JUNEAU -- A month after state lawmakers approved a multibillion-dollar oil tax cut, executives at Alaska's largest oil producer say they are focused on using company profits over the next several years to grow and pay out shareholder dividends.
ConocoPhillips executives outlined the strategy at the Houston-based company's annual meeting Tuesday and at an investment conference Wednesday. "We're very much committed to the dividend as the top priority for the use of cash," said Matt Fox, Conoco's executive vice president for exploration and development, at the conference.
Conoco officials said they hope to ramp up oil production in Alaska, but no specific details were given. Some of the company's capital investment would include places such as Alaska's legacy oil fields, with about 10 percent of that investment going into maintaining base production.
Last month, the Alaska Legislature voted to cut oil taxes, with industry allies, Gov. Sean Parnell and top legislative leaders saying the tax reduction is needed to encourage oil companies to invest in new production on state lands.
Senate Bill 21 awaits Parnell's signature to become law, but also faces a possible citizen referendum seeking to overturn it. Critics of the tax cut say industry is already making a healthy profit from Alaska oil.
Last year in Alaska, Conoco earned $2.3 billion, with after-tax profits in each of the last five years ranging from $1.5 billion to $2.3 billion, depending on oil prices and production volumes. First-quarter earnings this year were $500 million.
The new cut in Alaska's oil severance tax, just one of the taxes Conoco pays, will increase the company's profits in Alaska. That will then increase its federal income tax liability, which Conoco pays at a nominal 35 percent rate, limiting what it has available to re-invest in Alaska.
While highlighting a number of other likely investments around the world as highly profitable priorities, under analyst questioning Conoco executives this week didn't rule out more Alaska investments.
Fox told Citi analyst Faisel Khan at the company's Global Energy and Utilities Conference that Alaska's tax cut "is going to help." Fox criticized Alaska's current oil tax regime, saying that while there were still a lot of development opportunities in Alaska, they weren't as profitable as others elsewhere.
The tax cut may change that, he said, leading Conoco to increase its capital spending in Alaska.
"We're in a process of evaluating how we want to adjust the capital program," he said. "I'd like to see us adjust the capital program so we can completely arrest the decline in production in Alaska, or even turn it around."
He didn't say how much that would cost, or whether it would meet the company's profitability requirements, even with the cuts.
Oil production in Alaska peaked at more than 2 million barrels a day in 1989 and has been declining steadily since then in what ConocoPhillips and other companies operating in Alaska have said was "normal field decline."
A slide Fox presented at the conference showed Alaska oil production increasing by 35,000 barrels per day by 2017, but the slide provided no comparison details.
When Fox and other executives were highlighting their top investment priorities, they listed unconventional petroleum plays in the Lower 48, including the Permian, Bakken and Eagle Ford shale deposits, along with Canada's tar sands, the United Kingdom and Norwegian North Sea, Malaysia and Australia. Especially exciting were new discoveries in the Gulf of Mexico, Fox said.
And those investments would all come after maintaining Conoco's high dividends, which were praised by investors at its annual meeting. Conoco chairman and chief executive Ryan Lance said he expected to grow the dividend consistently, which he called a key to the company's value to investors.
Fox told Khan that Alaska's oil tax cut was "definitely a move in the right direction," but offered no investment commitments.
Immediately after the passage of Senate Bill 21, Conoco officials announced a number of ongoing projects that they said would continue, linking the future of those projects to the tax cut.
Contact Pat Forgey at pat(at)alaskadispatch.com