Legislature(2011 - 2012)BUTROVICH 205
02/22/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB192 | |
| Bp Exploration (alaska) Overview | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 192 | TELECONFERENCED | |
SB 192-OIL AND GAS PRODUCTION TAX RATES
OVERVIEW: BP EXPLORATION (ALASKA)
3:34:30 PM
CO-CHAIR PASKVAN announced the consideration of SB 192 and a
presentation from BP on how the state tax rates affect its
Alaska activities.
3:34:53 PM
CO-CHAIR WAGONER joined the committee.
^BP Exploration (Alaska) Overview
3:35:02 PM
CLAIRE FITZPATRICK, Chief Financial Officer, BP Alaska, said she
will be moving on to a new role after five years in Alaska and a
decision was made that Damian Bilbao would be the most
appropriate person to take over her position.
She said that the Trans Alaska Pipeline (TAPS) is two-thirds
empty and production continues to decline. More investment is
needed to increase production and they intended to discuss
options to improve investment climate. BP supports the
governor's policy of having a meaningful change in tax policy
and the 1 million barrel goal; they would like to see lots of
things done to see Alaska achieve that goal.
MS. FITZPATRICK said Alaska has great resource potential and
much of it is within existing fields. However, the financial
environment is not as competitive internationally as it could be
and therefore it isn't attracting the level of investment that
is needed to put more oil in the pipe. She said, "The state's
biggest lever for increasing production is meaningful ACES tax
change."
3:38:16 PM
MS. FITZPATRICK said she wanted to address three outstanding
questions: one was that the GHX equipment is not in the state,
but in warehouses in Houston. The second was relative to the
status of I-pad for which they are doing a number of studies to
address four primary technical challenges based on how to
process large quantities of solid-laden viscous oil (primarily
in the GC-2 area) and how to improve the artificial lift of
viscous wells - removing more subsurface uncertainties and
focusing on how to build a well pad of the future.
The third question was whether the challenges are technical or
economic; and her answer to that was resolving technical
challenges helps solve the economic challenges. She said the
state has an opportunity to help resolve those technical
challenges, which are also economic, in how it deals with its
fiscal policy.
SENATOR WIELECHOWSKI said the committee has heard that if they
pass some tax breaks BP is committed to developing the multi-
billion dollar I-pad project, and he wanted to hear more about
those challenges. And they also just heard from the director of
the Division of Oil and Gas that that project had been in a plan
of development for the past five years; and when he asked if it
was being held up for economic or technical reasons, the
director didn't hesitate to say "technical reasons." He asked
Ms. Fitzpatrick is she was disagreeing with him.
MS. FITZPATRICK answered that she is not disagreeing. Technical
challenges include more than just engineering, they include
commercial challenges as well. She wants to do any project as
efficiently and effectively as possible and will always seek to
drive efficiencies through technology, costs and the fiscal
environment. On the I-pad project the technology is out of her
control, but she can encourage fiscal change, which is in the
state's control.
3:41:24 PM
SENATOR WIELECHOWSKI asked if the project is being held up by
the ACES tax structure and if it would go forward under the
governor's proposed tax structure.
MS. FITZPATRICK replied:
The pace at which we would progress projects would
increase, because we would have the ability to take
more resource onto them. But there are a lot of
projects that we have which we refer to as kind of a
hopper of opportunities and we keep a number of them
warm. It's like an incubator waiting for when it's the
right time.
CO-CHAIR PASKVAN asked the maximum realistic throughput they
could expect from I-pad.
MS. FITZPATRICK said she would need to find that out.
CO-CHAIR PASKVAN asked, assuming investment is made in I-pad, if
the intent is to slow the rate of decline or increase the rate
of throughput for FY12.
MS. FITZPATRICK replied I-pad will not generate volumes in this
year or next, because a lot of facilities will have to be built
and that will take several years, but the faster they can move
on some of that, the faster it will come through.
3:43:32 PM
CO-CHAIR PASKVAN asked when it becomes operational if it would
increase BP's throughput numbers over FY11 or FY12.
MS. FITZPATRICK replied yes, in addition to whatever production
is at that point in time.
CO-CHAIR PASKVAN asked if the incremental production would
result in a continuing decline curve but one continuing at a
smaller percentage.
MS. FITZPATRICK replied, "Maybe not growing, but certainly
flattening off."
CO-CHAIR PASKVAN said that would be well received.
3:46:03 PM
MS. FITZPATRICK said she would provide some context around BP's
track record of developing Alaska's natural resources to date
and what they are doing to prepare for Alaska's next 50 years of
oil and gas development, highlight some of the opportunities
that remain within existing fields and the technical challenges
to progressing some of them, as well as how the state can help
in reducing some of those challenges.
CO-CHAIR PASKVAN noted that Senator Thomas joined the meeting.
3:47:09 PM
MS. FITZPATRICK responded said that BP has recovered over 12
billion barrels from Prudhoe Bay that is the largest field in
North America and one of the top 10 fields in the world.
Development of Prudhoe Bay enabled the construction of the
TransAlaska Pipeline; the existence of both the pipeline and
Prudhoe Bay enabled developed of the other fields on the North
Slope. She said 187 Society of Petroleum Engineers technical
papers have been written about Prudhoe Bay. It is an absolutely
amazing "subsurface set of rocks" and BP uses it with great
pride.
MS. FITZPATRICK said the ability to develop Prudhoe Bay the way
they have has required working interest owner alignment and that
is what will underpin their ability to achieve activity in the
future. BP is a minority owner and operates Prudhoe Bay on
behalf of ExxonMobil and ConocoPhillips (35 and 36 percent
respectively) and Chevron that has a small interest (1 to 2
percent). It is a mature field that has been in production for
over 35 years. They have gone from producing volumes of mainly
oil to producing the same volumes but now they consist mainly of
water.
CO-CHAIR PASKVAN asked what the dotted line is intended to
represent.
MS. FITZPATRICK answered that it is a visual representation of
the fact that the volumes haven't dropped that much, but that
the oil content has dropped significantly. She noted that they
also handle large volumes of gas, which is recycled and re-
injected with the water to keep the pressure up in the
reservoir. This is one of the reasons recovery is higher than
originally anticipated.
CO-CHAIR PASKVAN asked if the recycling was done because of
constraints in the treatment facilities in the Prudhoe Bay area.
MS. FITZPATRICK answered no; the facilities were designed to
handle it.
CO-CHAIR PASKVAN said the facilities have to handle three
streams - oil, gas and water - and asked if the throughput
decline is a result of treatment facility constraints when you
have higher WOR or GOR values.
MS. FITZPATRICK answered no, and added that BP always looks for
opportunities to maximize their ability to handle fluids to
maximize the oil recovery.
3:51:19 PM
She related that Prudhoe Bay isn't the only field BP operates in
Alaska; it operates three other major fields and is a 39 percent
owner in the ConocoPhillips-operated Kuparuk field. All are
mature; the main ones are Milne Point, Endicott and North Star.
BP previously had Badami, but transferred operatorship to Savant
as a means of allowing others to access value where they see
more than BP does. This is a part of the natural cycle of
insuring that other people are being able to bring forward their
opportunities. She said they, like at Prudhoe Bay, are seeing
increasing challenges in handling water and the resulting high
operating costs combined with declining production. She said
efficiently executing activities and developing new technology
maximizes each field's ultimate recovery and extends its useful
and economic life as long as possible, and a good tax policy
would help do the same.
3:52:47 PM
MS. FITZPATRICK said since 1995 many material sources of oil
have offset the decline (referring to graph 5 depicting the
initial producing area (IPA)). Investments in those fields were
made possible by a fiscal environment that supported investment
at scale.
SENATOR FRENCH asked if Alaska tax rates were competitive
internationally before ACES and PPT.
MS. FITZPATRICK replied yes; probably at times more attractive
than needed to be, but now they have gone the other way.
SENATOR FRENCH asked what the decline curve of Prudhoe Bay
production was in those years.
MS. FITZPATRICK replied that it was different in different years
depending on when various fields came in; it was also impacted
by the extent of well work-over and drilling. The decline varied
between 3 and 6 percent, but she would have to check.
SENATOR FRENCH asked where the greatest opportunity is for BP -
inside of the Prudhoe Bay reservoir or outside of it.
MS. FITZPATRICK replied both. There are still great
possibilities inside of greater Prudhoe Bay as well as
significant opportunities in other areas further west and
heavier oils. She is always hopeful that there are opportunities
in areas where people are exploring and looking for new things.
CO-CHAIR PASKVAN asked why the decline from the central North
Slope started in 1989.
MS. FITZPATRICK replied that she would be making wild
speculations on physics to answer that, but most of the decline
was driven by subsurface issues and a subsurface person could
better answer that.
SENATOR WIELECHOWSKI said he was responding to her statement
that there are times when Alaska has not been internationally
competitive, and asked who Alaska's international peers are and
at what levels the tax structure is broken.
MS. FITZPATRICK replied that Alaska should be competing with
itself in terms of how much investment they want, what sort of
production rate they want in the pipe, what sort of investment
climate they want (from exploration to mature fields) and what
is needed to achieve it.
SENATOR WIELECHOWSKI said he thought that was the best answer to
that question and added that he thought the state's lease terms
require development when it's reasonably economic for a company
to make a profit. He asked what fields, projects and
developments are not economic under ACES that will be economic
under another tax structure.
MS. FITZPATRICK replied, "It's a lot more complicated than just
an incremental project that I'm looking at." When she looks at
an incremental project she looks at the cost of that activity
and the volumes it brings in. This concept assumes that existing
production (which is currently declining) pays for everything
else. This is not a good place to be in in terms of price and
cost structure and BP continually challenges itself to find the
"best place to do some of this stuff." In 2007 when ACES passed,
they said they weren't going to stop doing things, but they had
to weigh getting funds to do more there.
SENATOR WIELECHOWSKI asked if they could look forward to having
a specific field or project on line if oil taxes were rolled
back.
MS. FITZPATRICK replied they could expect to see a change in the
level of drilling activity, and "high grading" of BP's best
projects to move forward. It would encourage another $5 billion
of investment, which would crack the technology to move forward,
but she said, "It needs the two together."
4:01:00 PM
CO-CHAIR PASKVAN asked if she is talking about conventional oil
development in the next five or six years.
MS. FITZPATRICK replied yes; but BP is also moving into the
viscous oil with one heavy oil pilot and two years of funding
for it.
CO-CHAIR PASKVAN asked a reasonable timeframe in which to expect
heavy oil production.
MS. FITZPATRICK replied if she had complete success and the
pilot completely "blew me away," if these wells flowed and were
sustained and she could figure out how to do that economically,
it would take 10 years to get 10,000 barrels a day (MBD) more.
But it's worth going for, because the numbers ramp up after
that.
CO-CHAIR PASKVAN remarked that would stem the rate of the
decline in the hyperbolic curve.
MS. FITZPATRICK said she thought it would flatten the curve, but
keeping production at 600,000 MBD rather than dropping to
300,000 MBD would be very good. And she hoped others would be
equally successful.
MS. FITZPATRICK stated that BP is committed to Alaska buying and
Alaska hiring; over the last three years it has spent over $7
billion, $5.6 billion (75 percent) of which has been with Alaska
companies. She noted that the price environment had increased
due to inflation in 2007, so the level of activity is similar
but it had cost more to do.
4:03:40 PM
SENATOR FRENCH asked if she had the 2011 numbers.
MS. FITZPATRICK replied that she would get them, but they're
probably similar to 2010. She said, "We expect everyone to be
competitive, but if Alaskan companies can be competitive, we
have a bias."
4:05:32 PM
CO-CHAIR PASKVAN asked how their numbers correspond to the 2008
economic collapse.
MS. FITZPATRICK replied that industry and BP make commitments
for buying things well in advance and their ability to stop
things is "relatively limited."
SENATOR WIELECHOWSKI said ConocoPhillips has stated Alaska has
strong cash margins and very good rates of return (ROR) and that
the company had made $10 billion in profits since ACES passed,
and asked if BP had a similar experience.
MS. FITZPATRICK replied over the years she has seen her cash
flow deteriorate significantly and stated that she pays her
employees and contractors with cash, not profit.
SENATOR WIELECHOWSKI asked if the ROR and profits had been good.
MS. FITZPATRICK replied that her profits are not where they
should be.
SENATOR WIELECHOWSKI asked if they were $2 billion last year.
MS. FITZPATRICK replied that she couldn't remember and that
BPXA, Inc., numbers include data that has to do with locations
that are not in Alaska. Alaska numbers are not published
separately.
SENATOR WIELECHOWSKI asked if the BP royalty trust looks at
Prudhoe Bay returns.
MS. FITZPATRICK replied that the BP royalty trust files a 10K,
as it is a debt-registered entity, and looks purely at the
element of the IPA, which is subject to the royalty trust.
SENATOR WIELECHOWSKI asked if she had any idea of the returns
they had gotten in the last five or ten years.
MS. FITZPATRICK replied no.
CO-CHAIR PASKVAN interjected that he had those numbers. Because
the BP Royalty Trust is a publicly traded company, it files
documents indicating that over the last 10 years the total
return had been 2,248 percent on top of a 600-plus percent
capital gain. He asked what that indicated about the financial
strength of Prudhoe Bay over the last 10 years.
MS.FITZPATRICK replied that she would have to get out the 10K
and brush up her knowledge on exactly how the trust accounting
works as distinct from company accounting. But the Prudhoe Bay
trust is not a true representation of the BP business in Alaska.
CO-CHAIR PASKVAN restated that they are saying that over the
last 10 years a $5,000 investment in the BP Royalty Trust is
worth $117,000 today and that seems rather remarkable given the
world's economic collapse.
MS. FITZPATRICK replied that the trust is tied to royalty on the
oil; therefore it is linked to oil prices as opposed to world
economics, but with that piece of financial advice she would be
making a phone call to change her investments.
CO-CHAIR PASKVAN referenced a 2004 BP document indicating:
"Alaska's role in BP's portfolio is to provide a stable
production base and cash flow to fuel growth elsewhere," and
asked if that was true.
MS. FITZPATRICK responded that Alaska has an important role in
BP, but it does not provide a significant amount of cash flow
versus what was produced in 2004, because production volumes,
tax structures and cost structures are very different. BP's
group strategy involves two tenets: enhancing and maximizing
recovery of the oil from giant oil fields and gas value chains;
and Alaska plays prominently in both of those areas. Alaska is
the third largest resource base in the BP portfolio and they
want to work out how to maximize that for the benefit of the
state as well as the benefit of BP. She said emphatically that
Alaska is not viewed as a large cash generator within the BP
portfolio.
CO-CHAIR PASKVAN asked if that statement was true in 2004.
MS. FITZPATRICK replied that she didn't have the document in
front of her and couldn't answer that. She knows they were
generating a lot more in 2004 than now.
SENATOR WIELECHOWSKI asked if she had any idea what her profit
per barrel is in Alaska.
4:12:57 PM
MS. FITZPATRICK replied that she doesn't look at a profit basis,
but rather her cash break-even basis (how much money she would
have to make before she could afford to pay the next new
employee) which is pretty high - in the $70s or $80s.
4:13:25 PM
She pointed out that the spend graph includes third parties and
doesn't include costs associated with their 2,126 employees. She
related that over the past five years BP has provided
internships for 54 University of Alaska (UA) students, extended
full-time offers to more than 100 UA graduates and over the last
10 years has hired 275 students from the UA process tech
programs in Fairbanks, Kenai and Anchorage. While their spend
has increased from 2005, a lot of it hasn't been on activities
that put barrels in the pipe as opposed to keeping up with
inflation and activities that are setting them up for the next
50 years.
4:14:28 PM
She remarked that the markets changed in the 2008 timeframe that
resulted in a fundamental shift in the price environment and if
the state wants BP to attract the amount of investment that
would put barrels in the pipe, investments need be higher like
what they are in Texas or North Dakota.
SENATOR WIELECHOWSKI asked why from 2002 to 2006 the price of
oil went from $20 to $60 and yet BP's Alaska investments appear
to have declined.
MS. FITZPATRICK replied that the actual rate of spend has
declined and some of that would have depended on what rates were
locked in along with a lot of other factors. The level of
activity has remained fairly flat.
SENATOR FRENCH asked her explain what the bars on the chart
represented.
MS. FITZPATRICK said one chart had gross numbers of spend on
activities that put barrels in the pipe and the following one
was net - as opposed to maintenance and infrastructure and
things like that.
SENATOR FRENCH asked how she differentiates between a dollar
spent putting oil in the pipe versus maintaining a vessel.
MS. FITZPATRICK replied they capture it separately. Well work,
drilling and associated activities are directly putting volumes
in the pipe. Other things are maintenance and things that have
to be spent to keep the facility functioning.
4:18:10 PM
SENATOR FRENCH asked if this slide was an internal BP accounting
category.
MS. FITZPATRICK replied it's an industry standard category where
people will talk about what they are spending on well work,
workovers and direct activities associated with that as distinct
from facilities, infrastructure and logistics.
SENATOR FRENCH said it's surprising that despite a tripling of
the price of a barrel of oil from 2002 to 2006 that BP reduced
the money it spent on producing more oil in Alaska. He thought
it went to the document Senator Paskvan referenced that they are
making lots of money in Alaska but investing it somewhere else
in the world. It might be good for BP, but it doesn't help the
state produce more oil or employ more people.
MS. FITZPATRICK said she didn't doubt Senator Paskvan's document
about 2004, but she was concerned about how to get more money
spent on more activities to progress more oil today, tomorrow,
and the year after versus what may have been business drivers in
2004.
SENATOR FRENCH said the problem everyone is struggling with is
the history of seeing BP taking its money and investing it
elsewhere. How do they make sure if they go back to tax terms
that are internationally competitive, that produce large amounts
of cash for BP that it gets spent in Alaska. "How do we make
sure?"
MS. FITZPATRICK said she understood his question and sentiment,
but in 2003 they didn't see line of sight to some of the
technology that is being implemented and heavy oil wasn't even
thought about then. The resource base they see now is larger.
Alaska's strategic place has changed in their portfolio, plus
they do see about $5 billion worth of activity and a lot of
people want to see those projects move as much as the state
does.
4:21:06 PM
SENATOR WIELECHOWSKI said Senator French hit on the key
question; they all want more production, but the state has a 30-
year history of low taxes. In 2002 through 2006, tax rates were
declining because of ELF. In 2006, 15 out of 19 fields on the
North Slope were paying zero taxes. There were record high oil
prices, tripling within four or five years and BP's investment
was declining; Prudhoe Bay had a 12.5 percent gross tax rate. He
said:
Put yourself in our shoes, as those who are designated
to make sure we get the maximum benefit for our
resource. We've got to make sure that if we push
across billions and billions of dollars to you we want
something in return, for sure. And we had a system
like this just a few years ago and it didn't work -
for decades it didn't work. So, what's changed?
MS. FITZPATRICK replied there was a lot of activity in those
decades, a lot of fields were brought on line over and above the
IPA. Technology has enabled them to renew their view of their
resource base in Alaska to a point they didn't have in the early
2000s. They are viewing Alaska as a huge opportunity; their view
and strategy is totally different now.
4:22:50 PM
The chart on slide 8 indicated the shift in oil markets, in-pipe
production and what has happened in the Lower 48 relative to
Alaska (recognizing Alaska is a long way from the market and has
different challenges). It indicated that although the various
taxes across the different jurisdictions are fairly similar, the
marked difference is in the production tax rates.
CO-CHAIR PASKVAN asked if her chart reflected barrel of oil
equivalent (BOE).
MS. FITZPATRICK answered yes.
CO-CHAIR PASKVAN said he assumed because of the shale gas
explosion in the Lower 48 in 2006 that you would expect to see
an explosion of onshore BOE production in 2008 and asked if that
was included.
MS. FITZPATRICK replied if she understood the question
correctly, the fact that it is labeled "MBD" would make her
think of it as oil as opposed to oil equivalent, but she must
confirm that. However, she said shale oil activity is going up.
CO-CHAIR PASKVAN said he wanted to make sure that they are
talking about apples to apples, because Eagleford is producing a
lot of shale oil, the Bakken is all shale oil and Marcellus is
essentially all shale oil.
MS. FITZPATRICK said it wasn't the intent to have apples and
oranges, but she would have to double check how data was pulled
from the EIA. From her point of view she is trying to figure out
how to get Alaska on that same curve. And that is when a more
competitive fiscal environment comes in to change the trend. BP
will continue to drive efficiencies, but the state can choose to
set a policy to drive an outcome of more oil and more
investment.
CO-CHAIR PASKVAN said another way of looking at that chart is to
hope for the unconventional oil extraction process to come to
Alaska soon whether it's BP unconventional oil or shale or both.
MS. FITZPATRICK responded that they should also be hoping for
more continued conventional light oil production, because there
is an awful lot of that and basically, "You want it all."
Meaningful tax change is something that will make a significant
difference to start turning the trend the other way.
SENATOR WIELECHOWSKI asked how she would define "meaningful
change."
MS. FITZPATRICK replied she would describe it as some of the key
elements in HB 110 around lowering the progressivity;
introducing brackets makes a significant difference in actually
being able to understand, administer and plan for it. Taxing
incremental profits at a higher rate is a much fairer mechanism
as opposed to the current structure where as soon as the price
goes up a dollar it goes all the way back to the start. That is
what creates the uncompetitive aspect.
She said BP also thinks the base rate is too high; it's
something that new entrants look at as well. A number of other
aspects in the regulations - joint interest billings, interest
rates, statute of limitations - aren't meaningful in the pure
financial sense, but can make a big difference administratively.
CO-CHAIR PASKVAN noted that Senator Egan joined the meeting.
4:30:35 PM
MS. FITZPATRICK said it was time for Mr. Bilbao to take over and
talk about the present and the future.
DAMIAN BILBAO, Head of Finance: Developments and Resources, BP
Alaska, said he would share a little bit of what they would be
doing in 2012 focusing on a couple specific technology items.
It's the combination of efficiencies, technology and the correct
fiscal environment that allows BP to progress these projects.
He said 2012 will be another busy year on the North Slope with
on average of 6,000 employees and contractors. It is a year that
will see a "significant level of activity," a record level of
turnarounds, a new Northstar operating center, significant
progress in safety systems and quite a bit of work around
sustaining reserves to production efforts (five rigs going
forward).
He said Prudhoe Bay has always been and continues being a great
training ground for technical staff. This developing technology
has allowed them to see a higher total recovery from Prudhoe Bay
than ever anticipated. One example is the bright water
technology, an enhanced oil recovery technique, the application
of which will be doubled from 2011. Another example is a seismic
acquisition plant at Milne Point in 2012.
4:34:07 PM
MR. BILBAO explained that BP's proposed (Milne Point) Simpson
Lagoon Seismic Program will identify additional infield drilling
opportunities, expand existing pads and leverage development of
certain reservoirs in a different way than in the past.
CO-CHAIR PASKVAN asked him for a clearer idea of what a very
mature field is compared to just a mature field, because he has
heard that although some are 80 percent "water cut" they still
have a lot of production left.
MR. BILBAO replied that some fields have been very well
developed, but continue to offer significant opportunities even
though they have moved past the initial stages of development.
SENATOR WIELECHOWSKI said he also wanted to hear his thoughts on
gas-to-liquids potential at some point.
MR. BILBAO said he would be prepared to get that information and
talk about it at another date. He agreed with Ms. Fitzpatrick
that it's great to see new companies exploring on the North
Slope, but to keep in mind that many of the remaining large-
scale opportunities are found within areas that are already
producing, one of them being the Sag River Reservoir on the west
side of Prudhoe. It is an area where BP is working to understand
some light oil opportunities. In a success case they are looking
at a full scale development of over 180 wells and over 150
million barrels of resource. But what makes it challenging is
that over 275 wells are already producing out of that reservoir.
Slide 12 indicated locations for the (2012) wells that would
extend for 1.5 miles through a reservoir that is no more than 20
feet thick. What makes it complex is that it's heavily faulted.
So you might cross through a fault and outside of the reservoir
and have to work back in. The technology would allow recovery
from a lower number of well bores. The first pilot well has
reached a depth of 6,700 feet and the folks back at the office
are quite eager to learn more from it.
4:40:05 PM
CO-CHAIR PASKVAN said BP can deduct the qualified CAPEX in 2012
for Sag River even if it's on their operations elsewhere on the
central North Slope. He asked him to more fully explain how the
state will participate in those OPEX and CAPEX expenditures in
2012.
MR. BILBAO responded that the taxable base would be reduced by
the amount of those expenditures and their payment would be
determined on the remaining amount.
CO-CHAIR PASKVAN said they don't just deduct their operating
expenditures; if they invest $1 billion in capital expenditures,
they can deduct 100 percent of the qualifying from the
production tax.
MR. BILBAO replied that was correct to the best of his knowledge
and he wasn't a tax expert.
CO-CHAIR PASKVAN said in addition to deducting 100 percent of
the qualified capital expenditures, another 20 percent credit of
the same dollar goes to the bottom line.
MR. BILBAO replied that was correct, but when they decide to go
forward with a project they look at the investment profile for a
full 20 to 30 years beyond the pilot program.
CO-CHAIR PASKVAN said they heard in an earlier meeting that one
of the significant benefits Alaska provides (that other
jurisdictions don't) is the forward funding that significantly
increases a BP project's net present value.
MS. FITZPATRICK replied that in terms of calculating their
taxable value, he was correct, but in looking at a project, she
looks at the production profile that may last 10 or 20 years;
she also looks at the total cash that will be generated from
that first couple of years of upfront investment.
CO-CHAIR PASKVAN asked if it was fair to say that the state
provides front end help to industry.
4:45:10 PM
MS. FITZPATRICK replied yes, and that all oil taxes in the oil
industry around the world work the same way.
4:45:13 PM
MR. BILBAO said significant subsurface drilling challenges
remain ahead of any at-scale development in the Sag reservoir
and he realizes the state participates upfront, but ACES
significantly impacts the long-term discounted cash flow
particularly in a high price environment.
CO-CHAIR PASKVAN said the bi-partisan working group intends on
looking at progressivity and how "high priced" is balanced in
the context of economic and political discussions.
4:47:14 PM
SENATOR MCGUIRE said they recognize the proprietary challenge
with revealing plans of development, but members still have
questions about whether industry intends to develop more the
progressivity rate is reduced. She couldn't emphasize enough
that the committee needed to hear any information they can give
about project economics and what a change to the progressivity
rate at certain prices would mean to Alaska. "Take them into the
board room so to speak..." and tell the committee how it will
benefit Alaska, not just BP.
4:50:36 PM
MS. FITZPATRICK said she would see what can be done.
4:51:26 PM
CO-CHAIR WAGONER remarked that nobody has talked about the fact
that it's unreasonable to want BP to spend all the money in
Alaska that they make here. He also pointed out that from 1968
when oil was first discovered until 1977, the first date of
production, the oil companies spent billions of dollars without
putting a sheckle in their pocket. But he wanted to go back to
her statement (referencing slide 8) that it would be nice if
Alaska would look like the US onshore, and asked if there was
any chance that they could even come close to getting there just
with what's in Prudhoe Bay - without new technology to produce
the viscous and heavy oils and new discoveries.
MS. FITZPATRICK replied that the status quo would not get them
there; a lot can be done with conventional oil within Prudhoe
Bay, but more would be needed for a dramatic change. Both are
needed.
4:54:19 PM
MR. BILBAO said Alaska plays prominently in BP's global
strategy. Getting more production comes back to a three-part
equation: efficiency and technology that are in BP's control to
progress and the fiscal environment that is in the state's
control. The equation is similar for the Lower 48. At the end of
the day, he said they will have to try to develop a balance of
trust as these talks move forward. They must have dialogues in
forums like this, and he said BP is fully prepared to do so.
CO-CHAIR PASKVAN asked if the 6.5 billion BOE is in the central
North Slope region and what the boundaries are.
MR. BILBAO replied that is BP's net resource position in Alaska
broken down by resource type or maturity: the proved resources
versus the opportunities in light and viscous oil, ultra-heavy
oil and gas.
MS. FITZPATRICK added that it's all of their interest from
Kuparuk across the North Slope.
CO-CHAIR PASKVAN clarified that it doesn't include ANWR, NPRA or
the outer continental shelf no federal resources.
MS. FITZPATRICK said this purely represents BP's interest and
they don't have things that are in the outer continental shelf
yet.
4:57:32 PM
MR. BILBAO summarized that BP has a past of tremendous effort to
get where they are now and that is the basis on which to build a
strong future.
4:58:37 PM
CO-CHAIR PASKVAN said many Alaskans have heard the promise of $5
billion in investment and many are concerned with the connection
between investment and production. Assuming the $5 billion
investment in the next three to five years above the current
CAPEX, he asked what increases above the FY11 or FY12 throughput
industry can promise.
MS. FITZPATRICK replied that throughput wouldn't increase above
the existing underlying decline. It would be on top of whatever
the underlying decline is.
SENATOR FRENCH asked her to comment on the governor's goal of 1
million barrels more of production.
MS. FITZPATRICK said that increased production won't come just
from existing fields on the North Slope, but she could get her
production to flatten and start growing over time through the
kind of projects they think are possible.
CO-CHAIR PASKVAN noted that state production taxes and royalties
don't affect production from three miles off shore.
MS. FITZPATRICK remarked that the state legislature can
influence what happens from a federal perspective. All of BP's
assets are on state lands and therefore the state would get the
most benefit.
SENATOR FRENCH asked if she could move just one aspect of the
state's tax structure what it would be.
MS. FITZPATRICK answered progressivity.
SENATOR WIELECHOWSKI said the legislature's job is to do their
due diligence and not push billions of dollars across the table
without first insuring that this is really what they need to do.
And he urged BP to tell them what fields they are going to
invest in, specific projects and how they are going to move the
needle by passing some major tax break.
CO-CHAIR PASKVAN thanked Ms. Fitzpatrick and held SB 192 in
committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| BP Testimony to Senate Resources_February 22.pdf |
SRES 2/22/2012 3:30:00 PM |
SB 192 |