he asked
if there would be a need for additional audit work for those
companies and others that have come to the North Slope.
MR. DEES answered yes.
SENATOR WIELECHOWSKI remarked that the PPT passed in 2006 and
hadn't finished those audits.
MR. DEES replied that they have just one taxpayer left.
SENATOR WIELECHOWSKI asked if they would be beyond the four year
statute of limitations for that one company if this law were in
place now.
MR. DEES answered yes.
SENATOR WIELECHOWSKI asked if additional companies had come on
since that time that would need to be audited.
MR. DEES answered yes; every time a company applies for a tax
credit their application gets reviewed.
3:46:26 PM
CO-CHAIR PASKVAN asked the number of companies that were
available for audit in the years 2005 and 2011.
MR. DEES replied that he started with the department in 2008 and
didn't have that number at hand. The number of companies that
are available to be audited today, whether for tax liabilities
or for tax credits, probably runs in the teens to low 20s.
SENATOR FRENCH asked who benefits from a shorter statute of
limitations.
MR. DEES replied that is difficult to answer. He couldn't think
of an instance when the state hadn't had enough time to audit
even with the three-year statute of limitations, because
extensions allowed them to take place. The department can also
issue a certain type of assessment which would send the disputed
items to the appeals process. For the most part, when there has
been a need to extend the audit due either to the department's
or the taxpayer's desire to do so, that had occurred without
adversity.
SENATOR WIELECHOWSKI asked if the state had gone past the
statute of limitations in auditing of royalty payments.
MR. DEES answered that he couldn't speak to royalty payments,
because those are handled by the Department of Natural Resources
(DNR).
CO-CHAIR PASKVAN asked if part of the procedure to extend the
statute of limitations is filing of documents without support.
MR. DEES responded that extensions aren't done in an adversarial
sense. He there are many reasons for an audit needing to be
extended.
SENATOR WIELECHOWSKI asked when the Palin/Parnell administration
proposed ACES, if there was a reason they did not include a
provision that said the statute of limitations will be six years
and then in 2014 it would go down to four years.
COMMISSIONER BUTCHER replied that neither of them was here
during that time. He could say that this is not a key piece to
the Governor's bill, but rather a minor improvement.
3:51:16 PM
MS. POLLARD continued her summary saying the last provisions of
the bill, sections 25-30, simply state the different effective
dates for the different divisions. An applicability provision,
which is common in tax legislation, particularly when making
changes to credits, clarifies how the credit is issued for the
expenditures incurred before and after the effective date.
Everything in the bill takes effect prospectively, and all of
them at slightly different dates. The interest rate provisions
would take effect on July 1, 2011, because interest is
compounded quarterly.
SENATOR WIELECHOWSKI said they had asked at the last hearing for
data on interest rate under or overpayment.
COMMISSIONER BUTCHER replied the department is still working on
that.
3:53:35 PM
At ease from 3:53 to 3:57.
3:57:09 PM
CO-CHAIR PASKVAN called the meeting back to order at 3:57 and
announced the next presentation.
COMMISSIONER BUTCHER said the goal of this legislation is to get
more oil out of legacy fields by changing the tax system so that
Alaska will be more competitive both nationally and globally,
produce more jobs for Alaskans and increase Alaska's oil
production.
He said they have heard that in the next five years North Dakota
is expected to pass Alaska in terms of production - a real eye
opener when one looks at the history and potential of oil in
Alaska compared to North Dakota. The federal government has been
a significant deterrent to a lot of the development and that is
why the governor is trying to promote and encourage as much
development on state land as possible.
He said that many of the credits and incentives that have been
passed over the last few years have been helpful, but production
continues to decline. The challenge is that most of the easy oil
has been produced and the two main goals of the bill are to
develop currently unexplored fields and to get more production
out of the legacy fields that are currently providing over 80
percent of Alaska's oil.
CO-CHAIR PASKVAN asked him to elaborate on the North Dakota
development.
COMMISSIONER BUTCHER replied that it has been a mix of more
traditional oil as well as shale oil.
CO-CHAIR PASKVAN asked what kind of future development would be
needed for North Dakota to pass Alaska.
COMMISSIONER BUTCHER replied those two and, in particular, the
Bakken Shale. Great Bear has potential, but Alaska has some
hurdles that North Dakota doesn't have in terms of workforce,
infrastructure and distance from market. What is economic in
North Dakota isn't necessarily economic here.
SENATOR WIELECHOWSKI asked if he knows what the tax rate is for
oil in North Dakota.
COMMISSIONER BUTCHER replied 10 percent of gross.
4:01:15 PM
SENATOR WIELECHOWSKI asked if he is aware of efforts by the oil
industry and the business community in North Dakota to lower it.
COMMISSIONER BUTCHER replied he had read things, but had no
details.
SENATOR FRENCH commented when they wrote ACES in 2007 the bill
spent 40 hours in the Judiciary Committee and a similar time in
the Resources Committee before that, and probably more time in
the Finance Committee after that. He wished him luck saying,
"It's tough to change oil taxes. It should be tough....When you
start tinkering with AS 43.55, that is the financial future of
the state....We all know how serious it is."
COMMISSIONER BUTCHER said he looked forward to the discourse.
CO-CHAIR WAGONER added that this committee had the original PPT
bill for over six weeks, and one thing that was stressed at the
time is that they had to have those credits to make sure oil
continued to flow in TAPS without a decline. And it bothers him
that they hadn't seen any change in the decline since then. What
can he tell him that will make him believe they will see a
leveling off and perhaps an increase of oil in the pipeline?
4:05:31 PM
COMMISSIONER BUTCHER responded that the administration has a
role, but so does industry - in coming forward to answer their
questions and giving them some level of comfort that the future
is as they discuss it as the bill goes forward. The bill has no
assurances.
SENATOR STEDMAN said North Dakota's tax rate is 10 percent, but
subsurface ownership is different there. In North Dakota
payments are also being made to several hundred subsurface
owners instead of one sovereign that has 30 years of experience
in hydrocarbon basin comparisons like the State of Alaska. He
asked if the problems defined by the administration in slide 3
are in ranked order or arbitrarily put on the page.
COMMISSIONER BUTCHER replied they have no priority, but "We
would hope that number one would lead to number two and number
three." The three are:
1. Improve investment climate
2. Create jobs for Alaskans
3. Increase production
4:08:35 PM
SENATOR WIELECHOWSKI asked how many jobs he estimated that SB 49
would create.
COMMISSIONER BUTCHER replied that he had no number, but rather
they would lay out some investment scenarios in a future
meeting.
SENATOR WIELECHOWSKI asked how much increased production they
are expecting under SB 49.
COMMISSIONER BUTCHER answered that those questions would be
covered while looking at a variety of investment scenarios and
what they believe each would mean. But he thought much of that
would come from industry testimony and those that are looking at
this as being a material change to how they do business in the
state.
SENATOR STEVENS stated it's of "enormous importance" to realize
the difference in ownership. He said Senator Murkowski
took the joint session of the House and Senate to task when she
compared Alaska oil taxes to Texas taxes saying that ours was
something like five times more. But she probably didn't take
into consideration the fact that in Texas if you are an oil
company, you pay money to the property owner - the rancher or
the farmer - who owns the land. In Alaska, when you pay taxes
you pay them to Alaska. The press hadn't even mentioned this
point.
CO-CHAIR PASKVAN said he understands that in Texas if it's a
quality field with a sophisticated landowner that the royalty is
25 percent or more depending on those factors.
SENATOR WIELECHOWSKI said he read through some old PPT testimony
and came across several people who testified that the natural
rate of decline on the North Slope was expected to be 15
percent, and the numbers he saw by some industry reps were that
if they spent $1-1.5 billion per year, they could stem that to 6
percent, which has been the actual decline rate. He asked what
the DOR projected would be the decline over the next decade.
COMMISSIONER BUTCHER answered between 3 and 4 percent.
SENATOR WIELECHOWSKI responded that he understood the total
decline would be roughly about 18 percent over the next decade
or 1.8 or 2 percent per year.
4:12:19 PM
COMMISSIONER BUTCHER replied that he would get the details, but
he believed it was a 3 to 4 percent decline. The department's
petroleum forecaster, Frank Molly, could also participate in
this discussion, since the forecast was made before he had this
position. Liberty is a pretty good example of something that has
changed since the fall forecast in terms of needing to be pushed
back from where they thought they would see production.
He said slide 4 showed the North Slope production curve from
1977 and peaking in 1988 with a little over 2 million barrels
per day. Fiscal year 2010 finished at 644,000 barrels a day, a
68 percent decline since the peak. The DOR forecast continues
the decline, although it will flatten out somewhat. Seeing the
high price of oil and development in other states, it's
surprising that Alaska continues to decline. There doesn't
appear to be the rush to exploration here that other states have
seen.
SENATOR WIELECHOWSKI said the steep decline in 1989-2009 was
during the ELF [economic limit factor] when the tax rate was
roughly 15 percent for some fields and zero for many others.
SENATOR STEDMAN asked if this is a normal production life cycle
of a basin or is it abnormal.
COMMISSIONER BUTCHER answered that he didn't have the details of
what a mature basin decline looks like and Frank Molly might be
able to answer that at a future meeting.
SENATOR STEDMAN asked if they were to model an investment in a
new basin would it be similar to the type of production curve
they would normally use - a rapid increase at first, peaking
after three or four years, and a fairly rapid decline and then a
tapering off.
COMMISSIONER BUTCHER said he couldn't answer that and asked if
he would like Joe Balash to come forward.
SENATOR STEDMAN answered, "Not really."
SENATOR STEDMAN asked if he did an investment analysis of this,
would he have a flat production for several decades like with
gas or would he build this into the financial model to make
those decisions.
COMMISSIONER BUTCHER replied that is more of a DNR question, but
when you look at many states, like North Dakota, that is growing
tremendously because they had a relatively low amount of oil
being produced and now that's changed, and then look at a state
like Texas with a little decline over the last number of years -
and it has a much more mature oil basin than the State of Alaska
does - there is a natural decline, but some areas have been able
to stem that decline.
SENATOR STEDMAN said as they go through the process, they should
have their consultants explain how these investments are
modeled. He thought they would find that one sees a rapid
increase over the first three years to recoup capital, then a
fairly rapid decline, then a tapering off; it's all the time
value of money - and they will probably find this is a standard
life-cycle of a basin. The question is how to slow the decline,
not that there is anything wrong with the decline curve on the
North Slope. His concern is that the public isn't left with the
impression that a policy error led to this rapid decline in
Prudhoe Bay.
COMMISSIONER BUTCHER agreed that passage of this bill won't fill
the pipeline, but decreasing the decline and potentially
increasing the amount that is currently being produced is a
reasonable goal.
SENATOR STEDMAN said as the sovereign, the state is more
attracted to a flat revenue stream for many years versus the
need to have a large spike in the beginning to recoup the
capital costs that are required to open up basins and do
development. The state does not have alignment with industry on
productions.
COMMISSIONER BUTCHER said he didn't disagree.
4:20:58 PM
CO-CHAIR PASKVAN asked what they should expect to hear from
industry.
COMMISSIONER BUTCHER answered his assessment is that they would
hear a discussion of this being a material change. He didn't
think they should expect a "quid pro quo" from multinational
corporations that have to go through their board of directors
for their investment decisions. It's also an opportunity for the
legislature to get information from the companies that the
department can't provide.
SENATOR WIELECHOWSKI asked if he is familiar with the majors'
reserves regarding their Alaska productions.
COMMISSIONER BUTCHER replied that is something that is not
shared with the state.
SENATOR WIELECHOWSKI asked if he knew whether ConocoPhillips had
added reserves on the North Slope in recent times.
COMMISSIONER BUTCHER answered no.
SENATOR WIELECHOWSKI asked what triggered Mark Gillman, analyst
with Benchmark Company, talking about additions to reserves in
Alaska, and Jeff Sheets, Sr. Vice President and CFO,
ConocoPhillips, saying they came from their existing areas - in
other words, Prudhoe, Kuparuk and the western North Slope. He
asked the commissioner if he was aware of ConocoPhillips adding
significant reserves in Prudhoe.
COMMISSIONER BUTCHER responded that he would talk to the DNR and
find out what he could on that.
SENATOR WIELECHOWSKI asked if he thought it was important for
the DOR to keep track of reserves being added to by the majors.
COMMISSIONER BUTCHER answered that he hadn't been in his
position long enough to get into that detail. But he would be
happy to get back to him on it.
4:25:17 PM
He went on to explain that slide 5 reflected the department's
revenue forecast, and basically looks at three categories of
future production. The first is currently producing fields;
these tend to be the most in-sync in looking into the future in
terms of the slope of a field. The second category is "under
development" and that looks at fields that are currently not
producing but will be producing in the future; Liberty is an
example. The most speculative is the "under evaluation" fields,
the ones industry is looking at but they haven't made a decision
to begin to develop.
SENATOR FRENCH said he understands that under development means
it's either currently funded or awaiting project sanctioning in
the very near future. So, they have a fairly high degree of
confidence that is going forward (under ACES). Under Evaluation
is more speculative - technically viable projects currently in
the pencil sharpening stage where engineering costs, risks and
rewards are all being actively evaluated. The unfunded but have
a high chance of being brought to fruition ones are maybe the
ones they are trying to influence most here today.
COMMISSIONER BUTCHER agreed and added areas that wouldn't be
considered as under evaluation enough to put on the graph but
yet would hopefully show up with future development.
SENATOR FRENCH said this does not include NPR-A and OCS, for
example, and asked if ConocoPhillips CD-5 is included.
COMMISSIONER BUTCHER indicated yes.
SENATOR FRENCH asked if the heavy sands area was included.
COMMISSIONER BUTCHER answered no; he said Ugnu is not included
in the production forecast at this point.
SENATOR FRENCH asked if the black section is going to be an area
that will enjoy the lower tax rate in this bill.
COMMISSIONER BUTCHER replied the majority of the under
evaluation category is unitized; Mr. Molly could dig into those
details at a later point.
SENATOR FRENCH asked which areas are non-unitized and how ACES
works as far as onshore oil and if it applies throughout Alaska
whether or not it's state or federal land.
COMMISSIONER BUTCHER answered that the production tax applies
everywhere.
SENATOR FRENCH said the state gets ACES oil from NPR-A, and if
ANWR opened tomorrow it would get state production tax from
there.
COMMISSIONER BUTCHER said that was correct. He said that the
governor has pointed out the Armstrong area has real development
potential, but it is non-unitized.
SENATOR FRENCH asked if shale oil is the same as heavy oil.
COMMISSIONER BUTCHER said he didn't know.
CO-CHAIR PASKVAN said that it's conventional oil flowing through
shale.
SENATOR WIELECHOWSKI asked the commissioner if he was familiar
with the producers' duty to produce under their leases.
COMMISSIONER BUTCHER answered yes.
SENATOR WIELECHOWSKI asked if a producer wants to sit on his
leases, does the DOR have any say whether or not the state
should take more aggressive action to ensure those leases are
explored and drilled.
COMMISSIONER BUTCHER answered his understanding is that isn't a
DOR issue.
SENATOR WIELECHOWSKI said that is an important discussion to
have at some point. If these areas that are under evaluation
have extremely high internal rates of return and extremely high
net present values and the company just decides not to develop
them for whatever reason, he thought they were in violation of
their lease terms. He didn't think it was the best public policy
to give them "a few billion dollars in tax breaks" in exchange
for their developing them.
COMMISSIONER BUTCHER said it's not an issue the DOR has had
anything to do with.
SENATOR STEDMAN asked him to provide the committee with its
five-year incremental production forecasts for Prudhoe from
1990.
COMMISSIONER BUTCHER replied he could put that together very
easily. He said slide 6 is a view over the last 15 years of the
development and service wells drilled on the North Slope as well
as a comparison with the price of oil during that period of
time. He clarified that a development well is a well drilled
within the proved area of an oil or gas reservoir to the depth
of a stratigraphic horizon known to be productive. A service
well (for natural gas) is a well drilled to support that well
whether it's for injecting the water, steam or air necessary for
the development well but it's not a producing well in and of
itself.
4:35:24 PM
SENATOR WIELECHOWSKI, referring to the slide, asked with oil at
an all-time high ($60) and a zero percent tax rate on 15 out of
19 fields on the North Slope in 2006, what makes him think that
lowering taxes now will have any impact at all on future
development.
COMMISSIONER BUTCHER responded two things. One is there tends to
be a couple-year lag time between when decisions are made and
when wells are drilled and development occurs. The second aspect
has to do with the development and service wells, which tend to
be in the more mature areas of the North Slope, and as the price
of oil went up in the past, the level of wells being drilled was
maintained although they didn't increase in number.
SENATOR WIELECHOWSKI said even with a couple-year lag, there was
still a zero percent tax rate in 2004/5 (with prices still going
up) and drilling was still flat in 2006.
COMMISSIONER BUTCHER said producers could provide more detailed
answers. This slide leads into the next that shows exploration
wells "basically falling off the table" and development and
service wells declining slightly over the last five years.
CO-CHAIR PASKVAN asked if the administration thinks there should
be an increase in development wells in the next five years as
part of any negotiation.
COMMISSIONER BUTCHER replied that he didn't have a specific
answer for that question; he would need a breakdown of the
currently producing fields and those that would be newly
producing, because they are focusing on not just getting new
fields under development; they are also focusing on getting more
out of current fields.
SENATOR WIELECHOWSKI asked the difference between development
and exploration wells.
4:39:52 PM
JOE BALASH, Deputy Commissioner, Department of Natural Resources
(DNR), explained that the primary difference between an
exploration well and a development well is what is known about
the subsurface. An exploration well is truly looking to see what
is beneath the surface. The planning and engineering is
different - for safety purposes more than anything. Once the
resource is discovered, a little bit of delineation is done;
those wells are kind of like exploration wells. They are
delineated and the well is designed to maximize the bore-to-rock
exposure, taking into consideration the pressures in and around
the reservoir zone.
SENATOR WIELECHOWSKI said he was still unclear about the
difference and asked if once you figure out oil is there then
does it become a development well.
MR. BALASH answered that the way a well is designed is
different, both from a casing and stream perspective, but also
in the direction that the bit is turned down in the ground to
identify the target and reach.
CO-CHAIR PASKVAN said he has seen a report that says the central
North Slope has 5.1 billion barrels in proven reserves, and
according to the USGS there is about 4 billion barrels in
undiscovered likely recoverable oil. He asked if the development
well is the 5.1 billion barrels and the exploration well is the
4 billion barrels.
MR. BALASH answered yes, that is basically correct. A
development well is designed to pay; an exploration well is
designed to find out information.
SENATOR WIELECHOWSKI asked if ConocoPhillips does in-field
drilling, would that be considered exploration or development.
MR. BALASH replied that would be development.
SENATOR WIELECHOWSKI asked if he is aware of ConocoPhillips
changing its policies in terms of doing fewer exploration wells
and focusing more on in-field drilling opportunities.
MR. BALASH replied that he is generally aware of ConocoPhillips'
plans in Alaska through a number of the exploration targets they
have cited since they took over the Arco legacy assets on the
North Slope, but he is not privy to a general policy or a
particular strategic business approach.
SENATOR WIELECHOWSKI asked if he was familiar with the following
that Kevin Meyers, Sr., Vice President, ConocoPhillips, said on
March 24, 2010 an analyst meeting:
Let's take a few minutes and take a look at where we
are spending the rest of our exploitation dollars
around the globe. Whether it be [in] Alaska or
Australia or the North Sea, you see some common themes
that emerge. We are spending our exploitation dollars
on infield drilling opportunities on peripheral
drilling opportunities and on technology applications
to improve recovery in these legacy assets.
MR. BALASH replied that he is aware of their investment approach
of reducing their debt on their balance sheet and divesting
certain assets, particularly those in the refining business
sector for the last 18-24 months. But in terms of exploitation
versus exploration, the strategy is that exploration dollars are
high risk - very little guarantee of success and ultimate
payback. So, they want to choose their targets wisely. In
Alaska, he has seen a change of focus from the exploration side
on the western side of the North Slope into greater Moose's
Tooth and Bear Tooth.
4:46:23 PM
SENATOR FRENCH asked him to comment on ConocoPhillips' purchase
of Burlington Resources in 2005, a natural gas company for which
they paid about $15/mcf, one of the highest prices ever paid for
a natural gas company.
MR. BALASH responded that through trade press coverage he
understands ConocoPhillips' exposure to gas and gas reserves in
North America and the effect it has on their corporate
performance. It is one of the reasons why the returns that they
are seeing on oil in Alaska appear to be so impressive relative
to the rest of North America. As one of Alaska's most
transparent players, ConocoPhillips shows comparisons of all the
regions that they are producing hydro carbons from including
their Eagle Ford and Bakken shale gas plays.
SENATOR FRENCH asked if it is fair to say that investing in
those plays had a "negative effect" on ConocoPhillips' ability
to spend money on things like exploration and development over
the subsequent years.
MR. BALASH replied that's for shareholders to decide.
SENATOR FRENCH asked if it's true that they had to sell assets,
like a refinery, to cover the debt they acquired when they
bought that company.
MR. BALASH replied that he understands their strategy is to
divest of a number of poorly performing refining projects and
facilities to repay that debt, but at the same time they are
optimizing other business segments.
SENATOR STEDMAN said he wanted to know if there are any
recognizable trends between what is going on in Alaska and what
is going on elsewhere recognizing, for instance, the financial
meltdown in 2008/9. He asked to have an industry profile
overlaid on development and service wells and exploration wells
on slides 6 and 7.
COMMISSIONER BUTCHER indicated he would put that together for
him.
SENATOR WIELECHOWSKI pointed out that ConocoPhillips paid out $3
billion to shareholders in 2009 and cut their capital spending
from $12 billion to $10.7 billion. They also repurchased $4
billion worth of shares. Significant amounts of money were paid
back to shareholders, but were not used to develop the North
Slope. He wasn't criticizing them for it, but if they are trying
to figure out what is going on out there, it's important to look
at what the company is doing with the money it has.
COMMISSIONER BUTCHER responded that many factors play into a
company's decisions.
SENATOR MCGUIRE asked him to look at her legislation on the
competitiveness review study and asked to what end the
department has considered the effect investment decisions made
by oil and gas companies have on Alaska competitiveness
globally.
COMMISSIONER BUTCHER indicated that he had read her bill and he
would be happy to go through it with her at a later date.
4:54:31 PM
CO-CHAIR PASKVAN asked if there is an industry norm as far as
the number of development wells one should anticipate "in this
age of the development of an elephant field."
COMMISSIONER BUTCHER replied that he would get back to him with
those details, but he knows that getting technology to a certain
threshold or the price or oil helping a project make more sense
have an impact.
4:55:44 PM
At ease from 4:55 to 4:56.
4:56:01 PM
He said that slide 7 overlaid the price of oil on the number of
exploration wells drilled on the North Slope and covered 2007
when ACES passed and investment decisions that had already been
made prior to its passage; it also showed the a drop of almost
50 percent in 2009 and a drop of 50 percent in 2010. He said DNR
estimates only one exploration well will be drilled in 2011. So,
as the price of oil has been going up and as other states have
seen the number of exploration wells increase, Alaska's has
dropped "to almost a trickle."
SENATOR FRENCH remarked that they would probably spend a couple
of hours on this slide. So, as a matter of housekeeping,
drilling seasons are thought of as winters spanning two years,
and he asked how the state decides which year these wells fall
in.
MR. BALASH answered that exploration on the North Slope is
restricted by access to tundra travel and ice road construction.
More often than not that activity doesn't get authorized until
later in the year. By the time rigs are mobilized it's generally
after the first of the year.
SENATOR FRENCH asked if these are spring time wells in general.
MR. BALASH responded, "If you would like to think of January as
spring, yes."
SENATOR FRENCH asked what happened in 2003.
COMMISSIONER BUTCHER replied that he would have to research
that.
SENATOR FRENCH asked what an exploration well costs.
MR. BALASH replied that the cost of the well is one thing, but
the larger cost in most cases has to do with its distance from
infrastructure and the mobilization transport costs. The wells
drilled by FEX in the remotest NPR-A cost over $70 million;
closer in to infrastructure and with a limited need for ice
roads a well still costs $15-20 million.
5:00:55 PM
CO-CHAIR PASKVAN said this was an appropriate point to stop this
presentation and adjourned the meeting at 5:00 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 49_DOR Presentation_Proposed Changes to Oil and Gas Prod Tax_3-11-2011.pdf |
SRES 3/11/2011 3:30:00 PM |
SB 49 |