Those pushing for a boost in oil taxes should pay close attention to the reasons BP is giving up on Alaska.
Damien Bilbao, BP’s Alaska vice president for commercial ventures, told Alaska legislators that continued uncertainty about oil taxes was one of two major reasons why the company decided to sell its Alaska assets and bail out.
The company is selling its Alaska properties for $5.6 billion to Hilcorp Energy, an independent company based in Houston, Texas. The other major motivator for the sale was the high cost of operating the aging Prudhoe Bay Field.
The field was considered the largest ever discovered in North America when its confirmation was announced 52 years ago. Prudhoe has produced more than 12 billion barrels of crude since the trans-Alaska pipeline began operating in 1977. At that time, when I was working for ARCO (the company that made the discovery) we were estimating it would produce 5 to 10 billion barrels over its lifetime. And the field is still expected to produce billions more barrels in the years ahead.
ARCO was sold to BP 20 years ago and many of its Alaska employees went to work for BP and ConocoPhillips. I left it in 1980 to start my own public relations firm.
Hilcorp is a good successor to BP as it has lower operating costs and is expert in turning around declining fields and giving them many added years of productive life. It has already turned around several smaller North Slope fields it acquired in past years from BP.
Bilbao told Alaska legislators that the company decided to sell its Alaska operation after it made a $10.5 billion acquisition in two Texas oil basins last year. He said BP decided to sell off assets including its Alaska holdings to pay for the Texas properties.
Columnist Tim Bradner wrote in the Frontiersman that Bilbao said BP “looked at what assets we could sell and Alaska was put on the short-list for sale because of the region’s high costs, distance from markets and the uncertainty created by tax risks.”
Alaska oil is not a great deal for the producers right now. It costs them about $40 per barrel in capital investments, operating expenses, transportation, taxes and royalties. And in the marketplace the oil sells for only $34 a barrel, a loss of $6 per barrel. That situation will hopefully turn around in the coming months and years, and companies will be able to turn a profit on their Alaska operations.
Seeing BP leave Alaska is hard for me because I worked closely with its people when I was at ARCO. I was hired shortly after the discovery and worked there all through the political battle to build the pipeline, construction and startup. Tim Bradner and Charles Towill were my colleagues when they were at BP in those days.
The North Slope of Alaska should be a major producing area for many years to come. The companies operating there have made valuable new discoveries that will be going online in the coming years.
But their operations need to be encouraged and not discouraged with foolish ventures like the drive to increase taxes on the oil companies. This is a terrible time to be doing anything like that. It would not be practical to lower taxes given the state’s need for revenues. But if we could afford it, that would be a better move right now.
So if someone approaches asking for your signature on a petition to raise oil taxes, you might want to raise your index finger in the universal sign of caution. If the zealot persists, you might want to try another finger.