Legislature(2011 - 2012)BUTROVICH 205
02/21/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Analysis of Royalty Modification (focus on Economic Analysis) Presentation by Department of Natural Resources | |
| SB176 | |
| HB144 | |
| HB185 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 192 | TELECONFERENCED | |
| += | HB 144 | TELECONFERENCED | |
| += | HB 185 | TELECONFERENCED | |
| = | SB 176 | ||
SB 192-OIL AND GAS PRODUCTION TAX RATES
PRESENTATION BY DEPARTMENT OF NATURAL RESOURCES: ANALYSIS OF
ROYALTY MODIFICATION (FOCUS ON ECONOMIC ANALYSIS)
3:36:30 PM
CO-CHAIR PASKVAN announced the consideration of SB 192. He asked
DNR Commissioner Sullivan to provide introductory comments to
the presentation of the economic analysis of royalty
modification.
^Analysis of Royalty Modification (Focus on Economic Analysis)
Presentation by Department of Natural Resources
3:37:00 PM
DAN SULLIVAN, Commissioner, Department of Natural Resources
(DNR), said he had asked permission to provide an overview of
things he is doing in some of the areas this committee was
interested in. He said an overview is important because it will
put into context some of the more detailed issues that Mr.
Barron and his team will soon be testifying on about royalty
issues and plans of development. He complimented his team for
their work today and emphasized that the goal of DNR is to be
responsive, respectful and informative with regard to the
legislature as it grapples with some of the most critical issues
facing the state.
3:38:43 PM
COMMISSIONER SULLIVAN said this committee shares an important
strategic goal with the DNR and the Parnell administration: to
increase the numbers of companies and investors in Alaska in
terms of hydrocarbon exploration, development and production in
both Cook Inlet and the North Slope. All kinds of companies are
needed to do that from the super majors, the legacy producers,
to the small and nimble companies focusing on all kinds of
resource development plays whether it's new large fields, legacy
fields, smaller conventional pools of oil or unconventional
plays such as shale, heavy or viscous oil. He said the USGS
would have estimates of North Slope unconventional hydrocarbons
coming out soon.
Given the importance of the issue, the commissioner said over
the last year that DNR has taken unprecedented actions to
"relentlessly get out and tell the Alaska story to all types of
companies" in the U.S. and overseas. They have been focusing on
four things: Alaska's amazing resource base, investment
incentives, tax reform, and lease terms. The department had
follow up meetings with its technical lead by Mr. Barron.
3:41:52 PM
While the department is out making the case for Alaska, they
gain intelligence on what these companies think about Alaska.
Literally all of them see Alaska's resource base as a world
class structure on the North Slope. Some of the more negative
feedback was about the cost of doing business in Alaska from
drilling wells, remoteness, infrastructure, short exploration
season to high tax rates. He acknowledged all the new players on
the North Slope and in Cook Inlet and he vowed to continue
focusing on telling the story.
COMMISSIONER SULLIVAN said once they get here he wanted to
advance responsible development policies that help spur action
and Mr. Barron had done a good job of that over the past year.
In general, that means using a business-like in dialogues to
establish commitments and benchmarks for development and then
working hard to hold lessees to these commitments and having
consequences when they are not met. He said the state is aligned
with these companies in a lot of areas - for example the CD5
issues, some of the federal OCS issues and EIS issues at Point
Thomson.
Other times they are not aligned and that is when they try to
guard the state's interest and work constructively. For example,
the commissioner said he revised the lease terms with regards to
the very significant North Slope lease sale. Some have been as
short as 5 years, which is kind of tough given the short
exploration seasons and the different challenges with
exploration on the North Slope, and as long as 10 years. He also
raised the rent rate from $10 (for the first 7 years) to $250 an
acre for years 8, 9 and 10 if adequate work hadn't been
performed to encourage exploration and production, particularly
on the North Slope, or give up the lease. He also accelerated
work commitments in last spring's lease sale in Cook Inlet where
he knew hydrocarbons were present.
3:45:30 PM
SENATOR STEVENS joined the committee.
3:46:27 PM
COMMISSIONER SULLIVAN said the second area he had worked on was
unit applications and that last year several applications came
in to unitize large areas of North Slope acreage, and with Mr.
Barron's help, they dramatically decreased the size of what
would be accepted in terms of unitized acreage and required firm
and aggressive work commitments. The acreage they didn't accept
to unitize just went back out for lease. Several tens of
thousands of acres were denied unit status in the December lease
sale and were put back out to lease. One unit application was
denied outright, because the previous work commitments weren't
met and all of that acreage went back out to lease.
3:48:23 PM
COMMISSIONER SULLIVAN said they have been trying to cooperate
with the federal government to accelerated responsible resource
development by testifying in front of Congress and by meeting
with senior federal officials in Washington, D.C., on a whole
variety of issues. For instance DNR played a very critical role
in developing a white paper that was sent to the federal
administration resulting in a CD5 reversal. He said all of this
relates to the broader strategic goal of his five-part 1 million
barrels a day within 10 years strategy.
3:50:10 PM
BILL BARRON, Director, Division of Oil and Gas, Department of
Natural Resources (DNR), testified on several aspects of royalty
modification. Basically, he said, royalty is the sovereign's
share regardless of the activity of the developer; it is a
driver of the Permanent Fund and of the General Fund. In the
last several years, royalty has gained the state $2-3 billion a
year.
CO-CHAIR PASKVAN said in this context, royalty is the
representation of Alaska's ownership interest in the resource.
MR. BARRON said that was absolutely correct.
CO-CHAIR PASKVAN said the term "royalty" might be used in other
jurisdictions and then it may be applicable to a private
ownership as compared to state ownership in Alaska. Now they
were looking at the potential for a company to receive royalty
modification based upon an economic analysis.
3:52:27 PM
MR. BARRON replied that was correct. He said the unmodified
royalty rates throughout the state are 12-16 2/3 percent. The
elevated royalty (16 2/3 percent) are primarily in the North
Slope and portions of the Beaufort, because those areas are very
well known hydrocarbon producing areas.
He explained that the royalty modification statute is long-
standing but a very much unused opportunity in the state. It was
amended in 1995 and basically gave the DNR the opportunity to
look at three classifications of areas: the cost of development,
the volume of the oil or gas in the field and the price of the
product, itself. New fields and pools were added, the reason
being that the commissioner at the time identified a lot of new
discoveries and new developments that were smaller. It was again
amended in 2003 and designed to allow more public interest and
participation in the process. Part of that was to push Liberty
in Badami.
MR. BARRON said in 1995, product price was $15-18/barrel; today
it's $124/barrel. In 2003, the first uptick in product price
happened at $25-30/barrel. What was going on in the industry at
those two times? In 1995, Milne Point was shut-in, because the
oil price low. There had only been one new unit on the North
Slope and that was North Star. Overall world-wide production was
declining primarily due to low oil prices. In 2003, TAPS dropped
below 1 million barrels a day for the first time and there
seemed to be a bit of a surge on North Slope unit approvals,
probably tied to lease terms that were coming due. Oil prices
were beginning to climb, but there hadn't been any use of
royalty modification by the industry.
3:56:05 PM
MR. BARRON said companies have three opportunities to bring in
applications for royalty modification and the division believes
that it should be the last thing touched in any negotiations
with companies in terms of revenue to the state.
3:56:39 PM
The first category that a company can apply for royalty
modification in is if it is a field or a pool that has no
previous production; it has to be reasonably well delineated
(DNR's jurisdiction), and it has to be a field that in the
company's opinion would not otherwise be economic if it did not
receive royalty modification. If it is granted through this
process, the royalty can't be reduced below 5 percent.
CO-CHAIR PASKVAN commented that means that the commissioner as
part of this process can reduce the royalty by more than 50
percent.
MR. BARRON replied that was correct.
3:57:51 PM
SENATOR FRENCH asked if a company says a field is not
economically feasible, how the division makes its decision.
MR. BARRON asked him to hold that question until after the
presentation walked through that very point, because is the real
heart of what he was going to talk about.
SENATOR FRENCH responded that he would wait.
MR. BARRON continued that the second opportunity for royalty
modification is when a field is just about at the end of its
life. Again, it is the whole premise of uneconomic, and then it
can't go below 3 percent.
3:59:18 PM
He said the last opportunity to request royalty relief is when
the field is shut-in and a company wants to reestablish
production.
CO-CHAIR PASKVAN asked what the liability for production tax is
if one is making an application for royalty modification.
MR. BARRONS replied that as part of the application process, the
department runs the economics on whatever tax fiscal system is
in place at the time. Royalty modification is not designed to be
applicable at a project level (pool), but rather to an entire
field. He said the DNR can hire a consultant, if they deemed it
appropriate (at the cost of the applicant) to make sure the
department's work is transparent and for verification. He said
the relief mechanism is usually an adjustment based on price
change of the oil and gas; it can be based on other relevant
factors including the production rate, the ultimate recovery,
development and operating costs.
4:02:20 PM
So edging in toward Senator French's question about just the
application review process; the department doesn't solicit these
applications. The companies come forward asking for royalty
modification. Part of the stipulation is that it is incumbent
upon them to submit a significant amount of technical and
financial data to prove to the department that the field is
uneconomic. All of this information is held in confidence; that
is a very important part of this statute.
MR. BARRON said that the department does not blindly accept this
information; it goes through an incredibly rigorous process of
"stochastic modeling" and looking at things like net present
values, rates of return, break even analysis, operating costs of
the area and if capital costs are reasonable. They come up with
their own assessment of whether or not a prudent investor would
carry the project forward. Sunk costs (costs in the past) are
typically excluded, because the department evaluates the
forward-looking set of economics.
4:05:07 PM
CO-CHAIR PASKVAN asked him to define "forward-looking" company
more fully.
MR. BARRON answered that "forward-looking" means that you are
looking forward and not including anything in the past. A lot of
times companies do two sets of economics; one is point-forward
economics to see if their investments from today forward make
sense, and at the same time they will run "full field" or "full
history" economics for internal purposes (that includes all the
sunk costs). The reason sunk costs are excluded in this
assessment is because they are looking at costs that impact net
present value. Once the department is done with its modeling,
Mr. Barron said, they issue a preliminary finding as a public
notice and then there is a 30-day public comment period. They
evaluate the public comments and respond to them and then issue
a final finding.
4:06:38 PM
MR. BARRON next talked about the decision parameters in terms of
economics. He said they primarily use the "expected monetary
value (EMV)," a stochastic (statistical) term used when
different distributions of different variables are used to
determine the expected value of a project. For a simple example,
if you have a decision tree with two branches; one is at 90
percent probability and one is at 10 percent (both adding to 100
percent). The 90 percent probability has a value of $10; the 10
percent may have a value of $100. Your expected monetary value
is .9 times $10 and .1 times $100, added together.
4:07:42 PM
CO-CHAIR PASKVAN said he was describing a Monte Carlo analysis
that looks at multiple factors to arrive at EMV.
MR. BARRON said yes. The key parameters they look at are:
product price, potential reserves and production rates, the
capital costs and the operating costs. The key is that all of
these have uncertainty.
CO-CHAIR PASKVAN referred to the Nikaitchuq royalty case from
October 30, 2006, that said "granting royalty modification
should influence the behavior of the applicant." What does that
mean when performing their economic analysis?
MR. BARRON replied in that document, the behavior they are
trying to influence is the decision of the company to either
proceed with the development of the field or not. If they grant
royalty modification and the company moves forward with the
field, that is the change of decision. Otherwise the field would
not be developed.
4:09:34 PM
SENATOR WIELECHOWSKI asked when a company takes out a lease in
the State of Alaska, at what point in time are they obligated to
develop it or can they just sit on it forever.
MR. BARRON replied when a company takes out a lease, they have
been granted the exclusive right to hold that acreage for the
term of the lease. There is no requirement for them to do
anything during the primary lease term; they can sit on it. At
the end of the life of that term, the state takes the property
back and it can be put back into a lease sale. As the
commissioner mentioned, that is one thing they were very
cognizant of in the current lease sale and modified the lease
terms to increase the opportunity of development by increasing
the cost after year 7 to $250 an acre instead of $10. There is a
choice: you can hold the land but it will cost you a significant
amount.
SENATOR WIELECHOWSKI asked if it is the best policy for the
state to lease land that is wildly economic and let companies
sit on that land for seven or eight years and not develop it.
4:11:58 PM
MR. BARRON replied that in a primary lease term the land may or
may not be known to be productive. The heart of the lease sale
is to offer state land to companies to do adequate exploration
and to then take that exploration and knowledge and, if it is
something that can be developed, to move into the development
phase.
SENATOR WIELECHOWSKI asked if he knew of other jurisdictions
that try to encourage exploration by different means through
their lease terms.
MR. BARRON replied that many jurisdictions, internationally and
domestically, have many different ways of trying to encourage
companies to do adequate exploration and development.
SENATOR WIELECHOWSKI asked if they have no obligation to do a
single thing to develop or do a single seismic test under
current Alaska law.
MR. BARRON answered that was correct under the primary lease
term.
CO-CHAIR PASKVAN asked him to define "primary lease term."
4:14:00 PM
MR. BARRON said the primary lease term in the case of the North
Slope is for 10 years. If a company is deemed the highest bidder
in a lease sale, they are granted the right for a 10-year
timeframe. During that timeframe, the state's objective is to
have them do as much exploration work as possible to establish
the productive potential of the land. Once they have deemed it
to be commercial hydrocarbons, they ask the division for
unitization, which is when they establish work commitments and
financing criteria during their first primary phase of
unitization. That's typically a five-year timeframe. This is
where the department has made modifications in its negotiations
with companies this year to drive that discussion forward. In
the first year or two, they have an obligation to the state and
if they aren't performed (i.e. drill a well), you will lose the
bond and the acreage. Once that field is in production, that
production holds the lease.
SENATOR WIELECHOWSKI asked if Kuparuk is producing 150,000
barrels a day and the producer said they were going to lower
production to 1,000 barrels a day until they get tax breaks, was
he saying the state couldn't take action.
MR. BARRON replied he thought that would be correct; that land
is held by production. Companies have an opportunity to discuss
on an annual basis their plans of development (tomorrow's
presentation), but in theory and practice once a lease has
production on it, it is held by that production.
4:16:29 PM
SENATOR STEDMAN asked if he knew of any cases when industry
turned down the volume for reasons that weren't mechanically or
constraint driven on a productive lease.
MR. BARRON answered not that he was aware of.
SENATOR WIELECHOWSKI asked what kind of internal rate of return
he would expect for a project to be deemed economic for a
producer.
MR. BARRON replied that DNR's keeps its economic assessments
very internal in royalty modification cases. That is done,
because they don't want to encourage the industry to work its
numbers in a way that would slant them toward royalty
modification. He said the department looks at each project
differently so that the parameters they use for one are
different than the parameters for another, because their
reserves are different, the product profiles are different, the
escalation curves may be different and all of their operating
conditions could be different. Each one has its own hurdle rate.
They are trying to find at what point in time, if they were to
give royalty modification, what it would be to change the
behavior of that company to go from a nonproducing asset to a
producing asset.
CO-CHAIR PASKVAN asked if a duty to produce is part of that
prudent producer obligation.
4:20:07 PM
MR. BARRON said that was an interesting question and he was
trying to understand the difference between the two concepts. He
didn't think any sovereign had the right to force a company to
produce uneconomic assets. So, while company may be prudent and
may have a duty to produce, the question would be at what point
in time any sovereign has the right to force a company to
produce an uneconomic asset.
CO-CHAIR PASKVAN said he assumed that when he does the Monte
Carlo simulation on granting royalty relief, he would look at
net present value and internal rate of return. If he comes to
the determination that a prudent investor would develop this
field based upon the department's modeling, doesn't that
determination also create a duty to produce?
4:22:00 PM
MR. BARRON responded that thinking through the royalty
modification context, when the division does its assessment and
deems that a prudent investor or operator would move forward
with the development without royalty modification, the
application is denied. The first threshold of an assessment is
that it's not on production. At that junction, they then have a
choice to make: if they choose not to develop the field after a
period of time, that land is relinquished and returned to the
state.
In the case of the other two aspects of royalty modification, if
the field is already on line and it is essentially either almost
dead or is dead, that is the state's opportunity to increase
production by modifying the royalty. It's not reasonable to
think a company is purposely withholding production. It's not in
their best interest or that of their shareholders' and it's
against the concept of capitalism and entrepreneurship.
SENATOR WIELECHOWSKI asked if OPEC had ever withheld production.
MR. BARRON replied that is market manipulation and market
control; and whether anyone in the state is withholding
production is not the crux of this committee's question. OPEC is
a cartel; it is not an individual company that is based on
capitalism; they are trying to control an entire market and not
produce economically the reserves of the field that they are
operator on.
4:24:47 PM
CO-CHAIR PASKVAN said a decade ago the division director said in
a document dated January 3, 2002 that this state had an
oligopoly.
MR. BARRON responded by urging them to think back a little bit
about what that meant. In terms of operations on the North
Slope, clearly there are three primary players; there are two
new players and there is an opportunity to have at least one
more this year two more after that. At the time that document
was presented, there were issues on access, cost structure and
available resources for new entries into the market to break in.
The context was a little bit different and the thrust of that
dialogue probably had nothing to do with royalty modification.
It had to do with if there was a need for additional competition
on the North Slope, and the DNR and the DOG have made great
strides in the last several years to increase the competitive
nature on the Slope.
CO-CHAIR PASKVAN said he had talked about his in-house economic
models for performing the analysis for royalty modification and
he assumed that he believed it's reasonably accurate and
effective.
MR. BARRON agreed yes.
CO-CHAIR PASKVAN asked if the DOG used that model to assess the
homogenized oil industry in Alaska, for example taking FY13 and
using the parameters the department knows about the oil industry
to determine net present value, internal rates of returns and
those types of Monte Carlo analyses.
4:28:11 PM
MR. BARRON replied no, not to his knowledge. That would be a
huge undertaking and be exceptionally complicated for one field,
to say nothing of how much more complicated it would be to do it
for the whole state of Alaska. The next slide showed numerical
distributions of various variables; the first one was product
price and was basically a normal distribution of production
rates and production, operating costs and capital costs, which
in this presentation are demonstrated as triangular, and they
all have high end and low end truncations. Each one of those
could be looked at a little bit differently. In some areas
operating costs can be used as a uniform distribution (the same
throughout time). A Monte Carlo run uses all of these
distributions; and including a production decline is very
complicated if you want to take it to a well level or a field
level. "Doing it on a statewide basis would be an incredible
task."
4:36:08 PM
SENATOR WIELECHOWSKI said they have heard talk that if they pass
an oil tax reduction there will be an investment of $5 billion
over five years and it will generate 90,000 barrels of oil a
day. Some of them in the building also ran some numbers and
concluded that the state would pick up 60 percent of the costs,
so it would actually be an investment of $2 billion by the oil
industry. That would generate a net present value of over $3
billion and an internal rate of return of about 92 percent.
"Does that sound like an economic project to you under ACES?"
MR. BARRON answered yes.
SENATOR WIELECHOWSKI asked if he thought that project should go
forward under ACES and the terms of the leases.
MR. BARRON responded that part of the answer is the discussion
of what it is being compared to relative to the company and its
desire to advance its commerciality. The DOG doesn't necessarily
look at that. In terms of royalty modification, if a project
came to them and had a 92 percent rate of return in its
application, he guessed it would probably be rejected.
SENATOR WIELECHOWSKI asked if something was wrong with the
system, assuming the numbers are correct, that there are fields
out there that can generate a net present value under ACES of $3
billion at a rate of 92 percent ROR, and they are not being
developed.
MR. BARRON replied that he would welcome the opportunity to look
at the facts and figures he was discussing. He didn't know of
any field that is not currently producing with those economics.
4:33:08 PM
SENATOR FRENCH asked what sorts of improvements he sees in
taking royalty from 12 percent down 5 percent (if that's a
typical case).
MR. BARRON answered that involves a field-by-field assessment of
how big the resource plays in it and the longevity of that
field. The current product price and what it's going to do may
actually have a greater swing than the royalty modification
itself. What you think the escalations or de-escalations on
operating costs and capital costs are, what the company's plans
are over the next 10, 20 or 30 years in terms of what they think
is required for capitalization. These are the kinds of in-depth
discussions the department has with these companies in terms of
overall long-term field development.
SENATOR FRENCH said many of their questions come back to the
current ACES debate and the fact that the state has suddenly
gone from one exploration well last year to a much more robust
exploration season this year and maybe next, and now they are
hearing questions about whether they will develop. It seems like
this is exactly what royalty modification is for and he was
trying to a get a feel for how big a lever royalty modification
is.
MR. BARRON asked Mr. Banks to field that question.
4:35:37 PM
KEVIN BANKS, Petroleum Market Analyst, Division of Oil and Gas,
Department of Natural Resources (DNR), explained that Director
Barron's caveats about responding to the question were
important, because every project is so different. Looking at
Pioneer's application in the Oooguruk Unit, their royalty relief
(12.5 to 5 percent) moved the IRR dial only a couple of
percentage points at relatively higher prices (for the time). At
a $60 price, the IRR change was about 1.5 percent; at lower
prices it was a little bit more. The royalty relief mechanism,
because a fairly small slice of the pie is being changed, has a
somewhat moderated effect on the economics.
4:37:10 PM
SENATOR WIELECHOWSKI asked if he was aware of any projects,
fields or developments under current lease that are uneconomic
under the current tax structure.
MR. BARRON answered that the Pioneer project may fall within
that category, because it has been granted royalty modification.
The Eni or any project even though it has royalty modification
probably is not in that category because it takes effect at a
$40-$43 basement. Some fields in Cook Inlet possibly, but they
are under a completely different royalty and tax code and
probably shouldn't be part of the dialogue at this juncture. He
didn't know of any uneconomic fields that were uneconomic under
the current tax structure, because no one has come forward to
apply for royalty modifications.
SENATOR WIELECHOWSKI asked if the administration had done any
analysis of fields to see whether they are economic or
uneconomic under the current tax structure.
MR. BARRON replied that he was not aware of any activity like
that being done or not being done.
4:39:09 PM
MR. BARRON reviewed a short list of royalty modification
applications that had come in:
-BP at Milne Point in 1995 - that was denied.
-Unocal for 10 platforms in Cook Inlet 1997 - did not pursue,
but it wouldn't have fallen into any of the buckets, because 10
platforms was beyond the scope of any specific field or pool.
-Phillips' application for Tyonek Deep in Cook Inlet in 1999,
but it was withdrawn voluntarily. It might have qualified,
because the Deep unit had never been produced from that
facility.
-Pioneer for Oooguruk in 2005 - it was granted and royalty was
reduced to 5 percent until their NPSL lease has payout.
CO-CHAIR PASKVAN asked him to define NPSL payout.
MR. BARRON answered that means "net profit share lease," the
lease term for payout. There's one lease within the Oooguruk
field that is an NPSL lease and when that lease has payout, the
reduction goes away; the state has audit rights on Pioneer's
books to make sure the payout has taken place.
-Kerr-McGee came forward in 2006 with the Nikaitchuq and Kakivik
Units and the application was denied. After looking at it very
seriously, the department felt it could have moved forward
without royalty relief.
-Chevron came forward with Ivan River and Stump Lake in the
Kenai area in 2007 and it was withdrawn.
-Eni came forward with the Nikaitchuq Unit again in 2007 - this
was approved based on a different assessment and analysis that
had the most to do with the trigger point of product price and
volume. If the field falls below 4,000 barrels a day within the
first 120 months, they get their royalty modification. If the
product price drops below $42.64, they get royalty modification.
He said Eni's production to date is around 7,000 barrels a day
and they do not enjoy royalty modification, because neither one
of the two triggers have been satisfied.
4:43:54 PM
He said two modifications have been granted since 1995 and only
one is being used. The division is very careful to not grant
reduction to a field forever; at some point the state has to
recapture its sovereign share.
CO-CHAIR PASKVAN asked if he assumed that all other operations
are currently economically profitable.
MR. BARRON replied that one could make that assumption and that
conclusion, but it's important to understand that the three
categories of applications fall within very discreet bounds;
that a field has never been on production and the other two are
at the very end of field life or when a field has been shut in.
While they could assume that all fields are currently
economically viable, none of them are at the end of the life of
the field and don't qualify to make an application for
reduction.
SENATOR WIELECHOWSKI asked if he saw any benefit to changing the
law to allow for royalty relief in the case of a heavy oil
project, for example, within Prudhoe Bay that is very
profitable.
MR. BARRON replied that they would have to be incredibly
cautious about structuring something like that. Heavy oil might
be a good example of royalty modification by a participating
area (PA). It would be very difficult to structure the language
if someone were to put gas injection in the crest of a
structure. The question would be how to assess what production
to apply royalty relief to; that production would also have to
be audited for accuracy in a greater field.
CO-CHAIR PASKVAN said one of the Nikaitchuq applications had an
analysis that indicated at $60 a barrel that the operator would
experience "very large profits." Is that accurate?
MR. BARRON deferred to Mr. Banks.
4:48:19 PM
MR. BANKS said that was in reference to the Kerr-McGee project
that was eventually denied. He recalled that that project was
quite a bit different than the one proposed by Eni somewhat
later. A couple of factors formed the conclusions for the Kerr-
McGee application. One had to do with the taxpayer situation at
the time. Kerr-McGee was owned by Anadarko and had existing
production going on; so their PPT tax situation was different
than Eni's simply because there was an existing tax upon which
credits and deductions could be taken (that weren't available to
Eni in the same way). The other important factor for the Kerr-
McGee project was the prices at the time were relatively low
($40-$50) and the costs they had predicted in the go-forward
economics were substantially less than what Eni proposed
somewhat later. So at just a slight increase in price the
project would be profitable and the downside risk for the
project was rather small as well. The two conclusions were
combined in evaluating this project.
[SB 192 was held in committee.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| Nikaitchuq_Final_Finding_2008.pdf |
SRES 2/21/2012 3:30:00 PM |
SB 192 |
| Nikaitchuq_Final_Finding_2006.pdf |
SRES 2/21/2012 3:30:00 PM |
SB 192 |
| SRES_DNR-DOG_Royalty_Mod_slides_2_21_12.pdf |
SRES 2/21/2012 3:30:00 PM |
SB 192 |