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BP to add rigs, wells on Alaska's North Slope after oil-tax cut

BP has announced it will spend $1 billion and add two drill rigs to boost production from its Prudhoe Bay field over the next five years, becoming the latest oil company saying it will increase work in response to the embattled tax cut recently won by Alaska Gov. Sean Parnell.

Extra drilling and well work, along with facility restorations, could yield 200 new jobs and will boost the British oil giant's rig count to nine, the highest figure in years, according to a BP spokeswoman and a statement issued Monday by the company.

The oil-tax break was approved this spring by the new, more Republican Legislature in Parnell's fourth attempt.

Critics have dismissed similar announcements of new oil work by Repsol and ConocoPhillips as veiled attempts to rebuff a grassroots effort to repeal the law, claiming the work would have happened with or without the tax break.

The cut, set to take effect Jan. 1, will be worth billions in the coming years to BP, Conoco Phillips and ExxonMobil, the state's major oil producers.

'We can reduce decline faster'

Signature-gatherers in the repeal effort -- Vote Yes! Repeal the Giveaway -- complain the tax break is a handout that doesn't guarantee new oil production. They are under a tight deadline to gather 30,000 signatures needed to repeal the legislation. Promises of new oil-patch work tied to the legislation could endanger their efforts. 

Janet Weiss, head of BP's Alaska operations, acknowledged that some of the work would have been done anyway. The tax cut allows work to be accelerated, she said.

“It’s not that they wouldn’t have gone forward eventually, but this way we can reduce decline faster,” Weiss said in a Houston Chronicle report.

Weiss was referring to an additional $3 billion worth of new development projects that BP and its Prudhoe Bay partners, Conoco and Exxon, will evaluate in the new, western area of Prudhoe Bay where drilling hasn't taken place, said BP spokeswoman Dawn Patience. Such projects could continue for nearly 10 years, further increasing the state’s oil production and providing additional jobs, the statement said.

Weiss, speaking to the Associated Press in another news report, said it is possible economics could change, leading to the suspension of the proposed projects. 

Could mean 110 new wells

Patience said the initial assessments could take two to three years, and would include engineering work and securing regulatory approvals. The projects could include the drilling of 110 new wells, along with "expansion and de-bottlenecking of existing Prudhoe Bay facilities, constructing a new drilling pad, and expansions of existing pads," the statement said.

If the prospects in western Prudhoe Bay pencil out, BP will again seek buy-in from its partners, Patience said.   

For now, the effort in western Prudhoe Bay is moving forward. BP, the Prudhoe Bay operator, recently secured support for the initial work from its partner companies.

The tax cut was pivotal in that decision, Patience said. That's because decisions are made based on the size of a potential discovery, the technical challenges of exploration and extraction, and the economics.

"The biggest factor in the economics was the Alaska tax system, so changing the tax system definitely helped us get all the working owners behind us in these projects," Patience said.  

As for the increased well work in the established Prudhoe Bay fields, it could begin as early as late 2013, to improve "the performance of existing wells" at Prudhoe Bay and Milne Point fields, BP's statement said. The first rig is expected on site by 2015. The second would arrive in 2016.

BP operated 11 rigs in 2006, before passage of the existing tax structure Parnell sought to eliminate -- known as ACES. The rig count fell to a record low of five in 2012, Patience said.

Patience said it was too early to know how much extra oil the increased investment would lead to. Every barrel counts in Alaska, where oil field profits fund most state services and production is dwindling as monstrous fields like Prudhoe Bay transition to their final years.

Weiss, a longtime Alaskan, was named Alaska regional president of BP in January, a position that has usually gone to Outsiders.  

“Now that an improved tax structure is in place, oil and gas projects can once again move forward, keeping Alaska competitive in the midst of America’s recent energy renaissance," Weiss said in the release. 

'Like giving some $1,000 for $10 back'

Sen. Bill Wielechowski, an Anchorage Democrat, called the news "hardly surprising" given that the North Slope's massive legacy fields are among the most profitable fields in the world, even under the existing tax structure.

"Parnell gave them massive tax breaks to do what their leases already required them to do, and for which they were already going to make massive profits," Wielechowski said.

Rep. Les Gara, an Anchorage Democrat, called the announcement more "spin fibs" that Alaskans have come to expect from the Parnell administration and industry.  "The governor and the oil companies are on a constant course of PR spin," Gara said.

As BP conceded in the Houston Chronicle story, the investment would have happened anyway because the Big Three oil producers have already massively invested in Prudhoe Bay and the legacy fields. They won't leave it untapped.  

Gara said if the tax break leads to boosted production, it won't replace the billions of dollars Alaska is giving away. "It's like giving someone $1,000 and asking for $10 back," Gara said.

Estimates put the cost of the tax cut between $720 million to more than $1 billion, a range consisting of guesswork tied to unpredictable factors, such as the cost of oil. 

In other examples of newly promised production tied to the tax break, Spanish oil major Repsol said days after passage that it was essential in leading to "three oil discoveries."

"Recent tax reform passed in Alaska was a critical factor in ensuring the development of this project," said Repsol's release, without providing estimated oil production from those wells.

The tax break isn't set to take effect until Jan. 1, raising questions about the break helped Repsol's project.

ConocoPhillips and Brooks Range Petroleum also claimed the tax break will lead to new investments. Critics said that work was already planned or would have happened anyway.

Contact Alex DeMarban at alex(at)alaskadispatch.com

(An earlier version of this article incorrectly noted that if BP increases its Prudhoe Bay rigs to nine, it will result in the highest rig count in nine years. It will actually be the highest count in about six years, according to the Houston Chronicle.)