Oil Tax Commentary
WSJ. Video interview, "Why shale critics are wrong."
Calgary Herald by Stephen Ewart. With the NDP government’s first throne speech Monday, Premier Rachel Notley began disappointing the party’s core supporters in the environmental community by championing exports of Alberta oil to global markets as part of a Canadian energy strategy.
Alaska has just now, after nearly a decade of economic downturn, managed to repeal and overcome some of the damage done by Palin's populist, anti-oil tax policy. But Kasich would apparently prefer to learn about taxation principles from personal experience and the hard knocks school rather than history.
Caelus Energy Alaska, LLC's Casey Sullivan (NGP Photo) reports the company has acquired a 75 percent working-interest ownership in NordAq Energy Inc.’s Tulimaniq leases located in Smith Bay on the North Slope of Alaska.
Smith Bay is approximately 150 miles west of Prudhoe Bay and is well documented for its extensive hydrocarbon potential. Slightly more than 117,000 acres (gross), the 26 leases were assigned to Caelus Energy Alaska Smith Bay, LLC a wholly owned subsidiary of Caelus. As a result, Caelus becomes the operator and will lead the exploration drilling program this winter season.
The agreement was set to be finalized on June 18, 2015, follows on the heels of other recent announcements from Caelus including the sanction of its onshore oil development project Nuna, and the acquisition of 323,000 acres in the State of Alaska’s fall lease sale.
Caelus President and CEO James Musselman commented on Caelus’ newest addition to its Alaska portfolio: “We’re extremely excited. The NordAq Energy team has done a great job of defining the geologic potential in Smith Bay. Our team is ready to take the helm and get to work on exploring and appraising the Tulimaniq play. What we see in this region has us all pretty motivated.”
“Our winter exploration operation planning is underway", Musselman said, "Caelus looks forward to continuing our strong working relationships with the local communities of the North Slope, the North Slope Borough, as well as our state and federal regulatory partners to ensure a smooth transition. We’re also extremely fortunate to be supported in our efforts by North Slope veterans Doyon Drilling and Cruz Construction. The winter exploration operation will require upwards of 400 personnel to drill 1-2 exploration/appraisal wells – it’s a large-scale program.”
Musselman emphasized that Alaska’s current oil fiscal system, including its exploration incentive credits, attracted Caelus to Alaska in 2013 and has been a key component in the company’s recent business decisions.
“We have a lot of work to do in Alaska", he said. "Having a stable policy that encourages finding and producing more oil for Alaska, including credits, will be pivotal in future investments decisions.“
NordAq Energy chief executive officer, Paul L. Devine, said his company is encouraged by Caelus’ commitment to Alaska and the experience they bring to the project. “NordAq is very grateful to have a partner of their caliber to operate on our behalf, and commit the energy and capital to a significant play like Tulimaniq,” he said. “We are also very grateful to CIRI Energy, NordAq’s secured lender, for the role it played in facilitating this important transaction.”
Caelus Energy Alaska, LLC is a privately held, independent exploration and production company that currently operates the Oooguruk unit on the North Slope of Alaska.
Caelus specializes in exploration, development, and production of oil and gas and is currently focused on the pursuit, identification, and development of strategic opportunities across Alaska.
Headquartered in Dallas, with an office and operations in Alaska, the team at Caelus has earned a reputation of integrity and innovation, and is a leader in developing world-class operations.
NordAq Energy Inc. (NordAq) is an independent oil and gas company based in Anchorage, Alaska. The company was established by the present Board and management team in 2008 to explore, appraise and develop hydrocarbon reserves in the State of Alaska. Its portfolio includes prospects and resources in Cook Inlet on the Kenai Peninsula and Smith Bay on the North Slope.
Alaska Governor Bill Walker's June 8 Letter To AK LNG Participants Doesn't Exactly Radiate Cooperation
Today, we ask if Alaska Governor Bill Walker (NGP Photo) is seeking cooperation with participants in the AK LNG project, or is he seeking to control those free market participants, or is he angling toward a separate, government owned project?
Here is a letter Walker sent yesterday to House and Senate resource committee leaders which included the copy of a letter he dispatched back on June 8 to producer leaders of the AK LNG project.
We hate to be judgmental; after all, we all have our own ways of doing business. And, we should grant the Governor some leeway for lack of experience in dealing in the world of business and free enterprise.
If it were our call, we'd have met with Ak LNG on a regular basis to resolve ongoing issues; after all, there will be plenty more hurdles for participants to cooperatively overcome over the years if the project goes.
In meeting with participants regularly, we'd have engineered a process like the governor "proposes/unilaterally mandates" in this correspondence, sought concurrence among the parties and made a joint announcement on how the project will proceed. "Peace to all in an atmosphere of cooperation"....
Instead of a cooperative joint announcement, we now have a Governor presuming to call the shots, dictate the process.
In less formal circumstances, we would likely ask, "who in the blazes does this guy think he is?"
Readers will find one of the dictated matters occurring in the Governor's correspondence, item #3. In it he acknowledges that one of the big issues to be resolved is "fiscal stability" (See our 4-part series).
Government bullying can turn a reasonably profitable project into a loser.
The bigger the investment, the more need there is for assurance that property will not be expropriated by fiat, as in the case of Argentina, or more indirectly taken by predatory taxation occurring after investments have been made.
Just think about this: if an investment goes south on a manufacturing plant or commercial fishing boat, there are often plenty of potential buyers. But when you bury a pipeline into the earth and the investment goes south, statutes require you spend billions more dismantling and removing the asset, and restoring the right of way.
In our opinion, the AK LNG investors have no choice but to seek full fiscal certainty on all of their oil and gas assets in return for the big gas transportation system investment.
If the Governor wishes not to use his bully pulpit supporting that need with the Legislature and the citizenry, we think it obvious that he either does not believe that full fiscal certainty is needed or he holds back on offering fiscal certainty knowing participants will have a difficult time justifying the investment.
This does not mean "fiscal stability" of the oil companies. It means, basically, that if the investors pour $45-$60 billion into the state of Alaska to build a gas pipeline/LNG project, they need to know that they will not be treated here like Repsol was treated in Argentina less than a decade ago.
Alaska has demonstrated in the past that in the 49th state, "A Deal Is Not Necessarily A Deal". Readers can explore the link for background. Basically, Alaska's elected officials have taught investors that they don't mind raising taxes after an investment decision is made and they don't mind doing it RETROACTIVELY.
Being hopeful, but not stupid, Alaska's oil industry has said for a generation that when and if a gas transportation project is built, the state will have to guarantee fiscal stability of the project.
In the June 8 letter, Walker, agrees that fiscal stability should be part of the process, but that it will exclude oil.
In other words, he is saying, "I'll agree to not tax gas after the investment is made but you'll get no guarantee from me regarding the oil."
So if one is trusting enough in Alaska's state government to invest scores of billions in a gas pipeline, one is not concerned that oil taxes will be raised after the gas project is built?
We have talked to no one about this correspondence, either in the Administration, Legislature or oil industry. If we had, we'd have undoubtedly been smarter.
But we are compelled based on an independent reading of the correspondence to conclude that the Governor thinks he can charm or coerce industry into investing billions into a gas transportation project by providing only half a loaf of fiscal stability. Either that, or he is trying to infiltrate so many skunks into the gasline parade that any rational investor would say, "Sorry, not today". By multiple skunks, I refer to but do not have space to explore other troubling provisions of the correspondence, including gas marketing, government ownership and pipe routing issues.
If you are an investor hoping for a cooperative government partner, read the June 8 letter and weep.
The June 8 letter, causes one to wonder if the Governor -- a lawyer who spent a undistinguished, quixotic career advocating a government owned LNG project -- will finally get his wish to be Master and Commander of some imagined, but not yet real, government-owned, Alaska LNG project.
We hope this is not Walker's motivation for the June 8 letter, nor his pipe dream.
If it were, we fear that to the innocent citizens of Alaska the dream will morph into a pipemare.
See reader comments below with my responses in red....
(Note: Editors are welcome to reprint our opinion pieces; attribution should occur and we would appreciate being sent a link. Readers may send any thoughtfully written responses to this address and we will reprint them alongside this editorial for the Archives.)
Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska and a Commissioner Emeritus of the National Association of Regulatory Utility Commissioners (NARUC). He served as NARUC's official representative to the Interstate Oil & Gas Compact Commission (IOGCC). Harbour is past Chairman of the Alaska Council on Economic Education, former Chairman of the Anchorage Chamber of Commerce, and past President of the American Bald Eagle Foundation and the Alaska Press Club. He is Chairman Emeritus of the Alaska Oil & Gas Congress.
Opinions or viewpoints expressed in this webpage or in our email alerts are solely those of the publisher and in no way reflect the opinion(s) of any affiliated company, person, employer or other organization.
Petroleum News. Oil Patch Bits: Bell acquires operations manager - 06/14/2015 (Login to read Full story) F. Robert Bell and Associates announced that Frank Thomas “FT” Bell has returned to the firm and will fill the new position of operations manager to further develop company goals. He will help Bell and Associates run more efficiently and grow as much as possible. In addition, he hopes Bell and Assoc....
Petroleum News. Request for proposals for Interior Gas Project due Aug. 3 - 06/14/2015 (Login to read Full story) The Alaska Industrial Development Export Authority has issued a request for proposals for the Interior Energy Project, with proposals due Aug. 3, the first step in what the agency describes as a two-step public process. The goal of the Interior Energy Project is to provide low-cost energy to Interi....
Petroleum News: EPA: No widespread harm from fracking - 06/14/2015 (Login to read Full story) Hydraulic fracturing to drill for oil and natural gas has not caused widespread harm to drinking water in the United States, the Environmental Protection Agency said June 4 in a report that also warned of potential contamination of water supplies if safeguards are not maintained. A draft study issu....