Sunday, December 29, 2013

Oil tax reform legislation the top story of 2013

The state Legislature action to revamp the state’s oil production tax in its 2013 session ranks as the top Alaska news story for the year. Senate Bill 21 will replace the current oil tax, called ACES, on Jan. 1.

The bill overhauls what had become an obsolete tax. There was wide agreement that ACES was “broken” but sharp disagreements in the Legislature over how to repair it. Generally, Gov. Sean Parnell and Republicans in the Legislature wanted a complete makeover, while Democrats leaned toward minor band-aids at most.

The makeover, in SB 21, involved major structural changes, however, and the Democrats and other critics howled.

After SB 21 passed and legislators went home last April critics organized a referendum drive to repeal the tax change. Sufficient signatures were gathered and the question will now appear on the August 2014 primary election ballot.

Basically, SB 21 makes two important changes and a number of smaller ones. Most important, it eliminates a “progressivity” formula in the ACES tax that ratchets up the tax rate as oil prices rise to high levels when prices reach $110 per barrel or above.

In those price ranges the effective oil tax rates in Alaska were some of the highest in the world. Alaska’s high costs, distance from markets and harsh climate conditions were challenges enough for industry, but the high tax rate made most new Alaska oil investments uneconomic under ACES.

Industry investment in new oil projects lagged, while it boomed in other U.S. states. Meanwhile, the decline in North Slope production continued at rates of 6 percent to 8 percent yearly.

SB 21 changed that structure. At the higher price ranges it would constitute a tax reduction for companies (at lower prices it works in reverse, raising taxes higher than ACES), but what’s most important is that SB 21 is simpler than ACES, which was so complicated companies could not predict its results in their planning for projects, which is very important.

Since last April, when the law change was made, the companies have stepped up with substantial new investments on the North Slope. About $4.5 billion in new projects are planned, and possibly more, which are expected to result in about 55,000 barrels of new oil production by 2018.

— Tim Bradner, Alaska Journal of Commerce

Friday, December 27, 2013

Wednesday, December 18, 2013

Conoco’s budget up; Worldwide $16.7 billion capital budget for 2014, $1.7 billion for Alaska

Eric Lidji
For Petroleum News

ConocoPhillips expects to spend much more in Alaska this coming year.

The largest oil and gas company in the state is budgeting $1.7 billion for Alaska projects in 2014, up 54 percent from the $1.1 billion it budgeted for 2013 and more than double the $828 million it actually spent in 2012, according to figures provided by the company.

The budget includes construction of the CD-5 satellite, a share of efforts to market North Slope gas and the regular array of maintenance work, but ConocoPhillips is attributing the increase to a slate of North Slope projects announced since the state changed its fiscal terms in the More Alaska Production Act, also known as Senate Bill 21. Those include additional Kuparuk River unit drilling, early work on the Kuparuk Drill Site 2S pad and drilling in the National Petroleum Reserve-Alaska. The NPR-A work includes the GMT-1 development well and two exploration wells in the Greater Mooses Tooth unit.

The budget proves the revised fiscal system is working, according to Gov. Sean Parnell, who released a statement saying, “Billions of dollars in new investment have been announced since I signed the MAP Act into law, and it’s helping to keep Alaska’s businesses and workers busy as they go after new oil production. Alaska is on track for more oil in the pipeline and more opportunities for future generations.”

Whether voters agree with his conclusions will be determined during the primaries next year. That is when the people will vote on a ballot referendum aimed at repealing the law.

Heavy Lower 48 spending

The spending comes as part of a $16.7 billion capital budget for 2014. The budget provides only a general breakdown of spending. A more-detailed breakdown often accompanies the annual report, which ConocoPhillips usually releases in February.

The budget dedicates some 39 percent, or $6.5 billion, for “high-margin development drilling,” of which two-thirds ($4.3 billion) will go to the Lower 48 and the remaining third, ($2.1 billion) will go to Alaska, Canada, Norway and western Australia.

The 2014 capital budget is aimed toward ConocoPhillips’ goal of producing some 1.6 million barrels of oil equivalent from its continuing operations in 2014, but those efforts are primarily focused on the Lower 48, Canada, Europe and the Asia-Pacific regions.

The budget allocates some 35 percent, or $5.8 billion, for “major projects,” starting with the APLNG project in Australia and including the Surmont Phase 2 project in Canada, the Eldfisk II project in the Norwegian North Sea, the Britannia Long-term Compression and Clair Ridge in the United Kingdom, as well as offshore developments in Malaysia.

The Lower 48 spending include work in the Eagle Ford, Permian and Bakken plays.

The budget also includes some 13 percent, or $2.1 billion, for “maintenance of the company’s high-quality legacy base portfolio, including 2014 planned turnarounds,” and another 13 percent on exploration and appraisal work in the Gulf of Mexico, the U.K. and Australia, as well as unconventional exploration in liquids-rich shale plays across the Lower 48 and Canada, and unconventional exploration in Colombia, Poland and China.

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Sunday, December 15, 2013

ConocooPhillips Slope budget up $600M

Tim Bradner
Alaska Journal of Commerce

ConocoPhillips is ramping up its Alaska investments sharply.

The company increased its 2014 Alaska capital budget by more than 50 percent, to $1.7 billion, and will drill two new exploration wells this winter in the National Petroleum Reserve–Alaska, company spokeswoman Natalie Loman said Dec. 9.

Spending next year will be in projects that are expected to add about 54,000 barrels per day in new North Slope production by late 2017.

About 38,000 barrels per day would be produced by projects approved since the Legislature amended the state’s oil production tax last April. Loman said one development in the 2014 budget that is now under construction, the CD-5 project in the National Petroleum Reserve-Alaska, was approved by the company before state lawmakers made the tax change in Senate Bill 21.

“Alaska projects will get about $600 million more than in 2013, when our capital budget was about $1.1 billion, ConocoPhillips spokeswoman Natalie Lowman said. “Our capital spending next year will be more than double the $828 million spent on projects in 2012.”

The company’s 2014 capital budget was approved by its board and announced Dec. 6.

ConocoPhillips credited the state’s new oil production tax law, which goes into effect Jan. 1, for stimulating overall new investment.

“Higher allocation of capital to Alaska compared to 2013 reflected improved fiscal terms from passage of the More Alaska Production Act (SB 21),” the company said in a Dec. 6 press release.

While much of the 2014 budget is allocated to the CD-5 project, preparations on several other new projects are also underway, Lowman said.

The company has also authorized two new drill rigs to drill additional development wells in the Kuparuk River field since the passage of SB 21. One rig started work last May and the second is set to begin drilling in February.

CD-5 is expected to begin producing in late 2015 and is expected to produce about 16,000 barrels per day, or b/d. The project will cost about $1 billion and includes a bridge across a channel of the Colville River and new roads, pipelines and a production site on the west side of the river. CD-5 will be also the first commercial oil production project in the NPR-A.

ConocoPhillips is also laying gravel and making other preparations for a planned new drill-site in the Kuparuk River field, Drill Site 2S. Formal approval for that is expected in late 2014. Production is estimated at 8,000 b/d, starting in late 2015.

Permitting and other preparations are also continuing on GMT-1, a $900 million project in the NPR-A. It is expected to be producing 30,000 barrels per day by late 2017, Lowman said.

Overall, the new projects planned by ConocoPhillips are expected to add 54,000 barrels a day of new production by late 2017 but only part of this is net to ConocoPhillips because some of the new production will be shared with partners in the new projects.

ConocoPhillips owns 55 percent of Kuparuk, with BP, ExxonMobil owning most of the remainder, as well as 78 percent of CD-5 and GMT-1 with Anadarko Petroleum owning the remainder.

The two new NPR-A exploration wells are planned to be drilled in ConocoPhillips’ Greater Moose’s Tooth Unit in which the GMT-1 project is located, Lowman said. The drilling is aimed at establishing new resources in the unit. The company is planning a second NPR-A production project in the unit, GMT-2, sometime in the future, ConocoPhillips officials have said.

Overall, six exploration wells are now planned for the North Slope this winter. Two will be drilled by ConocoPhilllips; three by Repsol in the Colville River delta region and one by Linc Energy at Umiat, in the southeast NPR-A where a small oil field was discovered decades ago but not developed.

ConocoPhillips Alaska president Trond-Erik Johansen told the Resource Development Council annual conference in Anchorage in November that his company plans about $1.5 billion in new capital investments over the next few years.

Separately, BP has announced about $3 billion in new projects in the Prudhoe Bay field along with plans to put two new drill rigs to work in the field.

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