May 2010 Archives

 Commentary:  Anyone who has reviewed the University of Alaska and National Association of Regulatory Utility Commissioners studies will realize that Barack Obama's expected action today--combined with other Moratoria actions earlier taken by Interior Secretary Ken Salazar--could further slow America's recovery and endanger national security!  This summer's Alaska exploratory program has successfully overcome huge obstacles...only by the dogged determination of Shell, the expenditure of billions of dollars, survival of a gauntlet of legal challenges and--finally--by the recent approval of federal regulators.  The Alaskan exploration would occur in about 150 feet of water, unlike the mile deep water column which is the subject of current Gulf of Mexico grief.  The Alaska exploration company, Shell, wrote a letter to the Department of Interior's Minerals Management Service explaining how -- in wake of the Gulf of Mexico tragedy -- its operations were 1) inherently safer and 2) supported by the addition of even more safety precautions than had been proposed.  The Administration, instead of carefully considering the differences in technology, location and precautions may over react and put the entire U.S. economy in jeopardy.   Your author is headed for the airport now and hopes that the President's press conference about to occur sets a more reasonable course of action.   -DH, 11:30 a.m. EST  (See Wall Street Journal, Washington Times, N.Y. Times)

ADN, by Steven Tomma.  The Obama administration today will suspend planned exploratory oil drilling in the Arctic Ocean off Alaska until at least 2011, a casualty of the Gulf of Mexico oil spill.  The suspension will be part of a report that Interior Secretary Ken Salazar will give to President Barack Obama, who's likely to address the suspension as well as other proposals stemming from Salazar's report, at a White House news conference today.  The move will stop Shell from drilling five wells in the Chukchi and Beaufort seas....  The move will stop for now a controversial expansion of oil drilling in a part of the world that could hold vast stores of oil and natural gas, but which environmentalists warn would come at great risk.  Despite a late appeal from Shell that it would employ new safety measures in the wake of the Gulf spill, Salazar was unconvinced that the exploratory drilling even in the much shallower waters of the Arctic would be safe.  "He is suspending proposed exploratory drilling in the Arctic," an administration official said on condition of anonymity to talk before Salazar's report is officially released today. "He will not consider applications for permits to drill in the Arctic until 2011 because of the need for further information-gathering, evaluation of proposed drilling technology, and evaluation of oil-spill response capabilities for Arctic waters."  Shell, which paid $2.1 billion in 2008 for the leases, had planned to start exploratory drilling in June or July.  The decision was met with a statement of deep unhappiness by U.S. Sen. Mark Begich (NGP Photo).  "I am frustrated that this decision by the Obama administration to halt offshore development for a year will cause more delays and higher costs for domestic oil and gas production to meet the nation's energy needs," Begich said Wednesday night ....  Begich said he would work with fellow Alaska Sen. Lisa Murkowski (NGP Photo), a Republican, the Interior Department and Alaska drillers to ensure operations would resume next year.  A spokesman for Shell said the company would issue a media response today. A spokesman for Murkowski said she would also respond today.

...your author (l) --on behalf of Moratoria Study Group Chairman O'Neal Hamilton (S.C.)--enjoyed the honor of presenting Alaska State Legislature citations honoring the Study Group to IOGCC participants: Commissioner Dan Seamount (AK) and Commissioner Victor Carrillo (TX) (Photos courtesy: Paul Atkinson).  Representative Craig Johnson (NGP Photo-r) coordinated approval of the citation with Senator Lesil McGuire (NGP Photo) and a distinguished group of Representatives and Senators from both sides of the aisle.

Commentary:  CH2M Hill's Tom Maloney (NGP Photo) opened the Resource Development Council (RDC) weekly meeting this morning amid an atmosphere of significant energy policy challenges.  These revolve primarily around 1) ANWR oil and gas access, and 2) diminishing Cook Inlet energy supplies and declining 'deliverability' during the coldest, darkest days of winter:

• Executive Director Jason Brune (NGP Photo-r) inventoried RDC's issues du jour, including:
  • An action alert urging members to provide testimony to the U.S. Fish and Wildlife Service now inviting comment on its effort to revise the "Comprehensive Conservation Plan" for the Arctic National Wildlife Refuge (ANWR).  Brune said RDC was concerned about the threat of the USFWS recommending to Congress through Secretary Ken Salazar (NGP Photo-l) and the President that the 1002 area of ANWR be set aside as wilderness.  He then asked your author to collect and mail comment cards on behalf of members and about 100 comment cards were dispatched to the USFWS.  RDC joined numerous members and other organizations in providing testimony and written comment.  Deputy Executive Director Carl Portman (NGP Photo, with Deantha Crockett), provided testimony in Washington D.C., while Brune and Portman testified in Anchorage.  (See our ANWR testimony story here.)  Brune also complimented Tara Sweeney (NGP Photo) of Arctic Slope Regional Corporation for her exceptional testimony in support of developing the 1002 oil and gas reserves.  He told members of RDC's support for Gas Supply Agreements (GSA) pending with the Regulatory Commission of Alaska, of Senator Mark Begich's (NGP Photo-lower right) support for federal revenue sharing associated with OCS rents, royalties and bonuses, and RDC's support for the Alaska Resource Education fundraising, Coal Classic Golf Tournament.  
• Maloney then introduced Dan Clark (NGP Photo-l), who briefed members on ConocoPhillips assets in the Cook Inlet region.  These include 70% ownership of the Nikiski LNG plant; 100% ownership of the North Cook Inlet Unit (50-60 MMSCFD gross production); 1/3 ownership of the Beluga gas field (100 – 120 mmscfd gross production).  Clark went on to discuss LNG export and GSA status.  Access his PowerPoint presentation here.
   

More event photos below:

 For remote, northern Alaska it's partly about the resources but mostly about the investment climate!  -DH

One can't expect natural resource investment without the resources.  An investor contemplating the risk of placing capital in a remote, expensive place with an unpredictable, predatory investment climate will surely be looking for benefits to offset the risk.  We earlier pointed out the 20 years of high investment characterizing a good investment climate that began with Governor Jay Hammond (NGP Photo-r) and republican and democrat legislative leaders, in unison, supporting a moderate tax policy with passage of one bill--which also repealed the personal income tax!  Then the century turned as republican and democrat legislators and republican governors (NGP Photos: Frank Murkowski and Sarah Palin) began to seriously consider the concept of converting a predictable 15% severance tax into an unpredictable net profit tax--made worse by later addition of a progressive rate feature (i.e. 'Heads I win; tails you lose') and deletion of certain business deductions.  

Yesterday the Alaska Oil and Gas Association (AOGA) held its annual public luncheon, this year with a theme:"How Policy Decisions Shape Alaska's Oil and Gas Future".   (Event photos below....) 

Alaskanomics by Scott Goldsmith (NGP Photo).  The Alaska economy depends on 14 sectors or drivers that bring new money into the state and account for all the jobs and income of Alaska households and businesses.  These 14 sectors can be aggregated into 3 groups, each of which accounts for about 1/3 of the total.  The first group—Petroleum—includes all activities related to production, the revenues collected by state and local governments, and the Permanent Fund.  The second group—Federal Spending—includes the dollars that flow into Alaska from both military and civilian government activities.  The final group includes all Other Drivers, both the natural resource sectors of fishing, timber, mining, and agriculture, as well as tourism, air cargo, miscellaneous manufacturing and services, retiree spending, non-earned income.  The other economic sectors, like construction, finance, health care and state government, are important for the health of the economy, but they recycle the money that the drivers bring in.  Without the drivers there would be no money to recycle and no role for these other sectors to play.  A new study by ISER (Institute of Social and Economic Research) of the University of Alaska Anchorage, funded through a gift from Northrim Bank, quantifies for the first time, the contribution of each of the drivers of the Alaska economy.  The knowledge that comes from understanding what the drivers are, their relative importance, and their future prospects, is critical for planning for Alaska’s economic future.  

 For remote, northern Alaska it's partly about the resources but mostly about the investment climate!  -DH

One can't expect natural resource investment without the resources.  An investor contemplating the risk of placing capital in a remote, expensive place with an unpredictable, predatory investment climate will surely be looking for benefits to offset the risk.  We earlier pointed out the 20 years of high investment characterizing a good investment climate that began with Governor Jay Hammond (NGP Photo-r) and republican and democrat legislative leaders, in unison, supporting a moderate tax policy with passage of one bill--which also repealed the personal income tax!  Then the century turned as republican and democrat legislators and republican governors (NGP Photos: Frank Murkowski and Sarah Palin) began to seriously consider the concept of converting a predictable 15% severance tax into an unpredictable net profit tax--made worse by later addition of a progressive rate feature (i.e. 'Heads I win; tails you lose') and deletion of certain business deductions.  

Yesterday the Alaska Oil and Gas Association (AOGA) held its annual public luncheon, this year with a theme:"How Policy Decisions Shape Alaska's Oil and Gas Future".   (Event photos below....) 

Alaskanomics by Scott Goldsmith (NGP Photo).  The Alaska economy depends on 14 sectors or drivers that bring new money into the state and account for all the jobs and income of Alaska households and businesses.  These 14 sectors can be aggregated into 3 groups, each of which accounts for about 1/3 of the total.  The first group—Petroleum—includes all activities related to production, the revenues collected by state and local governments, and the Permanent Fund.  The second group—Federal Spending—includes the dollars that flow into Alaska from both military and civilian government activities.  The final group includes all Other Drivers, both the natural resource sectors of fishing, timber, mining, and agriculture, as well as tourism, air cargo, miscellaneous manufacturing and services, retiree spending, non-earned income.  The other economic sectors, like construction, finance, health care and state government, are important for the health of the economy, but they recycle the money that the drivers bring in.  Without the drivers there would be no money to recycle and no role for these other sectors to play.  A new study by ISER (Institute of Social and Economic Research) of the University of Alaska Anchorage, funded through a gift from Northrim Bank, quantifies for the first time, the contribution of each of the drivers of the Alaska economy.  The knowledge that comes from understanding what the drivers are, their relative importance, and their future prospects, is critical for planning for Alaska’s economic future.