Commentary: Late yesterday, we received a copy of a letter (below) from Alaska Governor Sean Parnell (NGP Photo) addressed to citizens.
We have supported tax reform in the spirit of fairness. However, in the sense of 'enlightened self interest', we know that absent a competitive investment climate in an oil-abundant era, Alaska's production and economic strength will continue to decline.
Tax Commentary: We would suggest that economic principles apply throughout the free market--whether one is employed by the film, cruise, fishing, farming, manufacturing or oil industry. "The more you tax and regulate, the less you get from that source."
Our friend, Bob Neumann, recently said, "The state legislature and governor’s office need to recognize the economic benefits that the cruise industry brings to our state. Thousands of jobs would not exist without the cruise industry. Overtaxing and overregulating has a direct effect on the industry. A healthy balance must be permanently grounded in our state and not be continually revisited with each new legislature or governor. This can only be achieved through education and promotion of the industry directly with the support of our government on the local and state level."
Next August, voters will face a referendum question of whether to keep tax reform or repeal it. We believe Parnell's communication efforts are valid and that Alaskans will come to understand how important it truly is to preside over a fair, predictable and competitive investment climate.
Absent those qualities, who would want to invest gas pipeline or other project money in a place with the most remoteness to markets, the most difficult climate, the highest wages, the highest taxes, some of the most demanding regulations and a history of changing the rules of the game AFTER investments have been made? -dh
Over the past several months, Alaskans have started to see the benefits of our new oil tax structure, the More Alaska Production Act. Companies and investors are responding with long-term development plans for the North Slope, which is resulting in new opportunities and jobs for Alaskans. We are even seeing new entrants coming to Alaska.
Our new tax structure is working, and that’s great news for us, for Alaska’s economy, and for future generations. Let me share with you some of these recent announcements:
Caelus President James Musselman: “We are attracted to Alaska because of the enormous geologic opportunity as well as the incentives, such as SB 21, that the state has put in place to encourage energy investment by independent oil and gas companies.”
She [Janet Weiss] said it will add some 200 new jobs and result in between 30 and 40 additional wells being drilled each year for at least five years. Beyond that, Weiss said, BP and its partners are evaluating a $3 billion project to pursue new developments in the western part of the greater Prudhoe Bay area.
After ConocoPhillips added an extra drilling rig to its Kuparuk field this summer, citing the more favorable tax policy, Little Red Services has had more work at that field, [President and CEO Doug] Smith said. The company's man hours are up 20 percent there, and Little Red recently added eight full-time workers and increased its fleet of hot-oil trucks to six to meet the extra demand, Smith said.
“…. those could easily increase the total of pending new projects to $5 billion.”
ConocoPhillips is planning to bring an additional rig to the Kuparuk field this spring and working with co-owners to fund a new drill site on the Kuparuk River field, the company said in a Wednesday announcement.
The renewed optimism is creating opportunity across our state and driving Alaska’s economic comeback. Many other Alaskans and Alaska businesses are benefitting as well. Take a look at what Alaskans are saying.
Make no mistake, the More Alaska Production Act is working for Alaskans.
Governor Sean Parnell
Comment: Yesterday we editorialized about more evidence supporting Alaska's oil tax reform bill, including Caelus Energy's entry into Alaska partly in response to oil tax reform.
Today, Alex DeMarban (NGP Photo) of the Alaska Dispatch provided a more in-depth report in which he editorialized that: "The departure of Pioneer from Alaska seems to cut into a major plank of Senate Bill 21, a huge tax cut for the state's oil producers that was supposed to help Alaska's dwindling oil fields overcome competition from booming shale deposits in Texas and North Dakota."
DeMarban then quoted from a company spokesman. "Casey Sullivan (NPG Photo), an Alaska-based spokesman with Pioneer, said the company felt that SB 21, which boosted state subsidies for production, offered Pioneer a better long-term deal compared to the 2007 tax increase."
Yesterday in our report we quoted Caelus Energy President & CEO Jim Musselman's rationale: "We are attracted to Alaska because of the enormous geologic opportunity as well as the incentives, such as SB 21, that the state has put in place to encourage energy investment by independent oil and gas companies."
We leave it to readers to judge whether oil tax reform has made Alaska's investment climate glass half full or empty. -dh
This reader comment came yesterday in response to our commentary on 10-22-13: "Question CNBC's Cramer; Question White House Political/Economic Advisors"
It is becoming clearer and clearer to me that in order for rational policy to prevail, decent people must begin to understand that the last thing we should resort to is some government involvement. How has it become acceptable in the land of the free and the home of the brave that people instinctively seek to “be governed” whenever a problem crops up? A nation of individuals who would rather be governed than be free to make their own decisions does not have the requisite supplies of confidence to remain #1.
Daniel V. Kish
Senior Vice President, Policy
Institute for Energy Research
The Alaska Gasline Development Corp. board of directors will meet Oct. 30 from noon to 5 p.m. at the Wilda Marston Theater at 3600 Denali St. in Anchorage.
The public may participate from the Legislative Information Office in Fairbanks and from the State Office Building in Juneau, or by calling 907-330-8452 for the access number.
AGDC said in the meeting notice that pertinent reference materials, if used, will be made available to members of the public wishing to participate in the meeting.
Our Commentary Goes Nationwide
We find more evidence supporting the wisdom of oil tax reform
CBC. To avoid disturbing the site where ancient human bones were discovered, a Saskatchewan pipeline company says it will tunnel deep below.
On Wednesday, we inventoried ways in which the Federal government was hamstringing job creation by blocking natural resource development (i.e. Thinking Critically About CNBC).
Today, Congressman Doc Hastings (NGP Photo) explains why citizens must still remain critical of Administration strategy (re: Lesser Prairie-Chicken Range-Wide Conservation Plan--another initiative that threatens human livelihoods.) -dh
Also note: The National Blueways Secretarial Order was signed by Interior Secretary Ken Salazar in 2012 and creates unilateral authority for the Secretary to designate entire watersheds as “National Blueways.”
More: The nation's energy infrastructure is under attack. The destruction of the utilities that provide electricity or its ability to refine oil is critical to crippling a nation's ability to function, based on the universal use of hydrocarbons such as coal, natural gas, and oil. EnergyBiz.
Earlier this week, we posted a commentary on Repsol's Alaska investment (i.e. Take Heart But Take Heed). That commentary was edited and reformatted by Master Resource, with our permission, and released today to its thousands of readers. In part, we said, "In 2011, Repsol acquired a large lease position in Alaska given the rich prospecting and the upside of positive tax reform in the state. The latter occurred in mid-2013 with the passage of Senate Bill 21, the More Alaskan Production Act, signed into law by Governor Sean Parnell (NGP Photo).
Commentary: We've Proven Tax Reform WORKS!
This morning, Alaskanomics sheds light on how much film production tax credits have helped the economy. Here's a Peninsula Clarion story that demonstrates how five separate tax incentives have leveraged more jobs and production in the Cook Inlet Area. With these two examples of how moderate, competitive tax policy produces good results for Alaska, one wonders why several legislators and community activists are trying so hard to repeal SB 21, the "More Alaska Production Act" designed to increase Alaska North Slope production, jobs, Trans Alaska Pipeline throughput and Alaska's economic strength! -dh
(Ref: existing incentives)
Sixty-seven percent of voters nationwide support offshore drilling for domestic oil and natural gas resources, according to a new poll conducted by Harris Interactive for API’s “What America is Thinking on Energy Issues” series.
This support bridged party lines, with clear majorities of Republicans (79 percent), Democrats (57 percent) and Independents (67 percent) all supporting offshore drilling.
“Americans get it: domestic oil and natural gas development is a key driver for new jobs, economic growth and energy security,” said Erik Milito, director of upstream and industry operations for API.
(Scroll down for our related editorial, yesterday. -dh)
Today's Natural Gas Price Analysis From Dan Hassey, Uncommon Wisdom
The natural gas production cost currently ranges from $1.50 up to $4 per million cubic feet. When natural gas prices fell to the $2 level, producers shifted to oil and natural gas liquids.
With a glut in natural gas supplies, production is falling. One of the best ways to determine the potential supply of natural gas is to look at rig counts.
Baker Hughes (BHI) tracks the number of rigs operating all over the world. This table from its website shows the decline of rigs used for natural gas drilling:
The U.S. natural gas rig count fell by 240 rigs in the last year, a 40% decline. Notice how the number of oil rigs rose slightly since a year ago. Those are producers switching from natural gas to oil.
Now look at this natural gas price chart.
When prices hit $2.00, producers cut back on production. Then demand picked up, especially from utility companies. Prices recovered and have now doubled to the $4 area.
HOUSTON'S ENERGY DAY IS BIG SUCCESS! Cities all over North America could emulate this model to interest children in Innovation, Science, Technology, Energy, Engineering and Math!
Energy Day Festival Sparks New Interests for Houston Area Students
Mayor Parker and Event Organizers Urge Students to Pursue Careers in Energy
Houston, TX – Twenty thousand people turned out Saturday to applaud more than 85 Houston area teachers and students who were recognized at the third annual Energy Day Festival. Elementary, middle school and high school age students participated in one of six contests exploring the science and technology behind today’s energy innovations.
The festival in its third year, featuring over 70 exhibitors, set a new attendance record. Local law enforcement estimated over 20,000 people attended the one-day event.
Jim Prentice's LNG message yesterday was as important to Americans as today's commentary may be to future investors in Canada's oil patch! -dh
Take Heart But Take Heed!
Cautious Optimism From Alaska's Oil Patch
Would you rather invest your money in a safe place or an unsafe place?
Spanish oil company, Repsol, has answered that question by shifting its attention from Argentina to Alaska and other more reliable investment areas among the some three dozen member states of the OCED (Organization for Economic Cooperation and Development).
In 1993 Repsol paid $13 Billion for nearly 60% of YPF, the Argentine oil company. In 2010, Repsol discovered a significant oil shale play in an area called Vaca Muerta. In 2011, Argentine President Cristina Fernández de Kirchner took action leading to nationalization of most of Repsol’s YPF interests. Since then, production has declined and the trade deficit has increased. In wake of the expropriation, according to Forbes, “The EU, along with the UK, Mexico, Chile and Colombia” condemned Argentina’s action. The U.S. State Department also condemned nationalization of the company.
Last Friday, at a presentation to Commonwealth North’s Energy Action Coalition, Repsol’s Alaska Operations Manager, Bill Hardham (NGP Photo), told members his company acquired a large lease position in Alaska in 2011 amid peaking tensions in Argentina — as Alaska’s oil tax reform effort was promising an improved investment climate here.
Oil tax reform finally did occur later with the 2013 passage of SB 21, though a short time later environmental activists and anti reform legislators -- among others -- promoted repeal of the law via a voters' referendum. The question of whether to repeal oil tax reform will appear on Alaska’s primary ballot next summer.
Recognizing the voters' referendum to repeal tax reform during the primary election next summer, Hardham said that, “We purchased leases and partnered with Armstrong with confidence that Alaska would adopt a tax reform proposal. Repsol remains confident that Alaska voters will see the benefit of filling the pipeline and attracting new investment into the state.”
Hardham briefed members on the company’s significant progress since obtaining its Alaskan stake. In addition to offshore leases in the Chukchi and Beaufort Seas, Repsol has a 70% working interest in and is operator for 700 thousand leased acres on the Alaska North Slope (ANS). In 2012 the company completed 48 miles of ice roads and drilled two exploration wells. Last winter, the company completed 38 miles of ice roads, drilled three wells and identified gravel sources for future operations. This winter, the company is, “well underway with its planning and permitting,” Hardham said, for 22 miles of ice roads, an air strip, 3 wells, appraisal of last year’s work and flow testing.
“We want to be here for the long haul,” Hardham emphasized – more than once.
At conclusion of the presentation, NANA Development Corporation’s Senior Vice President and Chief Operating Officer David Marquez said, “I appreciate your confidence in Alaska voters but what would a vote for oil tax repeal do to your plans?”
“Plans would change,” Hardham said.
Commonwealth North President and University of Alaska – Anchorage Chancellor, Tom Case wondered about ‘surprises’ the company had experienced upon its arrival in Alaska. Hardham spoke of the complexity of the permitting process and said, “Without our very capable consultants, we would have had a very difficult time navigating the regulatory process.”
Another member asked about what ‘we’ could do to help. “The best thing Alaskans could do would be to defeat the referendum to repeal tax reform. Other than that,” he said, “it would be nice if you could lower Alaska’s very high operating costs.” The audience greeted that commentary with knowing smiles and a little ironic laughter.
Former Revenue Commissioner, now a Great Bear Petroleum LLC Vice President, Pat Galvin, asked about Repsol’s plan regarding expiring leases. Hardham replied that the company regarded expiring leases as a ‘driver’ of plans. He said that expiring leases would have priority attention while in other cases the company could seek extensions of expiring leases.
Hardham concluded with a summary of the many consulting and contracting opportunities Repsol’s development projects would require, including employment for several hundred Alaskans.
“Hopefully, we’ll have multiple phases of development,” he said, a statement of optimism chastened by caution. It was clear that the jury is still out on whether Alaska’s policies will enable the company to continue its progress, or whether a repeal of oil tax reform will align Alaska more with the policies of Argentina.
One listening to the presentation could take heart at Repsol's large, decisive and rapid Alaskan investments. But Alaskans who wish to learn from others should also heed the counsel of Fredrik Erixon, director of ECIPE, the world economy think tank in Brussels. The author of “Pariah in the world economy – how should other countries respond to Argentina’s return to economic nationalism”, he wrote this spring that, “ the most damaging consequence of the confiscation is that the government has undermined efforts to fund new production in the giant oil shale reserve, Vaca Muerta, discovered by Repsol in 2010. The expropriation has created a very uncertain investment environment, to say the least, for potential partners in Vaca Muerta.”
Repsol’s management will, no doubt, long remember Argentina’s 2011 expropriation of over $10 billion in shareholder assets, including the undeveloped shale play called Vaca Muerta. Vaca Muerta is fittingly translated as, “Dead Cow”.
One hopes that Repsol’s current investment in Alaska is greeted by a friendlier regime – one that does not take assets by increased taxation after investments are made—as has been Alaska’s recent practice.
After all, “killing the Alaskan goose that lays golden eggs, up here”, in principle, is similar to “killing an Argentinean cow that sustains a faltering economy, down there”.
Either analogy repels and is repugnant to investors.
Today's news briefs courtesy of the Office of the Alaska Gas Pipeline Federal Coordinator:
- Putin orders tax breaks for gas fields near Yamal LNG
- Gazprom says it is not worried about U.S. LNG exports
- Rosneft signs eastern Siberia joint-venture deal with Chinese
- South Korea move to reduce nuclear power could boost LNG demand
- New LNG storage tanks at Japanese power plant can hold 7 bcf
- China looks to limit some users to ease winter gas shortages
- LNG plants in China protest natural gas price hike
- BP chief advocates market-based natural gas pricing in India
- Imperial says LNG might be an option for Mackenzie gas
- Shell exec says not all shale plays turn out well
- Consultant doubts new federal rules will slow oil and gas production
- New Brunswick shale gas protest turned violent
- N.Y. residents protest fracking and also offshore LNG import terminal
- FERC warns of natural gas, electricity price spikes in New England
- Canadian officials investigate bird kill at LNG import terminal
- North Dakotans sue over lost royalties from flared gas
- Opponents testify against Enbridge plan to move Alberta oil eastward
- Expanded Alberta oil-to-rail terminal can handle 120,000 barrels a day
|From Michael Soukup in Governor Sean Parnell's office:
Alaskan trucking companies have a renewed sense of optimism as new opportunities are being created across the state. According to Scott Hicks of Alaska West Express, things like more jobs, more production, and more cash to the state are why he’s excited about the More Alaska Production Act and its impact on the trucking industry. To view his testimonial, please visit:
We have made careful note over the years of many instances of "Federal overreach" in Alaska. We have organized those examples into a category (below left) called "Federal Obstruction". Reviewing the video below reminds us that we may sometimes miss instances where a Federal agency has efficiently moved due process to a rational conclusion benefiting Alaska. Moving in a timely way to grant a right of way over federal lands for the Alaska Gasline Development Corporation might be one example that seems to reflect Federal regulatory competence benefiting Alaska; kudos to the Bureau of Land Management. We invite readers to submit a paragraph describing other instances of Federal natural resource decisions benefiting Alaska--either with or without your identity. Submit those ideas anytime and we will archive them under our story category of "Federal Progress." -dh