Alaska producers are increasingly optimistic about new discoveries on the North Slope and feel they can boost production by at least 200,000 barrels per day in the next few years, more than offsetting the decline of older fields that are now producing.
“If you stacked all the new discoveries (by all companies) we see 350,000 to 400,000 barrels per day, assuming they can all be successfully developed. But given the timing of these (starting at different times) it’s reasonable to expect 200,000 barrels per day,” Scott Jepsen, ConocoPhillips’ Alaska external affairs vice president told a legislative committee in Juneau recently.
That would be on top of Alaska’s current production of about 525,000 b/d. Field operators also feel they can hold currently-producing fields to about 1 percent annual decline rates with continued work on producing wells and other oilfield facilities.
The only cloud on the horizon, however, is that the state of Alaska, worried about continued budget deficits, may again turn to the industry as a source of new revenue. While proposals to raise oil taxes haven’t gained traction in the 2019 state legislative session there is an undercurrent of talk and may gain momentum in 2020.
Gov. Mike Dunleavy said he opposes any tax change, on oil or gas or other industries without a public vote.
Jepsen and other industry officials said the surge of recent Alaska development results from a 2013 overhaul of state petroleum tax laws that lowered taxes and made the state more competitive. Changing that law change, passed in Senate Bill 21 that year, would undercut this advance, they told the House Resources Committee in Juneau.
North Slope can now be competitive even with prolific shale oil producers in the continental U.S. thanks to SB 21 along with advances in technology and gains in efficiency the companies have made since oil prices plunged in 2015, Jepsen said. ConocoPhillips can develop new Alaska oil at prices down to $40 per barrel, he told the legislators.
However, if Alaska taxes were raised again, the industry’s new momentum would be dampened. “We’d act like rational investors and look elsewhere,” he said.
Benji Johnson, CEO of BlueCrest Energy, a small independent developing a significant Cook Inlet oil and gas discovery, said his company doesn’t have pockets as deep as ConocoPhillips and is vulnerable to even small tweaks in taxes because of how the investment community would react.
There are still memories in the industry of Alaska’s high tax years prior to the 2013 change and big political fights in the Legislature over changes. There was also a public vote on SB 21 through a citizen initiative to repeal it. The law was upheld in that vote, although the victory was razor-thin.
“Even a little change is seen as a leak in the dam” Johnson told legislators. “Investors would say, ‘uh oh’. It sends a signal,” he said.
The current industry tax discussion in the Legislature, although still at a low level, centers around an $8-per-barrel production tax credit that was part of the tax changes made in SB 21. Most Alaska’s political leaders, particularly those elected to office since then, don’t know or remember the justification for the tax credits.
Some, like Sen. Bill Wielechowski, D-Anch, see elimination of the tax credits as an answer to the state’s deficits.
Damian Bilbao, a BP Alaska vice president, told legislators that eliminating the production tax credits would raise the companies’ tax bill by $1.3 billion a year. Even a small change, like lowering the tax credit $1 per barrel, would add $163 million in yearly taxes. “We could keep multiple rigs running on the slope for that,” finding new oil, he said.
Ironically, Alaska faces a potential deficit mainly because the state’s Republican governor, Mike Dunleavy, wants to pay a large Permanent Fund dividend to Alaska citizens. Dunleavy campaigned on a promise to essentially double the annual dividend, the Alaskans’ direct share of oil wealth, sending out checks of $3,000 per citizen compared with the $1,600 checks sent last year.
The large PFD payment creates a deficit of $1.6 billion for Fiscal Year 2020, the state budget year that starts July 1. Ending the oil production tax credit would fill most of this void, Democrats in the Legislature, like Wielechowski and Senate Democratic Minority Leader Tom Begich, D-Anch., have said.
There would be no deficit, however, if the PFD were paid at the same amount as last year. A $1,600 payment would leave enough revenue coming in to pay for a state budget at about the current level, according to Republican state Sen. Chris Birch, of Anchorage. Birch’s comments were in a debate in the state Senate.
The Senate has passed a budget based on the $3,000 dividend. The state House did not set an amount for the PFD in its budget.
Meanwhile, Jepsen told the House Resources Committee that ConocoPhillips is on schedule with its new slope developments, with Fiord West, a new project in the Alpine field scheduled to start up in August 2020 with 20,000 b/d of expected peak output and a second, GMT-2 in the nearby National Petroleum Reserve-Alaska, expected to be producing in 2021 with an expected peak of 35,000 to 40,000 barrels per day.
Meanwhile, federal regulatory approvals are expected early next year for Willow, a larger NPR-A project with 100,000 barrels per day of expected peak output. ConocoPhillips is also assessing new discoveries near Willow including Willow West, a separate, nearby accumulation.
Assuming it proceeds, Willow, estimated to cost $4 billion to $6 billion is expected to be producing in 2024 or 2025, Jepsen said.
Other companies have new projects on the slope, too. Oil Search, a Papua New Guinea company, expects 120,000 barrels per day from Pikka, which is being developed in partnership with Repsol. Hilcorp Energy recently started production at Moose Pad, a new project in the Milne Point field, with peak output of 25,000 b/d expected. Hilcorp is also working to develop Liberty, an offshore project where 70,000 barrels per day is expected at peak.
Overall, there could be as much as $14 billion invested in new projects on the slope over the next few years.
In Cook Inlet, Johnson, of BlueCrest, said his company’s discovery at Cosmopolitan, while smaller than the recent North Slope finds, shows there is still potential for new discoveries in the Inlet even after more than 50 years of production.
Cosmopolitan’s discovered resources are estimated at 500 million barrels of oil in-place and 250 billion cubic feet of in-place natural gas, although only part of this would be actually produced, he said.
Tim Bradner is copublisher of the Alaska Legislative Digest and Alaska Economic Report