Just a few years ago, I was visiting our projects in these Alaska shops. They were so busy with work on State and Native Land.
Alaska's new tax structure has shut down many projects and jobs over the last few years.
Posted on 03/26/2012 7:11:24 AM PDT by thackney
When a film producer called up CH2M Hill’s area manager Tom Maloney a few weeks ago to ask if the company’s empty fabrication shop could be used as space for film production, it was the last straw.
Maloney’s job includes keeping the shop full and its people working.
“I was tempted – it was revenue – but I just couldn’t let it happen on the odd chance that we might get some work into the shop,” Maloney said.
Alaska’s once-bustling oilfield fabrication shops are now empty, CH2M Hill’s among them. ASRC Energy, which also operates a fabrication shop in south Anchorage, reports a similar situation.
Last year the welders, pipe fabricators and electrical technicians were busy building things for the oil fields. Not this year.
NANA/Colt Engineering operates a facility in the Matanuska-Susitna Borough, and Flowline Inc. does fabrication as well as pipe-coating at its Fairbanks plant.
Everyone is in the same boat, Maloney said.
“I’ve never seen things so bad. Even in 1988, oil prices dropped to $10 a barrel but we were still busy. That’s because people were optimistic, and planning new projects. They knew the oil price would go back up,” Maloney said. “Now prices are almost $120 a barrel and we’ve got this pessimism. We’re losing our key workers to North Dakota where oil work is booming.”
Maloney puts the blame for things on the impasse squarely on the Legislature’s inability to agree on a needed adjustment to the state oil and gas production tax, which he says are too high. That is impeding new investment by oil producers and new projects to keep CH2M Hill’s workers busy.
The state House passed a bill last year, House Bill 110, which would lower the taxes, but the Senate disagreed. Senators are now working on their own proposal, but state House leaders and Gov. Sean Parnell are dubious that it will be enough to make a difference.
Meanwhile, CH2M Hill’s 100-plus workers normally at work in the fabrication shop aren’t there.
These employees, and those who work for the company’s competitors in Anchorage, Kenai and Fairbanks, are indirectly employed by Alaska’s oil industry but many don’t show up counted as oil workers in state labor statistics.
“Our people live in Anchorage and Mat-Su and they work here. They don’t go to the Slope,” Maloney said.
The last big jobs the fabricators had was two years ago on the building of Eni’s small Nikaitchuq oil field on the slope, and before that it was the construction of the Oooguruk field by Pioneer Natural Resources. Both companies built many of their production facilities in Alaska as “truckable” modules that could be constructed in Anchorage and moved by road to the North Slope.
A boom time for the fabricators was from 1998 through 2000 when the Alpine and Northstar oil fields were being developed by ConocoPhillips and BP, and large “sealift” modules, so large they had to be moved to the slope by sealift barge in summer, were built in Anchorage and Nikiski, near Kenai.
Since then there have been a steady stream of smaller projects, mostly facilities for expansions of the large oil fields, and then the new fields by Pioneer and Eni. Since then, the work has dried up.
When oil companies decide to build their projects in Alaska the decision has a much bigger economic impact than just the module-building, because companies like CH2M Hill are also asked to help install the modules on the Slope, which creates a lot more jobs.
“With the Eni project we had 120 in our ‘fab’ shop, working 70 to 80 hours a week, and we had 350 at the site on the slope, on installation. At one time we had as many as 600 working for Eni,” Maloney said. “Now it’s zero.”
Engineering work along comes along with a fabrication contract, too, and this creates additional jobs. Terry Bailey, a CH2M Hill vice president responsible for engineer services, recalled that during a particularly busy period when the company was doing the engineering on the CD-3 and CD-4 drill sites for the Alpine field and the DS 1-J drill site in the Kuparuk River field that CH2M Hill had 175 people employed in the design work, and 60- to 70-hour work weeks were the norm.
Not all of those people were engineers. Typically 30 percent to 40 percent of those in the engineering group were support people, for example doing data management, Bailey said.
Module work always had its peaks and dips, said Nate Andrews, CH2M Hill’s manager for the fabrication plant, but the company has always tried to keep a core group of about 60 skilled and experienced fabrication workers busy, to retain them.
With no work in the plant it’s getting really tough to keep these workers, Andrews said.
“The problem we now have is that we’re losing our core workers to North Dakota, as well as Alberta. They can work three weeks on and three off, and the employers will fly them back and forth,” Andrews said.
If work picks up in Alaska, CH2M Hill will be able to get some of these workers back, but not all.
“They can see years of work down there. Why come back here when it’s start-and-stop?” he said.
Maloney said these workers, including project managers and supervisors, are critical.
“Without people like these you’re not in the construction business,” he said.
Andrews said the company is doing everything it can to hang onto these experienced people including putting them temporarily into CH2M Hill’s field maintenance jobs on the North Slope or on loan to the company’s well service group.
This isn’t enough to take care of everyone, however, so the company has initiated a “work-load imbalance” program where it has had to furlough workers, but with benefits. There are about 75 people temporarily furloughed for now, who are on call.
“Some of these people haven’t worked since last November,” Maloney said.
Andrews said it’s tough to compete with North Dakota and Alberta.
“We used to be a high-wage state, and the differential allowed us to retain skilled workers. That’s no longer the case. The wages are the same in North Dakota and the hours are much better,” he said.
A lot of skilled Alaskans have left the state for better work elsewhere. “I don’t think we’ll get them back,” Andrews said.
Hiring new people to fill vacancies, if work picks up, is expensive.
“It costs us $7,000 to $12,000 to hire someone from outside the company,” he said. What’s also of concern, however, is that it takes time to a new person to become part of a team and fit in with a company’s safety culture, an area of importance in construction.
Just a few years ago, I was visiting our projects in these Alaska shops. They were so busy with work on State and Native Land.
Alaska's new tax structure has shut down many projects and jobs over the last few years.
Yep, greedy politicians and citizens are killing industry in this state.
from here
http://www.nytimes.com/2011/03/18/us/politics/18palin.html
Even as she casts herself as an energy expert and is quick to attack the Obama administration on oil and gas issues, the two most prominent energy policies she put in place as governor of Alaska face new challenges less than two years after she left office.
Gov. Sean Parnell, Ms. Palin’s fellow Republican and former lieutenant, has announced that it is his top priority to undo parts of major oil tax increases that Ms. Palin made law. He argues that high state taxes, not just federal regulations, are preventing oil companies from exploring new drilling in Alaska and therefore jeopardizing future state revenues.
“Lower taxes means more competitive,” Mr. Parnell said last week. “It means more jobs.”
And the project Ms. Palin once portrayed as her principal legislative triumph, a plan to build a 1,700-mile natural gas pipeline that she said would transform the economy of Alaska and contribute to America’s domestic energy supply, seems an increasingly distant dream, undercut by low gas prices and more practical projects in other states.
from here
http://www.freerepublic.com/perl/post?id=2863934%2C2
Palin Boosted Oil-Company Taxes While Alaska Had Budget Surplus
By Alison Fitzgerald - September 6, 2008 00:01 EDT
Sept. 6 (Bloomberg) — Alaska Governor Sarah Palin, who has joined the Republican national ticket as a tax-cutter, was a driving force in raising a tax on oil companies last year that will help swell the state’s budget surplus.
from here
http://www.freerepublic.com/perl/post?id=2863934%2C2
Palin Boosted Oil-Company Taxes While Alaska Had Budget Surplus
By Alison Fitzgerald - September 6, 2008 00:01 EDT
Sept. 6 (Bloomberg) — Alaska Governor Sarah Palin, who has joined the Republican national ticket as a tax-cutter, was a driving force in raising a tax on oil companies last year that will help swell the state’s budget surplus.
The tax increase by the Palin Administration was part of the reason we left Alaska and returned to Texas.
Strangely, back in Texas, I'm now working some smaller Alaskan North Slope projects. They are not associated with additional production but greater maintenance on the existing aging facilities.
Do you really believe that is the reason?
What companies have shut down projects and why wasn’t the natural gas pipeline started when prices were high? The remains that Ak’s natural gas doesn’t require tracking and should be more profitable.
The fact is that Federal regulations have been the biggest obstruction to new oil and gas in AK, in areas of known reserves.
So when Irwin and Palin raised the tax on oil is was on oil produced on state lands.
The nat gas pipeline would have been built or will be built to carry nat gas produced on state land.
The other conflict that Irwin and Palin created was over reclassifying Point Thompson from being stranded to not being stranded.
So it is not just Palin raising the oil tax that needs to be undone, but also Palins pipeline deal needs to be undone and Palin's Point Thompson deal needs to be undone.
_______________________________________
The oil companies said that this would be the result of Palin's add-on taxing of profits.
seattle Times August 2008...
"BP Alaska, which runs Prudhoe Bay, said earlier this year that it had delayed the development in the western region of the North Slope as a result of the tax. ConocoPhillips cited the same reason for scrapping a $300 million refinery project. "What the tax has done is take away all the upside," said Doug Suttles, president of BP Alaska. The U.K.-based oil company paid more than $500 million in taxes to Alaska last quarter — far more than it earned in profits from Alaskan oil, according to Suttles. Investment dollars are flowing instead to places that have a better return, like the massive deep-water projects offshore in the U.S. Gulf of Mexico, where ConocoPhillips said the government take equals less than 50 percent of the barrel."
As for the pipeline, not one shovel of dirt has been moved to date. Palin committed $500 million of Alaska taxpayer dollars to TransCanada to cover the cost of development...regardless of whether the pipeline ever gets built.
It is these two policy disasters that, along with her resignation, turned many of us against her.
Yes, I was there, leading an engineering group in Alaska doing mostly North Slope projects. Projects that were in the early stages (ie. had not begun buying equipment) were shut down and the project team members were out of work.
What companies have shut down projects
ConocoPhillips, BP, Marathon, Pioneer, Chevron, TAPS. Every operating company I was aware of shutdown early stage projects.
why wasn’t the natural gas pipeline started when prices were high?
It had been started for years. There is a lot of study, survey, calculation to evaluate the options. My company had been hired a couple of times to participate in the studies.
The natural gas line is dead to the south. The project that Palin dedicated $500 million to begin engineering on is no longer economically feasible due to the tremendous amount of Natural Gas in the lower 48 from the new shale fields.
The fact is that Federal regulations have been the biggest obstruction to new oil and gas in AK, in areas of known reserves.
In Federal lands, yes. But the non-Federal lands in Alaska is about the size of California. There has been a lot of interest in building in the Brook Range foothills by smaller independents. But as long as the taxes are so high, they are going to invest in North Dakota, Texas, Canada where most of the dollars are not eaten up in Taxes.
I’m going to defend what Palin did here back in 2007 and 8.
Aside from dumping a huge surplus into Alaska’s coffers, ACES was a reasonable response to a deeply corrupt political culture, as was Palin’s stillborn attempt to build the pipeline through Canada. Both were victims of changing market conditions, especially in North Dakota. However, few people recall that petrol prices were well north of $120.00 a barrel in the Spring of 2008 when ACES passed. Now it needs adjusting down so Alaska can attract business back from the Dakotas.
It’s for Parnell to change the ACES structure to lower the tax to keep AK competitive with North Dakota and other shale states in the lower 48. The Bakken Formation is simply too productive for Alaska to keep the old structure that worked quite well through 2009. Indeed, had Palin remained Governor, she probably would have revisited ACES given the competitive pressures of the North Dakota oil and LNG industry.
ACES was in no way, shape or form a reasonable response. The empty shops prov that while Texas and North Dakota cannot get enough workers, housing, etc.
They are strangling their golden goose.
Yep. She fell victem to the mob mentality on this topic. I keep telling people, it’s hard enough to work in the conditions we have in this state and raping the producers isn’t going to help us out. They are going to continue to look elsewhere for cheaper solutions until we pull our heads out and work together. Let Capitalism reign!
“ACES was a reasonable response to a deeply corrupt political culture”
Were there any alternatives to ACES? I like Sarah, but I think that she may have made a mistake there.
“It is these two policy disasters that, along with her resignation, turned many of us against her. “
I like Sarah, but she made a mistake in those two areas.
I am assuming you mean proposed alternatives, as there are always other choices that could be made.
At the time, there were many different plans being proposed; but Palin fever at the time over-ran common sense.
At the time it was put in place, for every additional dollar in price, about 90¢ of that went to government. It was insane under any type of reasoned analysis.
Just out of curiosity, do you think that if Sarah had stayed Gov. that she would have recognized ACES as the mistake it was?
Are you trying to get the Palin worshipers to stone me?
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