Rep. Meyer & Rep. Samuels Legislative Update
Dear Neighbors,
We both have received several emails expressing concerns about attracting independent oil companies to Alaska and encouraging new exploration and development. We thought that this would be a good time to look at this issue and the discussion we have had on this issue during the special session.
What is an Independent Oil Company?
The oil industry is generally divided into two categories: integrated and independent. Integrated oil companies are involved in the entire value chain of oil from production to pump. In Alaska, the notable integrated companies are Exxon, B.P., ConocoPhillips and Chevron. An integrated oil company explores for, produces, transports, refines and markets oil, gas and petroleum products. An independent oil company on the other hand, is involved only in the exploration and production of oil or gas. Pioneer and Anadarko are examples of an independent oil company. You may have read recently that next year, Pioneer Natural Resources will be the first "independent" operator on the North Slope. I find the story of Pioneer in Alaska interesting. Pioneer is new to Alaska, has brought new investment and is bringing new production online early next year. New business and new production is good for Alaska but I think we can learn a lot from the challenges Pioneer has faced and the investments they have made.
Pioneer Natural Resources
Pioneer Natural Resources is a small oil company based in Irving, Texas with around 1,600 employees. To put that in perspective, Fred Meyer has 2,700 in Alaska alone. Pioneer came to Alaska in 2002 and drilled their first exploration wells on leases near the Kuparuk unit on the North Slope in 2003. Pioneer and their partner Armstrong, later replaced by ENI, discovered a relatively small accumulation of oil and began putting together a plan to develop the discovery, which was named "Oooguruk." In 2005, Pioneer discovered the project was uneconomic and applied to the State of Alaska for royalty relief.
Alaska law allows the Commissioner of the Department of Natural Resources to reduce royalties on a field if the company can present "clear and convincing evidence" that without royalty relief a project is uneconomic. The State determined that without royalty relief, Oooguruk would never be developed and granted Pioneer and its partner royalty relief on the field in December of 2005. This was the first time the State had approved an application for royalty relief and the decision can be found online at the Department of Natural Resources website.
Oooguruk
The first wells in what is now called the Oooguruk unit were drilled in 1977. The unit was originally leased in 1983, but when the original owners determined prospect was not economic they surrendered the leases to the State in 2001. The State's decision to grant royalty relief to Pioneer was based in large part on the fact that over more than 25 years of exploration, no company had been able to develop the resources. When the State considered granting royalty relief to Pioneer for the Oooguruk field, they compared State revenues with, and without royalty relief.
With royalty relief, the present value to the State of developing the Ooogurk field was $160 million dollars. You'll notice in the chart above that at the time the State wouldn't receive any severance tax from the Oooguruk field. This is because the royalty relief application was considered under the old ELF severance tax system where small fields paid no severance tax.
Twenty days after the State granted royalty relief to Pioneer on the Oooguruk project, Governor Murkowski introduced the Petroleum Profits Tax. In the table above, you'll notice that severance taxes were zero when the royalty relief application was considered. In 2006 the Legislature changed the severance tax structure in Alaska and levied severance taxes on the Oooguruk field. After evaluating the project with the additional severance taxes Pionner made the decision to continue with the project and construction started in 2006. Although the State had increased their share of the revenue from the development of the Oooguruk prospect with the new severance tax, the credits the State gave to a company for capital investment in the tax actually improved the economics for Pioneer.
Between the royalty relief and the capital credits in the new tax, the State was able to take a greater share of the revenue while encouraging the development of a field that wouldn't have been developed. Pioneer's Oooguruk project represents an investment in Alaska of more than $500 million dollars, hundreds of jobs and millions of dollars in new state revenues.
An important aspect of Pioneer's Oooguruk project is that it is the first time an independent company has negotiated a facilities access agreement with the major North Slope producers, in this case ConocoPhillips. Access to facilities is often cited as an obstacle for independents on the North Slope. Pioneer's successful negotiation of an access agreement paves the way for other independents and proves to those considering investing in Alaska that gaining access to facilities is possible.
Why Independents are Important to Alaska's Future
The development of an oil basin around the world follows a general progression. From the first discovery of oil, large companies provide the capital and develop the large discoveries. As the large pools of oil are developed, smaller companies move in and develop the smaller pools of oil around the larger pools. Alaska is following a similar progression, with the major companies dominating the large discoveries at Prudhoe Bay and Kuparuk and newer, smaller independents like Pioneer developing the smaller fields like Oooguruk.
Alaska is at the beginning of this transition period and the success of a company like Pioneer will demonstrate to others that a smaller company can succeed in Alaska. In my first email update I described the 5 criteria I believe should be used to evaluate an effective tax policy:
A tax policy that promotes "maximum use" of our resources "consistent with the public interest" will:
1. Provide a fair share for our Alaskan owned resources.
2. Encourage investment to maximize North Slope oil production from existing fields to keep our pipeline full.
3. Encourage exploration and development to expand our oil and gas resource base in order to ensure opportunities for the next generation of Alaskans.
4. Be fair to small and large producers in order to build new economic activity and jobs for Alaskans.
Given the changing nature of the North Slope, and the increasingly important role independents will play in our future, it is especially important to consider how tax policy affects the smaller companies.
Thank you for allowing us to share this information. Please feel free to contact us with any feedback.
For Our Environment ~ Uncovering Public Trust Doctrine Violators on Alaska's Frontier
THIS SITE HISTORICAL:
In 2008 through 2010, an "Independent mom & pop" oil company violated the "Alaskan Public Trust" doctrine, allowing malfeasance and environmental atrocities upon the "Last Frontier". This "blog" is dedicated to follow the outcome of the illegal activities that have now become front and center attention before the regulators in charge of making sure the "Public Trust" is upheld, as a centralized forum to make sure Alaskans and others are kept abreast of penalties and fines upon those that feel Alaska is the "Last Frontier Dumping Grounds".
The above image depicts a crude oil well flow-back test, wherein for days hydrocarbon saturated "wet" natural gas was allowed to vent to the atmosphere out a safety relief valve, with temperatures and ambient conditions such that the "wet" vapors most likely condensed and fell upon the pristine waters of Harrison Bay of the Colville River delta, a place so far removed from man-made pollution. This image is also the cover photo of the report called "Alaska's Deadliest Sin", a culmination of malfeasance and environmental corruption evidence upon this Independent, collected by an ex-employee who has made it a personal "mission" to make sure this kind of irresponsible behavior is stopped and never again repeated on this "Frontier". To date, the company – Pioneer Natural Resources - has attempted to deny all allegations, but the evidence allowing denial is too strong. With that, the company has started to admit true so serious these violations. They have admitted their actions are indeed a violation of "Public Trust". With a 3rd party ongoing investigation following the submittal of the "Sin", the end result should be stiff fines and penalties upon the perpetrators, that which sends a message to those that want to "Go North" for oil exploration and exploitation.
"Drill Baby Drill" is upon us, thanks to Sarah Palin and others, and we must stand up against this all out blitzkrieg assault upon the ecosystem, to protect the environment from continued malfeasance and environmental atrocities, as it is not worth another Love Canal!
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In 2008 through 2010, an "Independent mom & pop" oil company violated the "Alaskan Public Trust" doctrine, allowing malfeasance and environmental atrocities upon the "Last Frontier". This "blog" is dedicated to follow the outcome of the illegal activities that have now become front and center attention before the regulators in charge of making sure the "Public Trust" is upheld, as a centralized forum to make sure Alaskans and others are kept abreast of penalties and fines upon those that feel Alaska is the "Last Frontier Dumping Grounds".
The above image depicts a crude oil well flow-back test, wherein for days hydrocarbon saturated "wet" natural gas was allowed to vent to the atmosphere out a safety relief valve, with temperatures and ambient conditions such that the "wet" vapors most likely condensed and fell upon the pristine waters of Harrison Bay of the Colville River delta, a place so far removed from man-made pollution. This image is also the cover photo of the report called "Alaska's Deadliest Sin", a culmination of malfeasance and environmental corruption evidence upon this Independent, collected by an ex-employee who has made it a personal "mission" to make sure this kind of irresponsible behavior is stopped and never again repeated on this "Frontier". To date, the company – Pioneer Natural Resources - has attempted to deny all allegations, but the evidence allowing denial is too strong. With that, the company has started to admit true so serious these violations. They have admitted their actions are indeed a violation of "Public Trust". With a 3rd party ongoing investigation following the submittal of the "Sin", the end result should be stiff fines and penalties upon the perpetrators, that which sends a message to those that want to "Go North" for oil exploration and exploitation.
"Drill Baby Drill" is upon us, thanks to Sarah Palin and others, and we must stand up against this all out blitzkrieg assault upon the ecosystem, to protect the environment from continued malfeasance and environmental atrocities, as it is not worth another Love Canal!
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
