Legislature(2011 - 2012)BUTROVICH 205
02/15/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Presentation: Overview of Plan of Development by Conocophillips | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 192 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| *+ | SB 176 | TELECONFERENCED | |
SB 192-OIL AND GAS PRODUCTION TAX RATES
PRESENTATION: OVERVIEW OF PLAN OF DEVELOPMENT BY CONOCOPHILLIPS
3:32:57 PM
CO-CHAIR WAGONER announced that SB 192 was up for consideration
and that there was a letter from BP in members' packets. He said
that ConocoPhillips would make a presentation.
^Presentation: Overview of Plan of Development by ConocoPhillips
3:33:15 PM
SCOTT JEPSEN, Vice President, External Affairs, ConocoPhillips
Alaska, stated that today's presentation was on the development
outlook for ConocoPhillips' operating assets on the North Slope.
The presentation consists of three topics: the Greater Kuparuk
Area (GKA), the Western North Slope (known as Alpine), and ACES
- what can be done to make a better climate for investment.
He showed a slide of GKA and some of the surrounding units. He
related that the field was started in 1981 and currently five
fields are producing: Kuparuk, West Sak, Tarn, Tabasco and
Meltwater. All the fields are on water flood and all but West
Sak are undergoing an EOR (enhanced oil recovery) process -
taking hydrocarbons and NGLs, mixed with natural gas, and
injecting them into the reservoir. This helps improve the "sweep
efficiency" and loosen the oil from the rocks.
He said that ConocoPhillips is also considering doing a
viscosity reducing water alternating gas pilot project in the
West Sak, which is currently producing 14,000 to 15,000 barrels
a day. In essence, it would take Kuparuk miscible injectant and
put it into the West Sak where it has the potential of reducing
the viscosity. The injection of water allows for gas to be
better swept out of the field.
MR. JEPSON related that there are three production facilities,
47 drill sites, and 1,149 wells which to date have produced
about 2.4 billion barrels, of which, about 2.2 billion barrels
have come out of GKA. There is production opportunity for a long
period of time to come.
He said ConocoPhillips processes Pioneer's oil, gas, and water
from the Oooguruk Field. Pioneer moves all their production to
ConocoPhillips who treats it and returns some of the watered gas
back to Pioneer. ConocoPhillips also has a number of other
third-party processing agreements that allow explorers and other
parties that want to do business inside the Kuparuk Unit to use
parts of their infrastructure, such as roads, pads, and
emergency services.
3:36:18 PM
MR. JEPSON turned to slide 4, which demonstrates where GKA
production is coming from. In 2000, about 2,000 barrels per day
were coming out of GKA. In 2011, about 50 percent of production
stems from production work that has been done since 2000.
SENATOR FRENCH asked what percent the annual decline is.
MR. JEPSON replied that it was about 16 percent in 2000 and
about 8 or 9 percent by 2010.
SENATOR FRENCH concluded that the current decline for the whole
field, including the new production, is at about 8 percent.
MR. JEPSON said 6 to 8 percent.
He continued to say that the top layer in the graph depicts
production from GKA satellites. He noted that the small graph on
slide 4 shows the total water and oil production. Water
production is increasing and drives up the cost of production.
Also depicted is the total oil, water, and gas production in GKA
fields in 2011. Total gas produced per day is about 600 million
cubic feet.
3:39:09 PM
MR. JEPSON explained that slide 5 outlines GKA's work plans for
2012. There are plans to continue coil tubing drilling with the
rig that was built in 2009, as well as to continue rotary
drilling. Also planned is an expansion of water injection at
CPF1 and use of a new Shark Tooth appraisal well.
3:40:36 PM
SENATOR FRENCH asked what type of oil is expected from the Shark
Tooth.
MR. JEPSON replied that it is conventional oil.
SENATOR FRENCH inquired what that development might lead to.
MR. JEPSON said it could develop into a new drill site with
multiple wells, depending on production risks and costs.
CO-CHAIR WAGONER asked where it is located.
MR. JEPSON said it was located north of Tarn.
3:42:43 PM
MR. JEPSON continued to say there was a plan to evaluate the 220
square miles of recently acquired seismic shoot. He noted there
have been five seismic surveys of GKA. The strategy is to look
for indications where the water flood is progressing to the
field.
He reported on another plan to evaluate enhanced recovery
techniques, such as fresh water injection.
CO-CHAIR asked if water injection washes oil off the rocks like
carbon dioxide would.
MR. JEPSON said it did not.
He continued to explain that another enhanced recover technique
used deep penetration polymers which could seal off water zones.
MR. JEPSON described GKA's maintenance and renewal work plans:
upgrade the Kuparuk airport, continue the smart pig program, and
maintain the external monitoring program to look for corrosion.
SENATOR WIELECHOWSKI asked if the maintenance and renewal plans
are eligible for tax credits under ACES.
MR. JEPSON explained the category of capital improvements for
ACES.
SENATOR WIELECHOWSKI asked if the previous examples would fit
that definition.
BOB HEINRICH, Vice President, Finance, ConocoPhillips Alaska,
answered the question. He explained that the runway project
would qualify as a capital project. The smart pig project has
both capital and operating components.
MR. JEPSON continued to discuss GKA work plans. He noted that
some of the infrastructure needs to be upgraded or replaced due
to the extended life of the fields.
CO-CHAIR WAGONER asked if GKA has more producible oil than it
was originally thought to have, or if it is just taking longer
to produce it.
MR. JEPSON responded that there is much more oil than was
anticipated.
He related the plan to use a workover rig to repair broken
wells. There is also ongoing operation and maintenance work.
CO-CHAIR WAGONER asked for the total number of production wells
in Kuparuk.
MR. JEPSON said there were about 600 wells.
He said he was not in the position to reveal the total capital
budget for Kuparuk; however, 70 percent of it is going toward
maintenance and 30 percent to development.
3:48:30 PM
MR. JEPSEN turned to a project that has been impacted by ACES
called West Sak, a viscous oil site. The West Sak core area
depicted on slide 6 has about 100 wells, many of which are
horizontal wells. He called the 1J area the best part of West
Sak, yet there were a lot of problems with it, such as water
breakthroughs and high costs.
He related that the next best part of West Sak targeted to be
developed is the Eastern Northeast West Sak (NEWS). The capital
cost will be around $1 billion to $2.5 billion and could lead to
one or two new well pads with up to 115 new wells with as many
as 150 million barrels of incremental gross oil recovery. This
area, however, is technically challenged and there may be sand
control issues and matrix bypass events - water breakthroughs.
Several techniques will be used to combat technical challenges
in Eastern NEWS.
He listed issues the company will consider when investing in
Eastern NEWS: technical risk, production risk, operation risk,
and the fiscal environment in Alaska.
SENATOR WIELECHOWSKI asked if the reason ConocoPhillips is not
moving forward on this project is ACES.
MR. JEPSEN clarified that ConocoPhillips will likely move
forward with a portion of the project, but ACES takes away the
upside.
SENATOR WIELECHOWSKI asked how many barrels are expected out of
1J per day.
MR. JEPSEN replied about 15-20 percent.
SENATOR WIELECHOWSKI inquired about the net present value and
internal rates of return under ACES for the 150 million barrels
per day expected from Eastern NEWS.
MR. JEPSEN stated that he can't share the numbers with the
committee. He pointed out that ConocoPhillips also considers
long-term cash flow and net income, which ACES limits.
SENATOR WIELECHOWSKI maintained that the state is trying to
ensure that it receives maximum value for oil resources. He
asked if Mr. Jepsen would be willing to share internal data with
DOR or with individual legislators on a confidential basis in
order to assess the data under various financial scenarios.
MR. JEPSEN said it was problematic to do so on a project basis.
He noted he was willing to share data on a portfolio basis.
3:54:34 PM
MR. HEINRICH added that ConocoPhillips does not share
proprietary information with partners, either.
SENATOR WIELECHOWSKI requested modeling from ConocoPhillips in
order to strike a fair balance between the state's and the oil
company's needs. He stressed that without information the
legislature has a hard time providing tax breaks.
MR. JEPSEN suggested that relevant information would be
forthcoming in the presentation.
3:56:42 PM
MR. JEPSEN concluded that the ultimate size of the Eastern NEWS
project will depend on if the upside offsets the downside
financially under ACES.
He informed the committee that ConocoPhillips has an interest in
heavy and viscous oil in many areas of the Western West Sak.
These areas are shallower, heavier, and colder making it very
difficult to use conventional technology. He suggested that the
legislature look at the prospectivity of heavy oil very
cautiously. The Ugnu area is even more challenged with
permafrost issues where thermodynamics are counterproductive.
CO-CHAIR WAGONER asked if UAF is involved in any joint research
projects related to heavy oil production.
MR. JEPSEN said he wasn't aware of any heavy oil research
efforts by UAF.
3:59:42 PM
MR. JEPSEN moved on to Western North Slope (WNS), or Alpine,
Development which first came into production in 2000. It was the
largest U.S. onshore discovery since the 1970's. There are four
producing pools, Alpine, Fiord, Nanuq, and Quannik, all of which
are on the water flood, and all except Qannik are undergoing
EOR. When the field was first found, the gross ultimate recovery
was about 400 million barrels. Twelve years later, it is still
producing about 77,000 barrels per day and it has exceeded the
initial gross ultimate recovery.
MR. JEPSEN turned to slide 8 in order to show the impact that
ongoing drilling has on field rate in the WNS. The graph shows
WNS oil production field rates by year, as well as how much oil,
gas, and water is produced from each site. The total amount of
gas handled is 185 million cubic feet per day.
SENATOR FRENCH mentioned that he toured the Alpine field several
years ago and Sean Parnell from ConocoPhillips was his tour
guide.
4:02:11 PM
MR. JEPSEN discussed ConocoPhillips' work plans for WNS. There
will be continued rotary drilling of extended-reach horizontal
wells, an ongoing stimulation program, a CD3 facility upgrade,
and CD5 (Alpine West) development. He noted that the wells in
WNS are technically difficult.
SENATOR FRENCH said he was excited about the development of CD5.
He requested the estimate of capital costs for the project.
MR. JEPSEN replied that it would be about $600 million, but
there will be a new cost estimate by the end of the year that
will be more.
SENATOR FRENCH asked how much more it might be.
MR. JEPSEN did not know.
He pointed out the artist's rendering of what the new bridge
might look like - slide 9.
CO-CHAIR WAGONER asked about the cost of the bridge project.
MR. JEPSEN did not have that number.
MR. HEINRICH added that the bridge is being engineered to
accommodate conditions of the permit.
MR. JEPSEN said permit requirements have increased the cost.
SENATOR FRENCH asked for an estimate of the expected production
from CD5.
MR. JEPSEN replied that ConocoPhillips has not publicly talked
about the reserve estimate for CD5.
He discussed development plans for CD5, which could lead to up
to 33 well slots with production starting in late 2015. He
addressed the decision to develop CD5 long before ACES came into
play. ConocoPhillips decided that if they were to receive the
permit for CD5, they would develop it.
SENATOR STEDMAN requested the capital costs for CD5.
MR. JEPSEN reiterated the cost estimate of $600 million which
would be revised by the end of the year.
MR. HEINRICH added that there were changes in the rate markets,
also.
SENATOR STEDMAN requested the net costs.
MR. HEINRICH said he didn't have that information.
SENATOR STEDMAN asked if it would be substantially less than
$600 million.
MR. HEINRICH replied that it would be reduced by the capital
credit program.
CO-CHAIR WAGONER requested that Mr. Jepsen provide those cost
figures.
MR. JEPSEN asked if Senator Wagoner was looking for a number
related to the 20 percent capital credit.
CO-CHAIR WAGONER said the request includes any credits that
apply to the project.
SENATOR STEDMAN addressed the progressivity rate, the 20 percent
capital credit, federal income tax deductions, and others that
could result in 90 percent write-offs for the project. He
stressed the need for balance when evaluating costs and credits
when trying to adjust the fiscal environment.
4:09:16 PM
MR. HEINRICH offered to provide an illustrative example of final
costs.
SENATOR STEDMAN opined that it would be good to understand the
basic mechanics without the need for specific numbers.
MR. HEINRICH pointed out that one of the challenges with
progressivity in ACES is that the "front end" capital credits
provide benefits, but the production is burdened with the higher
tax rates over time.
SENATOR FRENCH voiced appreciation for the testimony from Mr.
Jepson and Mr. Heinrich. He stressed the intense need for
information in order to make the best decisions possible for
Alaska.
CO-CHAIR WAGONER noted BP will have a presentation next week.
SENATOR WIELECHOWSKI inquired how long it would take for start-
up in CD5, what the "ramp up" would be, and how long it would
take.
MR. JEPSEN reiterated that CD5 would come on stream in about
2015. He said he did not have a detailed production profile.
CO-CHAIR WAGONER added that Exxon would also have a presentation
next week.
MR. HEINRICH pointed out that the production estimate is not
intended to be the ramp up range; it is the estimated peak
production.
SENATOR WIELECHOWSKI asked if CD5 is going forward regardless of
a proposed tax change.
MR. JEPSEN reiterated that the engineering is currently being
done and then the project would be taken to the board of
directors and management to decide whether to go forward. He
said they are not recommending not doing it because of ACES.
SENATOR WIELECHOWSKI asked if there are projects that have not
been recommended because of ACES.
MR. JEPSEN explained that ConocoPhillips has an inventory of
projects that are being considered based on a number of
criteria.
4:14:58 PM
SENATOR WIELECHOWSKI requested a list of projects not
recommended because of ACES.
MR. JEPSEN referred to a letter that discussed projects that
would go forward if ACES was changed.
SENATOR STEDMAN requested an explanation of the processing
facilities and the constraints faces both above and below
ground. He wanted information on throughput bottlenecks.
MR. JEPSEN used Kuparuk to explain wells with high gas to oil
ratios and high water to oil ratios, which both negatively
impact production. The solution is to drill new wells that have
neither.
4:18:18 PM
MR. JEPSEN reported on drilling challenges that lead to higher
well costs - slide 11. The graph shows well costs in 2011
dollars, now, and in the past. Today, wells are more complex and
the targets aren't as large, which has resulted in a 340 percent
average increase in well costs.
CO-CHAIR WAGONER asked how thick the seam is on laterally
drilled wells.
MR. JEPSEN replied that they are typically 10 to 15 feet wide.
SENATOR WIELECHOWSKI asked where the $350 million ConocoPhillips
invested last year went.
MR. JEPSEN thought Senator Wielechowski was referring to an
earlier presentation by Mr. Garland and said he stood by that
number.
SENATOR WIELECHOWSKI repeated the question.
MR. JEPSEN explained that ConocoPhillips does not publically
provide that information; however, DOR has it.
SENATOR WIELECHOWSKI concluded that even though drilling costs
increased by 340 percent, ConocoPhillips invested $350 million
in 2011, all at very good returns.
4:21:33 PM
MR. HEINRICH suggested that the statement should be taken from
the perspective of the corporate viewpoint. Over 50 percent of
production comes from gas business, and gas prices have been
substantially lower than in prior years. Returns from Alaska,
relative to the corporate average, are higher and make
corporations look good. He explained cash margins to make his
point.
SENATOR WIELECHOWSKI stated that ConocoPhillips produces 240,000
barrels of oil equivalent a day with strong cash margins. He
asked if Mr. Heinrich agreed.
MR. HEINRICH agreed, relative to the corporate average, which
includes gas production.
SENATOR WIELECHOWSKI summarized that ConocoPhillips has strong
cash margins and very good rates of return in Alaska.
MR. HEINRICH again agreed, relative to the corporate average,
which includes gas production.
SENATOR WIELECHOWSKI asked how much profit ConocoPhillips has
made in Alaska since ACES went into effect. He suggested it was
about $10 billion.
MR. JEPSEN said that was correct.
SENATOR WIELECHOWSKI asked if 13 percent of ConocoPhillips'
worldwide production and 30 percent of their worldwide profit
comes from Alaska.
MR. HEINRICH said with last year's higher oil prices and lower
gas prices, those figures sound correct.
MR. JEPSON added that ConocoPhillips also paid a large amount in
severance taxes and royalties.
MR. HEINRICH stated that for every $1 of income, ConocoPhillips
pays about $2 in production taxes and royalties, so over that
same time frame, ConocoPhillips paid about $20 billion.
MR. JEPSEN returned to development outlook and summarized that
drilling costs have increased and what was easy oil is now hard
oil.
He turned to slide 12 to summarize the development of GKA and
WNS. The near term focus is on light oil and some of the viscous
oil in West Sak. The technology regarding light oil is available
and there is greater potential to add near term rate.
He said that technical advancements have been made regarding
viscous oil; however, the right balance of risks and rewards
must be present in order to develop the viscous oil. Heavy oil
technologies are being evaluated but are not near term projects.
ConocoPhillips is doing exploration and satellite development in
Alaska, which will also require consideration of risks and
rewards. He mentioned that ConocoPhillips bought additional
leases in the state lease sale. He hoped that the fiscal climate
would change enough to allow for new investments.
4:28:44 PM
CO-CHAIR WAGONER asked if ConocoPhillips is looking at
developing Beaufort Sea leases.
MR. JEPSEN related that the company recently relinquished
several Beaufort Sea leases. He did not know what remained. The
focus is currently on the Chukchi Sea.
SENATOR STEDMAN inquired about expected capital expenditures in
FY 2013 through FY 2016. He asked if there was much of a change
since the last submission of data.
MR. JEPSEN reported that ConocoPhillips has been fairly flat in
terms of total capital investment in 2010 and 2011. He predicted
that the next data would show a similar result.
SENATOR STEDMAN rephrased the question. He stated that he has
the aggregate number for FY 13 of $3,018,000,000 expected
statewide from all companies. He asked if there has been any
change of course in recent months, or if the projection is
reasonable.
MR. HEINRICH explained that ConocoPhillips has historically
spent in the $700 million to $800 million range the last several
years for capital expenditures in Alaska. He pointed out that
within the FY 13 to FY 15 estimate is the increment addition
from the CD5 project.
SENATOR STEDMAN concluded that not much has changed in the last
six months. In the past there has been conflicting testimony
regarding that issue.
4:33:39 PM
MR. HEINRICH discussed aspects of ACES the industry sees as
impediments to investment - slide 13. He showed a chart of
government and industry average share in Alaska. He said he used
the price of $30 per barrel of oil as the cost structure. He
related that he used DOR data accounting for tax credits from an
industry perspective. The increase of total take is due to the
progressivity feature in ACES.
SENATOR FRENCH asked if ConocoPhillips pays about 30 percent as
an effective tax rate.
MR. HEINRICH said that sounds correct for ACES.
SENATOR FRENCH asked if ConocoPhillips pays a 35 percent federal
tax rate.
MR. HEINRICH said absolutely. ConocoPhillips happens to be one
of the largest taxpayers in the U.S. Its corporate tax rate for
2010 was a little over 42 percent and included state and federal
taxes, but excludes production taxes.
SENATOR STEDMAN said he would wait to see how those calculations
come out. He predicted they would be closer to 25 or 30 percent.
He noted testimony in previous hearings which suggested
adjusting the progressivity.
4:38:12 PM
SENATOR STEVENS joined the committee.
MR. HEINRICH opined that the competitive rate is found at a much
lower price than $120 oil. He added that it is hard to pinpoint
a particular price without the context of other levers embedded
in ACES.
SENATOR STEDMAN thought the problem was the continuous lessening
of the industry's share and that the industry thought there
should be a flat marginal rate such as in Norway.
MR. HEINRICH agreed that progressivity is the problem.
4:40:51 PM
SENATOR WIELECHOWSKI asked if there were points under ACES where
the government take is fair.
MR. JEPSEN replied that at the $60 and $70 lower end of the
range, where it is closer to the 25 percent statutory rate, is
where ConocoPhillips is making large investments. He maintained
that the governor's proposal of bracketing takes away the issue
of progressivity and is simple and straightforward. Legislation
such as HB 110 would serve to allow the industry to look more
favorably upon the risk/reward balance.
SENATOR WIELECHOWSKI requested clarification of the $60 to $70
range.
MR. JEPSEN noted that area was closer to the statutory rate of
ACES and is similar to the balance found in other regimes.
SENATOR WIELECHOWSKI pointed out that the government take is not
that low in HB 110.
MR. JEPSEN corrected that he was describing what he would like
to see. The governor's bill is a good first step.
4:43:03 PM
MR. HEINRICH described slide 14, the government and industry
marginal share in Alaska. The marginal rate is the impact of the
incremental dollar. For example, at the $110 mark on the graph,
the increase in price from $110 to $111 results in about 80
percent of the incremental dollar going to taxing authorities
and 20 percent remaining for the investor.
SENATOR STEDMAN disagreed. He noted that the previous slide
shows the effective tax rate at 25 percent to 30 percent.
MR. JEPSEN asked if Senator Stedman was referring to ACES versus
the total tax burden.
SENATOR STEDMAN said yes.
MR. HEINRICH clarified that the graph shows the total tax, but
the increases are driven by the progressivity element of ACES.
MR. JEPSEN pointed out that when ConocoPhillips looks at taxes,
they look at the entire tax burden. He agreed that the PPT value
is less than 80 percent, but ACES drives the marginal tax rate
so high.
4:45:40 PM
MR. HEINRICH drew attention to slide 15 which shows how industry
earnings in Alaska are limited. Using DOR data, the industry
created a model to show how earnings are affected over price
ranges. The graph includes all taxes and shows that the
differences are driven by the progressivity element which
changes tax rates over prices. At $80 to $120 oil, which is
where oil prices have recently been, the industry earnings are
essentially flat. ConocoPhillips' earnings mirror that line. As
oil prices increase, the earnings should increase, and that is
not happening under the current structure.
MR. JEPSEN noted that the graph also includes the predicted
earnings under HB 110, which are slightly better under ACES, but
enough to change the balance of risk/reward.
MR. HEINRICH said the company recognizes that SB 192 is just a
placeholder. Slide 16 demonstrates why marginal take is
important. At $135, oil industry earnings become negative under
SB 192.
4:48:51 PM
MR. HEINRICH discussed why progressivity is the problem and
showed how investment has remained flat. He compared investment
spending in Alaska with that in the Lower 48, which was up by
104 percent. He noted that 2012 is predicted to have a flat
capital expenditure profile in Alaska. ConocoPhillips continues
to invest about $9 million in Alaska each year, but could invest
more under an improved fiscal structure.
SENATOR STEDMAN recalled that it has been recommended to the
Senate Finance Committee that the state adjust the ACES tax
structure to deal with light oil. He questioned if that
adjustment should be structured to include heavy oil, similar to
heavy oil plays in Alberta and North Dakota, according to
yesterday's testimony.
MR. JEPSEN answered that Bakken and Eagle Ford are not similar
to the heavy oil found in Alaska, but are similar to Alaska's
light oil.
CO-CHAIR WAGONER clarified that yesterday's discussion centered
on the cost of fracking shale plays and the suggestion was to
lower the tax structure. He agreed that Bakken and Eagle Ford
had light oil and Alberta had heavy oil.
MR. JEPSEN pointed out that what is produced in Alberta is
entirely different than what is produced on the North Slope.
He agreed that Alaska should have a tax structure similar to the
one at Eagle Ford and Bakken.
4:55:03 PM
MR. HEINRICH concluded by reaffirming statements ConocoPhillips
CEO, Jim Mulva, and ConocoPhillips Alaska President, Trond-Erik
Johansen, made about capital investments to be made in Alaska if
the business environment improves. The following commitments
were made: more effort to bring challenged oil to market from
increased drilling activity, pursuit of more satellite
developments at Alpine and Kuparuk, and pursuit of major
projects in existing fields. He stated that $5 billion would be
invested in the next three to five years if there is a
meaningful fiscal change.
SENATOR WIELECHOWSKI countered that after Mr. Mulva came to
Alaska and made that statement, Senator Wielechowski ran some
numbers on the proposal to invest $5 billion and concluded that
it would result in a 60 percent tax credit deduction resulting
in a $2 billion investment. Also, ConocoPhillips would make $3
billion in profits at a 92.58 percent rate of return. He asked
Mr. Jepsen if he agreed.
MR. JEPSEN opined that the proposed projects did not have those
rates of return. He stated that it was not possible to do a one-
to-one comparison due to the proprietary nature of the numbers.
He offered to look into it.
SENATOR WIELECHOWSIK said the analysis was done under ACES. He
requested more information if Mr. Jepsen disagreed with the
numbers.
SENATOR FRENCH asked if the $5 billon was a ConocoPhillips
pledge or an industry pledge by the Big Three.
MR. JEPSEN said it was a gross number.
He addressed Senator Stedman's previous question about making
fiscal frameworks in Alaska the same as those in the Lower 48.
He said that ConocoPhillips looks at the total tax burden and
there are differences in royalty rates and severance taxes. He
emphasized that when he talks about a similar fiscal framework
he is not talking about a single component, but rather about the
total tax burden.
CO-CHAIR WAGONER requested clarification of the timeframe of the
$5 billion pledge.
MR. JEPSEN clarified that it was $5 billion over three to five
years, in addition to what ConocoPhillips is currently spending.
SENATOR STEDMAN agreed the legislature needs to look at the
"entire puzzle", but also at the prospectivity of the basin, in
addition to the tax structure.
MR. JEPSEN agreed. He observed that the average field size has
decreased and costs have increased in Alaska.
SENATOR FRENCH opined that the reason some are legislators are
considering state direct financial participation is because
under HB 110 it's hard to see how the state wins.
MR. JEPSEN said he believes if the state changes the tax
structure there will be a near term drop in state revenue, but
higher production and revenues in the future with a stronger
economy and more jobs.
CO-CHAIR WAGONER thanked the presenters.
SB 192 was held in committee.