Legislature(2021 - 2022)BUTROVICH 205

09/13/2021 03:30 PM Senate RESOURCES

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Audio Topic
03:31:56 PM Start
03:32:49 PM Presentation by Gaffney, Cline & Associates: Assessment of Recent Trends on Upstream Oil & Gas and the State of Alaska's Competitive Position
04:40:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Presentation by Gaffney, Cline & Associates
Bills Previously Heard/Scheduled
-- Testimony <Invitation Only> --
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       September 13, 2021                                                                                       
                           3:31 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Joshua Revak, Chair                                                                                                     
Senator Peter Micciche, Vice Chair                                                                                              
Senator Gary Stevens                                                                                                            
Senator Natasha von Imhof                                                                                                       
Senator Jesse Kiehl                                                                                                             
Senator Scott Kawasaki                                                                                                          
MEMBERS ABSENT                                                                                                                
Senator Click Bishop                                                                                                            
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Tom McKay                                                                                                        
Representative Mike Cronk                                                                                                       
Representative Geran Tarr                                                                                                       
COMMITTEE CALENDAR                                                                                                            
PRESENTATION: ASSESSMENT OF RECENT TRENDS IN UPSTREAM OIL & GAS                                                                 
AND THE STATE OF ALASKA'S COMPETITIVE POSITION BY GAFFNEY, CLINE                                                                
& ASSOCIATES                                                                                                                    
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
MICHAEL CLINE, Strategy Advisor/Legal Counsel                                                                                   
Gaffney Cline & Associates                                                                                                      
Cobham, England, United Kingdom                                                                                                 
POSITION STATEMENT: Presented an assessment of recent upstream                                                                
oil & gas trends and the State of Alaska's competitive position.                                                                
ACTION NARRATIVE                                                                                                              
   3:31:56 PM                                                                                                                 
   CHAIR  JOSHUA  REVAK   called  the   Senate  Resources  Standing                                                           
   Committee meeting to order  at 3:31 p.m. Present  at the call to                                                             
   order were  Senators Micciche,  Kiehl,  Stevens, von  Imhof, and                                                             
   Chair Revak. Senator Kawasaki arrived immediately thereafter.                                                                
   He recognized that  Representatives McKay and  Cronk were in  the                                                            
   ^Presentation by  Gaffney,  Cline  &  Associates:  Assessment  of                                                            
   Recent Trends on  Upstream Oil &  Gas and the  State of  Alaska's                                                            
   Competitive Position                                                                                                         
      PRESENTATION BY GAFFNEY, CLINE & ASSOCIATES: ASSESSMENT OF                                                            
     RECENT TRENDS IN UPSTREAM OIL & GAS AND THE STATE OF ALASKA'S                                                          
                         COMPETITIVE POSITION                                                                               
   3:32:49 PM                                                                                                                 
   CHAIR REVAK announced the committee would hear a presentation  by                                                            
   Gaffney, Cline & Associates on recent  trends on oil and gas  and                                                            
   Alaska's competitiveness in the marketplace.                                                                                 
   3:33:06 PM                                                                                                                 
   SENATOR KAWASAKI joined the committee.                                                                                       
   3:33:09 PM                                                                                                                 
   At ease                                                                                                                      
   3:34:02 PM                                                                                                                 
   SENATOR REVAK reconvened the meeting.                                                                                        
   3:34:17 PM                                                                                                                 
   MICHAEL CLINE, Strategy  Advisor/Legal Counsel,  Gaffney Cline  &                                                            
   Associates, stated the presentation would cover key  developments                                                            
   in the oil  and gas  industry that  impact Alaska  in the  global                                                            
   context and considerations on tax policy.                                                                                    
   3:36:45 PM                                                                                                                 
   MR. CLINE paraphrased slide 5:                                                                                               
        Volatility and Disruption in the Oil & Gas Industry                                                                     
          • The oil & gas industry has been battered by                                                                         
             deeply  disruptive   events   in   recent   years,                                                                 
             including the  oil  price collapse  of  2014-2016,                                                                 
             the   COVID-19   pandemic,   the   emergence    of                                                                 
             alternative energy platforms, and a related  shift                                                                 
          in the long-term prospects of the industry.                                                                           
        • Oil and gas companies have performed poorly,                                                                          
          while  investors  have demanded  better  financial                                                                    
          performance  and action  on  energy transition.                                                                       
          Divestments and  restructurings have  occurred and                                                                    
          are   ongoing,   a   renewed  focus   on   capital                                                                    
          discipline  and investor  returns has  meant fewer                                                                    
          projects  are sanctioned,  and  there  is a  laser                                                                    
          focus on strategy and core assets.                                                                                    
        • Resource owners are finding it challenging to                                                                         
          attract capital and good operators.                                                                                   
        • For governments and states, lower prices and                                                                          
          decelerating  demand  has meant  reduced  revenues                                                                    
          and tax receipts and contraction of the tax base.                                                                     
3:39:33 PM                                                                                                                    
MR. CLINE  stated that the  chart on slide 6  visually represents                                                               
the volatility of oil caused  by disruptions ranging from 2000 to                                                               
present.  From 2015  to 2016,  growing inventories  of crude  oil                                                               
worldwide  and a  weakening  of the  US economy  led  to low  oil                                                               
prices. Shale  production in  the Lower 48  caused the  prices to                                                               
drop further.                                                                                                                   
From 2019 - 2021 widespread  economic dislocation caused by COVID                                                               
and  disputes among  OPEC  nations have  resulted  in oil  prices                                                               
tanking.  The  transition  to  other  types  of  energy  and  the                                                               
financial performance  of oil has  caused banks and  investors to                                                               
consider project lending carefully.                                                                                             
3:43:16 PM                                                                                                                    
MR. CLINE  moved to  slide 7 and  presented the  following points                                                               
regarding the transition of energy:                                                                                             
     Energy Transition and Oil & Gas                                                                                            
        • Many technologies essential to the transition to                                                                      
          alternative   energy   platforms  are   still   in                                                                    
          development,  and  face   significant  hurdles  in                                                                    
          terms of addressing  intermittency, energy storage                                                                    
          and   the    sheer   complexity   and    cost   of                                                                    
        • While the transition period is uncertain (circa                                                                       
          20-to-40 years), the trends are clear:                                                                                
          -  Innovation and investment focus  are leading to                                                                    
             new applications and rapid cost reduction.                                                                         
          -  Renewables and  other  sources  of clean  power                                                                    
             generation are growing rapidly, electric                                                                           
               vehicles  are established  and  on the  cusp  of                                                                 
               rapid  growth,  and  decarburization  has   been                                                                 
               elevated to 'core strategy' for businesses  from                                                                 
               ExxonMobil to Blackrock.                                                                                         
             - The debate is no longer whether energy                                                                           
               transition will happen  but how quickly it  will                                                                 
          • For resource-rich governments and states, the                                                                       
             question is how  to address  the knock-on  impacts                                                                 
             of energy transition  and, in  particular, how  to                                                                 
             optimize oil and  gas resources  in a  responsible                                                                 
             manner while transitioning  to alternative  energy                                                                 
   3:47:11 PM                                                                                                                 
   MR.  CLINE  stated  that  energy  transition  is  a  substantial                                                             
   financial issue.  Investors and  developers have  firmly grasped                                                             
   this  realization.  Over  eighty  global  financial  institutions                                                            
   restrict lending, and over one hundred are divesting from  fossil                                                            
   fuels. Slide 7 provides a partial list of those institutions.                                                                
   MR.  CLINE  said  that  in  response  to  the  impact  of  carbon                                                            
   intensity, oil and gas companies  assess portfolios to decide  if                                                            
   carbon  assets  should  be  kept,  sold,  left  undeveloped,  or                                                             
   transferred to smaller companies.  Company restructuring is part                                                             
   of the energy transition  process that will  occur over time  and                                                            
   cause heavy oil to be valued differently.                                                                                    
   3:50:06 PM                                                                                                                 
   MR. CLINE advanced to slide 10 and paraphrased its content:                                                                  
        Decelerating Demand and the Competition for Investment                                                                  
          • The trends relevant to Alaska and other oil                                                                         
             producers are increasingly clear:                                                                                  
             - The lowest cost producers (Saudi Arabia and                                                                      
               Gulf   countries)  will   have   an   increasing                                                                 
               advantage in  a lower  demand environment,  with                                                                 
               strong drivers  to maximize  production to  meet                                                                 
               budgetary requirements,  and a  goal to  extract                                                                 
               as much  value as  possible from  their oil  and                                                                 
               gas resources while they can.                                                                                    
   MR.CLINE added that countries like Saudi Arabia can produce                                                                  
   oil for $9 per barrel, it a fierce competitor.                                                                               
          -  Shale oil will remain  a potent force  with its                                                                    
             ability  to   react  quickly   to  demand/price                                                                    
             spikes,  which   will  restrain   upward  price                                                                    
          -  Decelerating   demand   and   a   muted   price                                                                    
             environment  will  likely  mean  less  upstream                                                                    
             investment   and    activity   through    2050,                                                                    
             especially for  'big  ticket'  long  lead  time                                                                    
        • For oil and gas producers such as Alaska, the                                                                         
          competition for oil and  gas investment dollars is                                                                    
          fierce and getting fiercer.                                                                                           
          -  Oil  and   gas  companies   will  impose   high                                                                    
             profitability /  return  hurdles  for  upstream                                                                    
          -  Oil and  gas  companies  are  making  decisions                                                                    
             today that will  determine the extent  to which                                                                    
             Alaska is  able  to monetize  its  oil and  gas                                                                    
             resources in the future                                                                                            
3:56:08 PM                                                                                                                    
MR. CLINE paraphrased slide 11:                                                                                                 
    Government   Actions   to    Promote   Investment   and                                                                     
        • Governments compete on the global stage for                                                                           
          exploration   and   development   capital,   which                                                                    
         provide the long-term basis for tax revenues.                                                                          
        • In response to such changes in market conditions,                                                                     
          it   is  common   for  proactive   governments  to                                                                    
          reassess  existing fiscal  terms  and to  consider                                                                    
          incentives  to  ensure continued  exploration  and                                                                    
          development in the domestic energy sector.                                                                            
MR. CLINE added that incentives  offered by governments are often                                                               
tax-related, such  as Norway's  accelerated depreciation  and the                                                               
UK's  tax   rate  reductions.   Many  government   responses  are                                                               
structured to be temporary.                                                                                                     
        • There have been substantial changes made to                                                                           
          upstream  oil  and  gas terms  stemming  from  the                                                                    
          change  in market  conditions in  2014 as  well as                                                                    
          some responses  to the price decrease  observed in                                                                    
          • It should be noted that due to the time required                                                                    
             to   review    and   approve    fiscal    changes,                                                                 
             particularly  at  a  national  legislative  level,                                                                 
             there is  often a  delay in  their  implementation                                                                 
             and a time  lag after  implementation before  they                                                                 
             have effect.                                                                                                       
   3:58:42 PM                                                                                                                 
   SENATOR MICCICHE asked if the idea  of leaving oil in the  ground                                                            
   for future value has been abandoned.                                                                                         
   MR. CLINE said he  had not heard  that argument recently  because                                                            
   the future's  outlook has  changed. He  opined that  the  current                                                            
   converse philosophy  is  to  monetize assets  sensibly  and  take                                                            
   advantage now.                                                                                                               
   SENATOR VON  IMHOF reiterated  that the  deceleration of  demand,                                                            
   discussed in slide  10, makes  it the  goal of  Saudi Arabia  and                                                            
   Gulf countries to extract  as much value  as possible from  their                                                            
   oil and  gas resources  before the  pivot to  alternative  energy                                                            
   occurs. She opined that this would  cause a supply glut over  the                                                            
   next 10-20 years. She  asked Mr. Cline  if her recapitulation  of                                                            
   slide 10  supports  the idea  that  assets should  be  monetized.                                                            
 Senator Micciche didn't make a statement. He asked a question.                                                                 
   MR. CLINE  said that  is correct.  Supply and  demand issues  are                                                            
   challenging due to diverse national interests and the complexity                                                             
   of forecasting demand. OPEC's goal  is to take as much  advantage                                                            
   of its resources as possible.                                                                                                
   4:02:09 PM                                                                                                                 
   CHAIR REVAK asked  if proactive  oil states  and governments  are                                                            
   incentivizing increased  production  rather  than  taxing  it  as                                                            
   SB3002 proposes.                                                                                                             
   MR.  CLINE  answered  there  are  various  ways  to  incentivize                                                             
   investment or recapture costs  to encourage investment. What  has                                                            
   been done in Alaska is one  way. Other countries have used  other                                                            
   measures to promote investment, such as accelerated depreciation                                                             
   and immediate recapture of costs.                                                                                            
   CHAIR REVAK  agreed that  it has  become more  difficult to  keep                                                            
   people busy and invested.                                                                                                    
   4:03:56 PM                                                                                                                 
   SENATOR KAWASAKI  said  the  slide titled  Energy  Transition  an                                                            
   Issue for Markets mentions that financial institutions have been                                                             
divesting or  restricting lending to Arctic  drilling for several                                                               
years.  He  asked if  financial  institutions  are divesting  and                                                               
restricting  lending  to  Arctic   drilling  because  it  appears                                                               
riskier and  what are the  decision-making factors at  that level                                                               
of investment.                                                                                                                  
MR. CLINE  opined that  Arctic drilling  is more  challenging and                                                               
costly. Also, environmental concerns  may increase over time. So,                                                               
investors question  where to  put their  money when  other assets                                                               
are reasonably  available. Decision-making is a  mix of financial                                                               
and other considerations.                                                                                                       
4:05:42 PM                                                                                                                    
SENATOR  KAWASAKI   asked,  from  an  economic   standpoint,  how                                                               
favorable would  Alaska's tax  policy need  to be  to make  it an                                                               
attractive  place  to  invest,   and  do  financial  institutions                                                               
consider taxation policy when making determinations to divest.                                                                  
MR. CLINE  answered that tax policy  is a factor in  the economic                                                               
decision-making chain for investors. It is  not at the top of the                                                               
chain,  but  it   is  well  known  that   tax  policy  influences                                                               
investment.  Tax  policy  can improve  or  worsen  an  investment                                                               
4:07:47 PM                                                                                                                    
SENATOR KAWASAKI asked if capital  market lenders look far enough                                                               
down  the  economic  chain  to consider  whether  tax  policy  is                                                               
favorable;  if   so,  could  it  stop   divestment  and  rekindle                                                               
MR.  CLINE stated  his belief  that lenders  assess to  a certain                                                               
level  where companies  invest and  whether  it is  advantageous.                                                               
This may occur in the Arctic.  For example, in recent years, from                                                               
a  high-level   perspective,  offshore  exploration  was   not  a                                                               
desirable  investment; wells  were expensive,  it was  risky, and                                                               
prospects were long-term. Companies  heavily invested in offshore                                                               
oil  fields  would be  considered  higher  risk from  a  lender's                                                               
perspective.  He  opined  that  the view  level  of  a  financial                                                               
company  is  to consider  whether  an  oil  company is  great  or                                                               
4:10:04 PM                                                                                                                    
MR. CLINE resumed the presentation  on slide 13, Alaska's Oil and                                                               
Gas Sector  is Maturing  and Facing  Headwinds. He  stated Alaska                                                               
had been a fantastic place for  oil and gas businesses due to the                                                               
scale  of its  resources, market  access, skilled  workforce, and                                                               
deep service company  base. In recent years Alaska  has faced the                                                               
   challenges of  maturing assets,  like Prudhoe  Bay, that  produce                                                            
   less than previously.  It has  also faced the  challenges of  new                                                            
   assets, like Willow, where  development is being debated.  Alaska                                                            
   is a high-cost environment that  is also facing the global  price                                                            
   volatility of oil. He opined  that some actions taken by  Alaska,                                                            
   such as  the per  barrel tax  credit, appear  to have  stabilized                                                            
   production decline.                                                                                                          
   4:13:08 PM                                                                                                                 
   MR. CLINE stated  that less oil  production from maturing  assets                                                            
   coupled with declining  oil prices impacted  the state. However,                                                             
   oil  production  in   Alaska  is  still   healthy  and  provides                                                             
   substantial revenues to the state.                                                                                           
   MR. CLINE said the  state should take two  actions to offset oil                                                             
   production declines. It  should protect  and extend  the life  of                                                            
   its   maturing   assets,   so    they   continue   to   produce.                                                             
   Simultaneously, the  state should  develop new  projects to  fill                                                            
   the revenue gap  as mature projects  continue declining. Another                                                             
   point for the state to consider  is the cost of transitioning  to                                                            
   alternative energy platforms. New developments will be needed to                                                             
   subsidize transition costs that  are estimated to consume  fifty-                                                            
   one percent of oil revenues.                                                                                                 
   Although Willow is a large investment, it is an example of a  new                                                            
   project that  will  bring  thousands  of  construction  jobs and                                                             
   hundreds of permanent jobs.  It is a 600-million-barrel  resource                                                            
   that would produce 165,000  barrels a day.  The Repsol Oil  Pikka                                                            
   Project  is  another  large,   expensive  undertaking  that,  if                                                             
   modified, could assist in sustaining the economy.                                                                            
   4:17:24 PM                                                                                                                 
   MR. CLINE paraphrased slide 16:                                                                                              
        Protecting the Petroleum Tax Base and the Economy                                                                       
           • Petroleum-related revenues are a significant                                                                       
             contributor to  Alaska  and  have  been  and will                                                                  
             continue to  be  under pressure  as  the  industry                                                                 
             changes with  a  move  toward  alternative  energy                                                                 
             systems,  increasing  asset  maturity,  and  other                                                                 
           • To sustain those revenues and the high paying                                                                      
             jobs provided by  the industry,  Alaska needs  the                                                                 
             participation of  as many  companies as  possible,                                                                 
             from the  very large  to  the small,  to  explore,                                                                 
          develop and produce its  diverse resource base and                                                                    
          sustain and build the tax base.                                                                                       
          -  Large  projects  like  Willow   and  Pikka  are                                                                    
             essential and  require significant  investment,                                                                    
             application of  human and  technical resources,                                                                    
             and an  appetite  for  risk -  which  typically                                                                    
             requires  large   companies  making   long-term                                                                    
             strategic commitments.                                                                                             
          -  Mature  assets  are  essential   too,  and  the                                                                    
             participation of  smaller, nimble  companies is                                                                    
             key to optimizing these assets and tax revenues                                                                    
             from them.                                                                                                         
        • Attracting  oil   and    gas   investment    and                                                                      
          participation  is a  'competitive activity',  with                                                                    
          major producers  in the US and  globally competing                                                                    
          for the  same participants and  investment dollars                                                                    
             considerations around  tax  burden and  overall                                                                    
          costs are critical in that competition.                                                                               
4:19:38 PM                                                                                                                    
MR. CLINE paraphrased slide 17:                                                                                                 
     SB 3002: The Per Barrel Credit                                                                                             
        • SB 3002, Section 6 allows a sliding scale tax                                                                         
          credit  against  a  producer's tax  liability  for                                                                    
          each barrel of taxable oil.                                                                                           
          -  The  sliding  scale  is  designed  to  offer  a                                                                    
             relatively higher tax credit in lower oil price                                                                    
             environments and less credit (or  no credit) in                                                                    
             higher price environments.                                                                                         
          -  Overall, SB 3002 is intended to  reduce the tax                                                                    
             credit available to producers.                                                                                     
          -  How the tax credit is set is important to avoid                                                                    
             deterring investments and activity.                                                                                
        • Gaffney Cline has not had the opportunity to                                                                          
          model the  impact of the proposed  provisions, and                                                                    
          suggests careful  analysis to ensure that  the tax                                                                    
          provisions do not  have unintended consequences of                                                                    
          discouraging new entrants and investment.                                                                             
4:21:23 PM                                                                                                                    
MR. CLINE paraphrased slide 18:                                                                                                 
     Tax Policy Considerations                                                                                                  
       • Alaska's strategy to extract more revenues from                                                                        
         the oil & gas sector will need to consider not                                                                         
            only near-term revenue capture objectives, but                                                                      
            also medium- and long-term impacts on oil and gas                                                                   
          development and production and the tax base                                                                           
              - Ensure that companies are not discouraged from                                                                  
                taking    on   big   investment,    step-change                                                                 
                developments that will replace declining                                                                        
               revenues from existing fields; and                                                                               
              - Ensure that existing companies and new                                                                          
                entrants continue to invest in mature fields,                                                                   
                and so extend the productive life of existing                                                                   
   MR. CLINE added it is important to consider the sensitivities of                                                             
   different companies when framing tax policy.                                                                                 
         • Global experience suggests that if the taxes are                                                                     
            too high:                                                                                                           
             - Companies  will  seek to  exit  and/or  go into                                                                  
               'harvest mode', and  Invest in other more tax                                                                    
               friendly jurisdictions.                                                                                          
             - All  of   which  will   contribute  to   reduced                                                                 
               investment and activity in the oil and gas                                                                       
               sector and to production declines.                                                                               
          • Tax policy must be crafted and sufficiently                                                                         
             nuanced  to  support  effective  revenue   capture                                                                 
             while  maintaining  healthy  participation  across                                                                 
             the different asset types.                                                                                         
   4:24:22 PM                                                                                                                 
   MR. CLINE paraphrased slide 20:                                                                                              
        The Existing Tax Credit and Alaska's Competitive                                                                        
          • For Alaska, the key has always been striking the                                                                    
             right balance  between  tax  revenue  capture  and                                                                 
             maintaining a  healthy  and vibrant  oil  and  gas                                                                 
             sector that is  competitive with  other major  oil                                                                 
             and gas producers around the world.                                                                                
          • Is Alaska competitive with its current tax                                                                          
             structure in  today's  global  supply  and  demand                                                                 
          • This is a complex question but the indications                                                                      
             suggest  that  Alaska  has  a  competitive  fiscal                                                                 
             system at this time.                                                                                               
             Stabilization  of  production levels  from  the                                                                    
             steady decline pre-MAPA is positive.                                                                               
             New entrants taking over large mature assets                                                                       
             and the willingness of companies to invest in                                                                      
             big projects like Willow and Pikka are                                                                             
        • Important to note that Alaska's competitiveness                                                                       
          is  not  a  given  or  static     the  competitive                                                                    
          landscape   changes   constantly  and   continuing                                                                    
          assessment  is necessary  to ensure  that Alaska's                                                                    
          fiscal  terms  capture  robust  revenues  for  the                                                                    
          state,   while   at   the  same   time   promoting                                                                    
          exploration, development  and production  of vital                                                                    
          oil and gas resources.                                                                                                
MR. CLINE stated  his belief that the More  Alaska Production Act                                                               
(MAPA)  assisted in  stabilizing  production  and attracted  both                                                               
large and small oil companies to the state.                                                                                     
4:27:26 PM                                                                                                                    
SENATOR   VON  IMHOF   opined  those   questions  posed   in  the                                                               
presentation, such as Alaska's position  in the global market and                                                               
determining  an  optimal  tax   policy,  are  concepts  that  the                                                               
legislature  may need  help  answering. She  stated  it would  be                                                               
helpful if  Gaffney, Cline  & Associates  returned to  present an                                                               
in-depth analysis  and suggestions for managing  Alaska's oil and                                                               
gas resources.                                                                                                                  
MR. CLINE  replied that as  a consulting agency Gaffney,  Cline &                                                               
Associates is willing to investigate further.                                                                                   
SENATOR MICCICHE asked  if a schedule of  replacement exists that                                                               
shows what portion  of oil will be replaced  by renewable energy;                                                               
also, what demand  will remain for the  manufacturing of plastics                                                               
and air and shipping transportation.  He asked, as innovation and                                                               
renewable energy efficiency improve and  costs come down, at what                                                               
point does the state enter harvest mode.                                                                                        
MR. CLINE  answered that replacement schedules  are being studied                                                               
under a multitude of scenarios.  Uncertainty is wide now but will                                                               
narrow over  time. The  best that  can be  done is  to understand                                                               
various  scenarios,  use  informed judgment  to  guide  decision-                                                               
making, and adjust as needed.                                                                                                   
4:31:30 PM                                                                                                                    
   SENATOR  MICCICHE  asked  how   Alaska  would  factor  into   its                                                            
   scenarios the unwillingness of traditional funding  organizations                                                            
   to invest in the state.                                                                                                      
   MR. CLINE  replied  that  Alaska should  use  global  trends  and                                                            
   financial  institutions'   inclinations  to   determine  how   to                                                            
   optimize assets and projects within those boundaries.  If  Arctic                                                            
   exploration were disfavored, then Alaska  would need to focus on                                                             
   what could work for it.                                                                                                      
   4:33:35 PM                                                                                                                 
CHAIR REVAK noted that Representative Tarr was in the audience.                                                                 
   SENATOR KIEHL  agreed  that a  detailed  analysis is  needed.  He                                                            
   recalled that, when  current tax  policy was a  bill seven  years                                                            
   ago, a BP representative said proposed changes would not  attract                                                            
   investment or  change  the  decline  curve.  That  statement was                                                             
   inaccurate. He asked  Mr. Cline if  SB3002 makes Alaska's  mature                                                            
   fields more competitive.                                                                                                     
   MR. CLINE replied he had not studied the proposed amendments.  He                                                            
   recommended that  assessment be  done  before making  changes  to                                                            
   CHAIR REVAK informed members that Mr. Cline was asked to  broadly                                                            
   address whether  production  at  North  Slope  is  becoming  more                                                            
   expensive  and  difficult  to  produce  and  what  considerations                                                            
   Alaska should contemplate regarding tax policy.                                                                              
   4:36:00 PM                                                                                                                 
   SENATOR STEVENS asked  that Alaska  be compared  globally to  its                                                            
   MR. CLINE responded that low  all-in cost producers are the  most                                                            
   competitive. The Middle East has  lower costs than everyone. The                                                             
   lower 48  states offer  significant  competition from  shale and                                                             
   lower  transportation  costs.  Alaska  needs  to  recognize  its                                                             
   challenges and strategize.                                                                                                   
   SENATOR KIEHL asked what role  prospectivity and geology play  in                                                            
   determining Alaska's competitiveness.                                                                                        
   MR. CLINE replied that  prospectivity is the essential  component                                                            
   of the oil industry.  Oil companies will not  invest if the rock                                                             
   is not good. Alaska has  attractive resources, even when  mature.                                                            
   This  is  positive  for  Alaska   in  terms  of  competition.   A                                                            
challenging operating environment, transportation costs, and                                                                    
taxes make the resource less attractive.                                                                                        
4:40:05 PM                                                                                                                    
CHAIR REVAK thanked Mr. Cline for presenting on short notice.                                                                   
4:40:34 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
Chair Revak adjourned the Senate Resources Standing Committee                                                                   
meeting at 4:40 p.m.                                                                                                            

Document Name Date/Time Subjects
SRES Presentation - GaffneyCline AK O&G Taxes 9.13.21.pdf SRES 9/13/2021 3:30:00 PM
SRES Oil&Gas Presentation by GaffneyCline