Legislature(2011 - 2012)SENATE FINANCE 532
02/14/2012 09:00 AM Senate FINANCE
| Audio | Topic |
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| Start | |
| Presentation by Pedro Van Meurs on Arctic and Alaska Oil Economics: Session Three | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
JOINT MEETING
SENATE RESOURCES STANDING COMMITTEE
SENATE FINANCE COMMITTEE
February 14, 2012
9:02 a.m.
9:02:33 AM
CALL TO ORDER
Co-Chair Stedman called the Senate Finance Committee
meeting to order at 9:02 a.m.
SENATE FINANCE COMMITTEE MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Johnny Ellis
Senator Dennis Egan
Senator Donny Olson
Senator Joe Thomas
SENATE FINANCE COMMITTEE MEMBERS ABSENT
Senator Lesil McGuire, Vice-Chair
SENATE RESOURCE COMMITTEE MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Bill Wagoner, Co-Chair
Senator Wielechowski, Vice-Chair
Senator Bert Stedman
Senator Hollis French
Senator Gary Stevens
SENATE RESOURCE COMMITTEE MEMBERS ABSENT
Senator Lesil McGuire
ALSO PRESENT
Senator Cathy Giessel; Representative Alan Austerman; Dr.
Pedro Van Meurs, President, Van Meurs Corporation,
Consultant
SUMMARY
^PRESENTATION BY PEDRO VAN MEURS ON ARCTIC AND ALASKA OIL
ECONOMICS: SESSION THREE
9:03:22 AM
Co-Chair Stedman discussed the meeting's agenda.
Senator Wagoner referenced the prior day's meeting, and
requested clarification regarding $7.5 billion per year
over current levels of investment. He wondered who should
be providing that money, the producers or State of Alaska.
DR. PEDRO VAN MEURS, PRESIDENT, VAN MEURS CORPORATION,
CONSULTANT, stated that $7.5 billion can be easily
calculated based on the difference between the decline
curve and the 1 million barrels a day. He said that the
calculation could determine how many new barrels needed to
be produced. He stated that the new barrels needed to be
derived from heavy oil, and he determined that the typical
capital cost would be approximately $30 a barrel. Once one
knows the total amount of capital expenditures required for
the total volume over 25 years, one could arrive at the
$7.5 billion. He stressed that when one makes the capital
expenditures; there will be received tax and Petroleum
Profits Tax (PPT) deductions. Senator Wagoner surmised that
$7.5 billion was the gross amount. Mr. Van Meurs agreed.
Co-Chair Stedman stated that there could be further
explanation of the net amount later in the presentation.
9:06:33 AM
Mr. Van Meurs provided members with two PowerPoint
presentations: Policy Options for Alaska Oil and Gas; and
Addendum 2 to "Policy Options for Alaska Oil and Gas"
(copies on file). He stated that Addendum 2 would address
some questions from the prior day's meeting.
Mr. Van Meurs addressed slide 1 of Addendum 2, "Re-
investment by major oil companies." He stated that slide 13
of the Department of Revenue (DOR) presentation indicates
that major oil companies reinvested $1544 million in 2010
in capital expenditures. Comments:
· This is about $8 per barrel produced
· DOR includes capital maintenance expenditures and work
overs in these capital expenditures
· It is likely that about $4 per barrel relates to these
types of expenditures. These are non-discretionary.
They have to be done to continue operations normally
· It seems that the remaining $4 per barrel is largely
infill drilling with the goal of accelerating cash
flow
· This $4 per barrel is about $1 on an after tax basis.
· It is therefore clear that the three major companies
are "harvesting" at the maximum rate. During the last
5 years there was "near zero" interest in investments
in new projects.
Mr. Van Meurs felt that the petroleum industry was in
"harvesting mode."
Co-Chair Stedman requested an explanation of how one would
receive an expenditure impact of one dollar when there was
four dollars in the discretionary cost. Mr. Van Meurs
replied that the four dollars discretionary capital
expenditures would be a deduction for corporate income tax
and Alaska's Clear and Equitable Share (ACES). He also
stated that the four dollars would be eligible for the
capital expenditures tax credit, so the one dollar would be
the investment after taxes.
Co-Chair Stedman wondered who paid the leftover three
dollars. Mr. Van Meurs replied that the State of Alaska and
the federal government would contribute the three dollars
through the reduction of income.
9:11:20 AM
Senator Stevens wondered if the depletion of oil would
occur at a faster pace if there was an increase from
600,000 barrels a day to 1 million barrels a day. Mr. Van
Meurs stressed that the maximum harvesting would be
referred to as the maximum withdrawal of cash. He felt that
the decline rate in Prudhoe Bay was not abnormal compared
to other places in the world. He stressed that the physical
decline rate of oil was technical. He pointed out that when
he referred to "harvesting", he meant the "withdrawal of
cash."
Senator Wagoner stated that currently, exploration was
encouraged outside of the existing units on the North Slope
by way of exploration credits. He wondered if there was a
benefit to offering production credits. Mr. Van Meurs
stated that production credits made sense. He furthered
that Alaska was over-encouraging exploration, and there
should be a balance between production and exploration.
Mr. Van Meurs discussed slide 3 of Addendum 2, "Investor
impact of high marginal rates related to higher prices."
There may be some confusion as to the impact on investors
of high marginal rates related to higher prices. There is
no direct impact of marginal rates on investment.
Investments decisions are being made on the basis of the
total average incremental Net Present Value (NPV) and
Internal Rate of Return (IRR), not the marginal NPV or IRR.
For instance, Pakistan has in their production sharing
contracts a price cap of $100, and over $100 of all higher
revenues go to the government. So the marginal rate is 100
percent. Yet, investments are taking place because the take
below $100 is relatively modest and therefore the NPV and
IRR are acceptable.
9:18:11 AM
Mr. Van Meurs displayed slide 4 of Addendum 2, "Investor
impact of high marginal rates related to higher prices."
There are two important impacts of very strong price
progressivity: Strong price progressivity means that the
average rates increase to higher levels under higher
prices. In the case of Alaska this means that that Alaska
will rapidly become less attractive than some of the main
competitors with regressive systems, such as the Lower 48,
Australia, Russia and Brazil. New investors will look
negatively on very strong price progressivity because it
removes the "upside" of the possible outcome of
investments. This is a strong impediment for new
investment. Even if price progressivity is less strong for
new production, new investors will still evaluate how
current producers are being treated by Alaska since this is
an indication of the fiscal policy of the jurisdiction. For
these reasons one would not recommend price progressivity
that is too strong.
Co-Chair Stedman looked at slide 3, and requested an
explanation of other mechanisms used when determining
progressivity. Mr. Van Meurs replied that there were four
ways to determine progressivity: price, which is the tool
Alaska used; profits; and costs, which is a tool that
Norway uses.
Co-Chair Stedman, interrupted, and requested a definition
of "uplift." Mr. Van Meurs replied that uplift meant was an
extra deduction for tax purposes. He stated that it was not
a credit against taxes; it was an extra deduction for
taxes.
Mr. Van Meurs stated that there could also be a volume
progressivity system.
Mr. Van Meurs continued to discuss slide 4. He stated that
a benchmark should be determined by looking at the specific
government interests.
9:24:42 AM
Mr. Van Meurs displayed slide 5 and 6 of Addendum 2,
"Fiscal design criteria for Alaska." The slide indicated
that, from an international perspective, a number of design
criteria can be recommended in order to optimize fiscal
terms for Alaska:
· Price progressivity should not be so strong that the
price incentive index drops below $ 0.10. For ACES
this level is reached at a price of about $ 190 per
barrel
· Cost progressivity based on average blended costs
should not be so strong that the cost savings index
drops below $0.20. For ACES this level is reached at a
price of about $180 per barrel (assuming $25 per
barrel costs)
· Government take should not be uncompetitive: For
Alaska it should not be higher than 75 percent. For
ACES this is reached at a price level of about $90 per
barrel. Exploration support: Government should not
contribute more than 80 percent of the exploration
costs through tax credits and tax deductions. For ACES
this level is reached at $60 per barrel.
· Negative PPT: Whenever tax credits or uplifts are
being provided the tax income on a consolidated basis
could become negative. Sensitivity analysis should be
done to ensure that negative PPT only occurs under
unlikely conditions. He stated that ACES is deficient
under certain high cost - low price conditions.
9:29:13 AM
Co-Chair Stedman requested a definition of "negative PPT."
Mr. Van Meurs explained that the moment the government
permits a significant deduction for tax purposes the
government's income becomes lower. He added that if
significant cost deductions were permitted, they would be
deducted for PPT. He explained that PPT was a "consolidated
tax" for all the oil fields in Alaska. He furthered that
there could be a cross-subsidization situation or "negative
PPT."
Co-Chair Hoffman wondered what the government contribution
percentage would be under ACES at $120 a barrel. Mr. Van
Meurs responded the government contribution would be
approximately 93 or 94 percent.
Senator French wondered to what extent Alaska was over-
stimulating exploration well credits. Mr. Van Meurs stated
that it would depend on the number of exploration wells
that were currently being drilled. He pointed out that even
if there was only one exploration well, the state should
not over-stimulate the one well. He stressed that there
should be a balance between the development and exploration
incentives. He stated that that balance does not exist in
Alaska.
Co-Chair Stedman requested a further study of the credits,
and implementation of the credits with the write-offs.
Senator Wielechowski referred to the prior day's meeting,
and the topic of heavy oil exploration and development. He
queried the point where there would be a zero PPT. Mr. Van
Meurs stressed that a government take-away of 45 percent
could not be achieved while maintaining PPT, and 55 percent
was also very difficult. He explained that 60 percent could
be achieved with a viable PPT, with certain precautionary
measures. He furthered that if investors would not invest
in heavy oil, there would be no other option but to remove
the royalties.
9:35:48 AM
Senator Thomas looked at slide 2 of Addendum 2, and
wondered what credits or deductions would be applied to the
remaining $4 of the original $8 represented. Mr. Van Meurs
responded that the $4 was largely maintenance capital. He
furthered that if the maintenance money was used for the
replacement of facilities, the tax credits would equally
apply to the replacement of facilities and original
facilities. Therefore, there would be approximately a $1
net investment. He stressed that there would be a
substantial tax reduction for the state on that first $4.
Senator Thomas estimated that the State's take-away would
be approximately 75 percent. Mr. Van Meurs agreed.
Co-Chair Stedman stated that the Addendum 2 was complete,
and the committee would now address the Section 3 of the
PowerPoint presentation, "Proposed terms for existing and
new light oil."
Mr. Van Meurs discussed slide 57, "Overall framework for a
new PPT." A new PPT should preferably be structured in such
a manner that it deals with the following important issues:
The current ACES system has serious deficiencies. A new PPT
should remove those serious deficiencies; a new
"architecture" for the PPT needs to be created to permit a
greater variety of terms for the different oil and gas
resources; and the system should be made simpler.
9:38:44 AM
Mr. Van Meurs displayed slide 58, "Overall framework for a
new PPT." A new PPT should preferably be structured in such
a manner that it deals with the following important issues:
· The current ACES system has serious deficiencies. A
new PPT should remove these problems.
· A new "architecture" for the PPT needs to be created
to permit a greater variety of terms for the different
oil and gas resources.
· The system should be made simpler. He stated that an
important other issue is complexity. The production
tax is far too complex - The current complexity of the
production tax is a strong disincentive for
investment. It can be strongly recommended to review
the tax to see what changes can be made to reduce
complexity.
Mr. Van Meurs shared a personal experience regarding Repsol
and their investment strategies and motivations.
9:43:38 AM
Senator French expressed concern with the idea of having
seven different tax schemes for existing light oil, new
light oil, heavy oil, ultra heavy oil, shale oil, etc. He
felt there was a contradiction between the need for a
simpler system and the request for seven tax schemes. Mr.
Van Meurs responded that the seven different classes were
very easy to understand.
Mr. Van Meurs looked at slide 60, "Deficiencies in the
current ACES system." The current ACES system has five main
deficiencies: PPT tax rates up to 75 percent in addition to
41 percent corporate income tax are too high to stimulate
efficiency in operations. The price based sliding scales
and result in a situation where under high prices the
producer is actually better off with a lower price. The
excessive tax credits result in a situation where Alaska
may pay all of the costs of a well. The BOE concept results
in a situation where new gas production could lead to
massive losses of oil based revenues. Under marginal
circumstances the ACES system actually creates a negative
PPT, in other words the government will lose PPT on certain
fields.
9:47:03 AM
Mr. Van Meurs discussed slide 61, "Deficiencies:
Excessive Tax rates." The combination of the maximum ACES
rate of 75 percent and the normal corporate income tax rate
(state and federal) of 41 percent creates a combined tax
rate of 85.25 percent under high prices. Such an excessive
tax rate reduces significantly the incentive for companies
to be efficient because they can only keep $0.1475 of every
dollar saved. This means the cost savings index is only
14.75 percent. This is well below the cost savings index of
most countries. Usually, it is recommended to have a cost
savings index well over 20 percent. It should be noted that
the combined tax rate of 85.25 percent is in addition to
the regular royalties.
Mr. Van Meurs displayed slide 62, "Deficiencies:
Excessive price progressivity." For ACES, at high prices,
the combined tax rate becomes so high that there is the
price incentive performance becomes very weak by
international standards. This leads to lack of interest in
achieving the highest prices on an arm's length basis and
strong incentives to try to "transfer price".
Mr. Van Meurs discussed slide 63, "Deficiencies:
Excessive exploration support." Existing producers under
ACES are entitled to the 40 percent tax credit as well as
all normal deductions of the exploration expenditures.
This means that at $111 per barrel, Alaska contributes 90
percent of the exploration costs. At $245 per barrel Alaska
contributes 100 percent.
Senator French stressed that existing producers were not
exploring new fields. Mr. Van Meurs understood, and added
that current producers were in "extreme harvesting mode."
He agreed that the existing producers were not focused on
exploration. He felt that, from a design perspective, it
did not matter that there was not much exploration. He
explained that companies were needed to explore, produce,
and act as normal companies. He felt that there needed to
be a system that was rational and does not over-stimulate
exploration versus development.
9:50:07 AM
Senator French stressed that existing producers could take
advantage of the enormous subsidization of their
exploration programs, but the producers were not. He
wondered how that could be explained. Mr. Van Meurs
responded that since there was no attraction for
development, there was no incentive to initially explore.
He stressed that if investment opportunities elsewhere were
more attractive than Alaska, then the major oil companies
do not feel the need to spend money on exploration. He
remarked that the exploration credit was more attractive
for smaller oil companies.
Mr. Van Meurs discussed slide 64, "Deficiencies:
Nonsensical cross subsidization of gas." The BOE concept
would result in massive government revenue losses on
incremental oil production also gas would be developed.
This does not make any sense. It is clear that Alaska would
not accept such unnecessary losses. This in turn impedes
gas project development.
9:54:43 AM
Co-Chair Stedman pointed out that DOR was expected to
present the estimated numeric of the current dilution
issue. He estimated that they would estimate approximately
$80 million per year, without a sale on gas. Mr. Van Meurs
reiterated that he could not verify the numbers. Although,
he stated that if there was a small amount of gas
production on the North Slope, there would be a negative
BOE-depending on the very low value that could be
attributed to the gas. He stressed that a small amount of
gas production contributes to significant losses. Co-Chair
Hoffman felt that the slide should be titled "Decoupling."
Mr. Van Meurs felt that the system did not need to be
decoupled. Co-Chair Stedman felt that there were several
methods to determine a solution.
9:58:28 AM
Mr. Van Meurs discussed slide 65, "Deficiencies:
Negative PPT." By definition, for a marginal project the
total negative ACES cash flow to government as a result of
tax credits and tax deductions becomes almost identical to
the positive cash flow. In other words, the net government
receipts are low or even negative.
Mr. Van Meurs looked at slide 66, "Deficiencies:
Negative PPT." With the existence of a tax credit, there
are always economic conditions under which the government
may lose more in credits and deductions than it receives in
income. However, this effect should be minimized in the
fiscal design. This is not done under ACES.
Mr. Van Meurs looked at slide 67, "Proposals for light
oil." Proposals for light oil production will be discussed
first, based on this discussion the variation for other
resources can be introduced. He stressed that HB 110 had
been introduced modify ACES.
Mr. Van Meurs discussed slide 68, "Proposals for light oil:
HB110, Analysis: PPT rates." The bracketing procedure
creates a significant lowering of the average PPT rates.
The HB 110 N rates apply only for 7 years from the start of
production for new production.
Co-Chair Stedman queried the difference between the market
value of oil and the production tax value of oil. Mr. Van
Meurs replied with slide 69.
Mr. Van Meurs pointed out slide 69, "Proposals for light
oil: HB110, Analysis: Government take." At $100 per barrel,
the government take from ACES would be 76.4 percent, HB 110
(Existing) would be 67.6 percent and HB 110 (New) would be
64.9 percent. He stressed that the proposal for existing
production would be a significant drop in the government
take.
Co-Chair Stedman surmised that Mr. Van Meurs recommended
the undiscounted government take number top out at 75
percent. Mr. Van Meurs stated that there is no problem
approaching 75 percent, but he would not recommend more
than 75 percent. Co-Chair Stedman wondered if the bottom
recommendation would be 70 percent. Mr. Van Meurs did not
think it was unreasonable for new production to be 60 to 65
percent government take.
10:04:59 AM
Mr. Van Meurs, in response to a question by Senator
Wielechowski, explained that the fiscal health situation
should be subjected to different tests. He stressed that
the degree of price progressivity and the average level of
government take were two independent recommendations.
Mr. Van Meurs discussed slide 70, "HB 110: Existing
Production." he observed that HB 110 proposal was complex
and based on "bracketing". He stated that bracketing meant
that the final average rate was based on the weighted
average of all the brackets, which means the rate will
never be 50 percent. He displayed this example:
< $30.00: 25.0 percent
< $42.50: 27.5 percent
< $55.00: 32.5 percent
< $67.50: 37.5 percent
< $80.00: 42.5 percent
< $92.50: 47.5 percent
> $92.50: 50.0 percent
Mr. Van Meurs displayed slide 71, "HB 110: New production."
For new production, the rates will be lowered by 10 percent
for the first 7 years of production. This means that new
production has to be "ring fenced". All production and all
revenues and costs will have to be allocated to "existing"
and to "new" production. He stressed that this is complex
from an administrative point of view.
10:08:18 AM
Mr. Van Meurs discussed slide 72, "Deficiencies in HB 110."
HB 110 deals with only two of the deficiencies of ACES:
· PPT tax rates up to 75 percent in addition to 41
percent corporate income tax are too high to stimulate
efficiency in operations.
· The price based sliding scales and result in a
situation where under high prices the producer is
actually better off with a lower price.
· The excessive tax credits result in a situation where
Alaska may pay all of the costs of a well.
· The BOE concept results in a situation where new gas
production could lead to massive losses of oil based
revenues.
· Under marginal circumstances the ACES system actually
creates a negative PPT, in other words the government
will lose PPT on certain fields. House Bill 110 deals
with excessive price rate and progressivity
Mr. Van Meurs discussed slide 73, "Deficiencies in HB 110"
In addition, HB 110 creates an entirely new problem.
Specifying different tax rates for Existing and New
Production requires tax payers to submit different tax
returns for these two classes of production. This is called
ring fencing. This in turn means that all revenues and
costs need to be allocated to "existing" and "new". This is
complex to administer and could lead to significant revenue
losses for the State. He explained that HB 110 does not
specify how this process would have to take place, so HB
110 is not a viable alternative to ACES.
Mr. Van Meurs presented slide 74, "BOE complications." An
important drawback of ACES is the BOE problem. This means
that in case major oil companies would propose a new Alaska
LNG export project to the Pacific, the entire fiscal system
has to be revised again. This is an unnecessary obstacle to
the introduction of a new gas project. It is therefore
essential that in any revision of ACES this problem is also
dealt with in advance. This would permit to add gas terms
to the package later (or immediately) without having to
change oil terms again. ACES does not resolve the BOE
problem. A gas project would have to be started all over
again.
Mr. Van Meurs displayed slide 75, "PVM Proposal: Existing
and New Production." The PVM Proposal is going further than
merely creating new levels of government take for existing
and new production. The proposal also creates a new
"architecture" to which terms for heavy oil, shale oil and
natural gas can be easily added, and the proposal resolves
all the deficiencies associated with ACES.
Mr. Van Meurs discussed slide 76. He explained that HB 110
for New Production is equal to a much simpler concept,
which is:
· 25 percent flat PPT
· 20 percent tax credit, plus a
· 2.25 percent severance feature
The severance tax feature is no different from the way the
severance tax used to be calculated in Alaska. The
severance tax is a percentage of the value of the gross
production less the royalty. He provided the example:
royalty of 12.5 percent and an oil price of $ 100, a 2.25
percent severance feature would be equal to: 2.25 percent *
87.5 percent * $ 100 = $ 1.96875 per barrel.
10:15:15 AM
Mr. Van Meurs discussed slide 77, "PVM Proposal for New
Production." In order to make the severance feature match
the government take of HB 110 for new production, the
following price sensitive sliding scale is proposed:
· The sliding scale starts at an oil price of $60 per
barrel
· Between an oil price of $60 and $180 per barrel, the
severance feature would increase with 0.05 percent per
dollar increase, reaching a value of 6 percent at $
180 per barrel
· Thereafter, the sliding scale would increase 0.1
percent in order to reach a maximum of 15 percent at
$270 per barrel.
Mr. Van Meurs looked at slide 78, "New 'architecture'." The
PVM Proposal creates a new "architecture" which is not BOE
based. The severance feature is simply gross revenue based
for oil (after the royalty) and therefore it does not apply
to gas. As a result PPT revenues from oil remain the same
if also gas is produced. This solves a major deficiency of
ACES. Also excessive exploration support is eliminated
because it is proposed to limit tax credits to 20 percent
and not increase tax credits to 40 percent for certain
exploration expenditures, and by creating a maximum PPT tax
rate of 25 percent and corporate income tax rate of 41.1
percent, for a total maximum of 55.75 percent.
Mr. Van Meurs displayed slide 79, "PVM Proposal for New
Production." The PVM proposal results in almost exactly the
same government take as HB 110 for new production for the
entire price range from $60 to $160.
Senator Wielechowski wondered if the proposals would apply
to heavy oils within the legacy fields Mr. Van Meurs
replied that he would later present his modifications for
existing, heavy oil, and gas.
Mr. Van Meurs addressed slide 80, "PVM Proposal for New
Production." The main advantages of the PVM Proposal are:
· Much easier to administer
· Can be consolidated with existing production, so no
need for ring fencing an "architecture" which permits
other resources to be added to the fiscal terms No
excessive tax rates, in fact a combined rate of 55.75
percent.
· No excessive price progressivity
· No excessive exploration support
· No nonsensical cross subsidization of gas based on BOE
values
· Reduced negative PPT characteristics
Senator French wondered if there would be an explanation
for how to avoid ring-fencing by using a decline curve
method. Mr. Van Meurs stated that he would show that in a
later slide.
10:20:16 AM
Mr. Van Meurs discussed slide 81, "Alternative Proposal for
Existing Production." He stated that it is now easy to add
a proposal for existing production. Terms for existing
production could be close to the current government take
levels of ACES. It is not necessary to give up significant
revenues. Existing production terms could also be based on:
· A flat 25 percent PPT
· 20 percent tax credits
· A severance feature starting a $60 with 0.2 percent
increases per dollar increase in price up to $130 per
barrel and from there 0.1 percent up to a maximum of
20 percent
Mr. Van Meurs displayed slide 82, "All Proposals for
Existing and New Production." The PVM Proposal for existing
production would be result in a much higher government take
than HB 110 for existing production. The PVM proposal for
new production is about equal to HB 110 for new production.
Mr. Van Meurs discussed the Department of Revenue's ACES
Tax Report from 2011. He pointed out that the long-term
forecast, and remarked that if there was no accounting for
extra layers of oil, then the decline would be 5 percent
per year. He stressed that there were about 625,000 barrels
per day. He noted that there were significant decline
forecasts. He stressed that DOR only considered new
production when determining forecasts. He felt that there
were discrepancies based on all production versus existing
production.
Mr. Van Meurs looked at slides 83 and 84, "Old and New
Production." He stated that HB 110 does not determine how
to distinguish between new oil and existing oil. It is
proposed to use the following methods:
1. Decline curve method. With the decline curve method
Alaska would establish the average production for each
company in 2011. An exponential decline curve would be
established per company. For instance one could use 6
percent per year for all companies for light production.
Any production over the decline curve per company would
qualify as "new". The main advantage of the method is that
is goes to the essence of the problem in Alaska. It also
strongly stimulates investment by new companies. It is
easy to administer. The main disadvantage is that existing
companies may be rather differently affected. Therefore,
this method needs to be complemented with other options.
2. New non-producing lease method. Another simple method is
to consider "new" production, as production from leases
which were not in production prior to December 31, 2011.
The main advantage of the method is that it is easy to
administer and is a well-established international
practice. It would encourage new investment in new leases
with fields which maybe more expensive.
3. New approved program method. In principle it is possible
for existing producers to make specific comprehensive
proposals to the Alaska Government for new investments that
will increase production from existing fields. This would
relate to programs that would be in excess of ongoing
investments.
10:29:08 AM
Mr. Van Meurs displayed slide 85, "Old and New Production."
These programs could include:
· The drilling of new more expensive deeper or shallower
reservoirs,
· Enhanced recovery projects
· Horizontal well drilling projects in thin reservoirs,
· Extensive new infill drilling beyond current rates, or
· Any application of new technology
He stated that DNR would establish the base line production
above which production would be considered "new" on a year
by year basis, based on reservoir and other studies.
Senator Wielechowski wondered what the state's fiscal
impact would be from Mr. Van Meur's proposal over the next
five years. Mr. Van Meurs replied that compared to HB 110,
his proposal would allow for significant retention of
revenue. Although, compared to ACES, some revenue would be
lost.
Senator Wagoner looked at slide 56, and wondered if there
was any reason why there was not a combination of the
resources of the same percentage levels. Mr. Van Meurs
replied that he would later explain his different
conclusions for gas, heavy oil, and shale oil.
Co-Chair Stedman discussed housekeeping.
ADJOURNMENT
10:34:17 AM
The meeting was adjourned at 10:34 AM.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Addendum2.ppt |
SFIN 2/14/2012 9:00:00 AM |
Arctic and Alaska Oil Economics |
| Replacement Addendum 1.ppt |
SFIN 2/14/2012 9:00:00 AM |
Arctic and Alaska Oil Economics |