Posted on 08/30/2011 9:08:32 AM PDT by Oldpuppymax
Much of the stepped-up activity appears to be partly due to the exploration incentives offered by the state of Alaska, and partly because Alaska's governor is committed to fixing provisions in the state's production tax that could make development of any oil discoveries noncompetitive for investment capital with projects in other oil provinces.
See another author pointing out the same thing in Alaska:
Smaller independent companies, it turns out, are planning as many as 28 exploration wells in the next year, and, yes, by golly, that is really swell. But ACES worshipers apparently did not read the rest of the story. It said the companies planned to drill because of fat state exploration subsidies, and -- this is really important, kids -- "because Alaska's governor is committed to fix provisions in the state's production tax that could make development of any oil discoveries noncompetitive for investment capital with projects in other oil provinces."
Funny how ACES' supporters missed all that. So at least one part of the tax, the part where Alaska hands out wads of cash for exploration, is working, at least with smaller operators -- but the part that makes producing oil in Alaska a loser for companies large and small is still screwing up the works.
http://www.adn.com/2011/08/20/2023914/aces-backers-blind-to-facts-about.html#ixzz1Wbk7Rd3x
The crushing, stair-step oil tax, part of a marginal tax rate that can top 90 percent at today's higher oil prices, clearly stymies increased North Slope oil industry investment and production.
Alaska tax structure has companies seeking opportunities elsewhere
http://www.mywesttexas.com/business/oil/article_7e052247-642c-5028-8608-d56b1582bfdd.html
August 21, 2011
At least one Alaska-based company is interested in making the leap from the North Slope to the Permian Basin.
“The reason we’re here is the Alaska state tax structure,” stated Geoff Wheeler, director, subsidiary development for Koniag Development Corporation.
Joined by Lynn Johnson, president of Dowland-Bach, an oilfield control and safety system manufacturer that was acquired by the Koniag Family of Companies in 2008, the two men met with local business leaders to discuss investment and joint opportunities in the Permian Basin.
...
By contrast, Alaska has lost 1,700 oil and gas jobs in the last two years, seen its rig count fall to 12, the lowest in five years, with only 119 wells drilled in 2010. Since ACES — the Alaska’s Clear and Equitable Share tax was enacted in 2007, they point out, the number of exploratory wells went from 18 to one this year, pipeline capacity is down two-thirds and Alaskan production fell another 7 percent in 2010. Alaska’s product tax rate is 42.2 percent.
“What’s driving this,” Johnson said, “is the tax structure in Alaska is not conducive to investment by major producers.”
The tax structure, Wheeler said, is stifling the industry and halting job creation and the men share their experience as a warning to others.
Royalties are an approved expense for Federal Tax dollars and the ACES profit tax. They are deducted like other expenses.
Thank you FRiend.
In this case, the oil is directly transferred to the owner of the mineral rights. Alaska takes at least some of the Royalty payments this way, selling the oil to the Flint Hills Refinery near North Pole, Alaska.
In this case, there is no deduction, but there is also no sale of that oil generating revenue or profit. So there is no tax to pay on that portion of produced oil. The expense of producing it is deducted as any other expense as the cost of doing business.
Alaska Department of Natural Resources
Division of Oil & Gas > Sections > Royalty Accounting > Royalty-in-Kind
http://www.dog.dnr.alaska.gov/Royalty/rik.htm
I hadn’t thought about the lag time. Interesting — so ACES cut the government payroll by putting the people who review drilling permits out of work? Not sure that’s a good way to get smaller government....
It was normal while I was there to have a year of preliminary engineering and budget review, a year of detail design and material/equipment ordering, a year for manufacture and deliveries of prefabricated skids and major equipment, a year for construction.
If it needs to be barged in because of very large size, the equipment has a short summer window for delivery. That equipment MUST be completed early enough to cover contingencies of problems as the barge window to the North Slope is very short. A month delay could mean a year delay if not enough contingency time was included.
Items small enough to be hauled by truck have a longer window the opposite time of the year. The gravel roads across the tundra need the ground solidly frozen for heavy hauls. There is a lot of traffic in the winter and most of the major equipment must be scheduled nearly 6 months or more in advance. Being two weeks late can mean missing your shipping slot and waiting until early spring hoping it stays cold long enough to haul your 20 ton module. Or wait until next year.
These logistics make projects that would be completed in South Texas in 9 months, stretch out for as much as 3 years, after the engineering and design is completed.
I have a couple decades in this industry. Alaska does far more planning and scheduling than any place I have ever been, but they have no choice. Fabrication MUST be completed well in advance of the need date or companies cannot afford the risk of spending hundreds of millions for project that has another year before any production begins.
I discussed that information with another FReeper in another thread. I thought I remembered you on there. I'm not avoiding anything. I have my own opinion why Kay Cashman put that sentence in there and it goes more towards wanting to stay in the good graces of the former ConocoPhillips employee and ExxonMobil lawyer, Sean Parnell -- who clearly understands the principle of the revolving door -- than anything else.
Then again, Cashman may have it right. These companies -- who are truly betting on the come if they are relying on Parnell to "fix" ACES after investing millions of $ -- know exactly where Parnell's allegiances lie and know it's a good bet. I think I've seen this movie before.
The crushing, stair-step oil tax, part of a marginal tax rate that can top 90 percent at today's higher oil prices, clearly stymies increased North Slope oil industry investment and production.
So you're gonna post anti-ACES opinions from the man who was a paid spokesman for VECO for 19 years? LOL, I think I'll pass on further comment except to say if you think oil companies are getting crushed up there, I suggest you look at ConocoPhillips' 10-k reports for the last decade. In the ACES years (2008-2010) they made 60.4% of their U.S. profits in Alaska. This is consistent with both PPT (2007) and ELF (2003-2006). In fact and somewhat ironically, they made a smaller percentage of their U.S. profits in Alaska in 2007 (PPT) - 53.1% -- than any year I looked at. That was the same year that Alaska state revenues crashed. Looks like nobody in Alaska made out that year except for those members of the Corrupt Bastards Club that stayed out of the pokey.
I don't have any Alaska numbers for ExxonMobil and BP. They don't break them out. I wouldn't either if I were them and had politicians on a leash and a cornered market.
"That woman" ruined everything...LOL.
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