BP, ConocoPhillips Reduce 2010 Spending Plans in Alaska

Dow Jones Newswires via Rig Zone ^ | November 19, 2009 | Isabel Ordonez

[thackney]

BP and ConocoPhillips have reduced their capital spending and developmental budgets for Alaska in 2010 because of higher costs to produce mature fields, disappointing exploratory results and the state's new tax regime, the companies said.

London-based BP's 2010 capital spending will be $850 million, or down 15% from more than $1 billion this year, John Minge, president of BP Exploration (Alaska) Inc. said Wednesday during a conference. One-third of next year's budget will be spent on infrastructure renewal, one-third in drilling and one-third in growth projects, he added. BP's Alaska budget includes projects such as the development of heavy oil and the Liberty prospect in the Beaufort Sea.

Minge said Alaska's new tax system, which was enacted in 2007 and increases rates on companies when oil prices rise, makes the state relatively unattractive for investment in new developments.

ConocoPhillips, the third-largest U.S. oil company by market value, is also cutting spending next year...

[thackney]

Ping.

Please note the Alaska tax policy started in 2007.

[agere_contra]

BP (etc) are making a perfectly sensible play here: they are trying to get the Alaska royalty system renegotiated, or at least to generate polemic for use elsewhere.

A royalty charged for extraction from Alaskan Territory by the State of Alaska is not a parasitic tax: it is something like a partnership with Alaskans as silent partners.

So there is no bad guy here. I have no problem with BP doing this tactical stuff: as long as both partners make money from all that oil. Hopefully the new Governor won’t be hustled into reducing the royalty - unless of course BP really can’t make money from Alaskan oil.

[Mind-numbed Robot]

Your analysis is the same as mine.

Prudhomme Bay is a mature field and it is no surprise that some recent exploration found no new reserves. Were ANWAR opened I suspect all of them would stampede to the area.

Cold areas like Alaska present unique problems and increased costs for oil E&P. A dry well is awfully expensive and the costs must be made up by the producers. However, if it weren’t worth it they wouldn’t be there.

[Virginia Ridgerunner]

With Palin out of office, Conoco is trying to weasel out of the deal they reached in 2007. Read her book for a good discussion about what is going on here...she goes into great detail about the oil companies and their activities in Alaska.

[thackney]

I have her book, but my wife is reading it first.

I also recommend:

Sarah takes on Big Oil
http://www.petroleumnews.com/cgi-bin/start.cgi/products.html
(bottom of the page)
Sarah takes on Big Oil illuminates Palin’s rise to power in Alaska, along with her concrete successes and failures in dealing with the industry that is the lifeblood of the state’s economy.

I was living in Alaska, working in the Oil Industry, while Sarah Palin went from being on, then quiting the Alaska Oil and Gas Conservation Commission and her time running for governor and the start of her increased tax policies. I saw first hand the loss of work in Alaska from the increased taxes while the oil companies invested heavily in Canada with their tax friendly policies.

(since then Alberta has greatly increased their taxing/royalties and watched investment decline while rising in Saskatchewan and British Columbia)

What deal do you believe ConocoPhillips is trying to get out of?

[Eska]

Since the beginning of the pipeline, corrupt state repubs & dems have been working hand in hand with oil companies to lower the tax structure of oil industry. I’ve always read it has been lowered by 80% over the years. So when you hear about new oil taxes hurting the oil industry, take it with a grain of salt. It they had to pay what originally was agreed upon, then they could complain. Palin saw it for what it was, so did the people of Alaska; why she supported changes. She did the right thing once again.

[SueRae]

ping for later. Good discussion, thanks all.

[Virginia Ridgerunner]

Read her book and you’ll find out. Under the Alaska State Constitution, the state’s natural resources belong to all of its citizens and royalties must be negotiated and paid by the oil companies. Up until 2007, the oil companies had established corrupt deals with both Rat and Republicans in the Alaska government, particularly under Murkowski’s regime, in which the states citizens were getting ripped off. Palin put a stop to it.

[thackney]

In 2008, Total Alaskan Oil Production was 266.45 million barrels of oil.
http://www.tax.alaska.gov/programs/documentviewer/viewer.aspx?426

In 2008, Alaska collected 11,288.1 million dollars from the oil companies.
http://www.tax.alaska.gov/programs/documentviewer/viewer.aspx?1785f
Page 2, 2008 History

Royalties were only 29% of the total they collected.

That is $42.36 per barrel that the Alaskan Government collected. That does not include any of the taxes collected by the Federal Government.

In 2008, the average price for Alaskan Crude Oil was $90.10.
http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=F005071__3&f=A

I consider 47% for taxes, royalties and fees to be too high a price for Alaskan Crude.

While I worked in the Alaskan Oil Industry, the strangling of the golden goose was obvious.

[ASOC]

You are wasting your time.

Trying to explain the mess sara left behind is impossible when dealing with palinbots. Talk about projection.

You didn’t mention the total tax take on Alaska oil now - it’s what 61% - before the FedGov gets its cut.

[thackney]

The multiple levels and equations of Alaska’s tax structure makes it difficult to point it out to someone.

But it is hard to argue with the total take versus what was produced now that a little is recorded as history.

[Ben Ficklin]

I don't mean to be overly critical of you but your use of the term Palinbots is lacking.

SarahBots has a much better ring to it.

[ASOC]

LOL

SaraBots is it - thanks, it does have the better - ring.

Thanks for sharing.

[proud_yank]

Read her book and you’ll find out. Under the Alaska State Constitution, the state’s natural resources belong to all of its citizens and royalties must be negotiated and paid by the oil companies.

There is a difference between paying a royalty on a lease and a tax on production. ACES was the latter; a very steep tax hike which was enacted retroactively. It is not 'fiscal conservatism', deterred oil development and was not beneficial to the people of Alaska as defined by the state constitution. See Article 8 - Natural Resources, Sections 1 Statement of Policy and 12 Mineral Leases of the AK State Constitution linked here.

Up until 2007, the oil companies had established corrupt deals with both Rat and Republicans in the Alaska government, particularly under Murkowski’s regime, in which the states citizens were getting ripped off. Palin put a stop to it.

The corruption that existed and was brought forward was between a couple contractors, not production companies. That house of cards was in the process of being blown over before she got in the door. Better lucky than good, but I don't give her any credit for it.

If AK citizens were ripped off by any of those deals, they pale in comparison to the economic effects and jobs lost because of ACES.