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Alaska tax cut boosts value of oil company's Umiat field by $1 billion

The Alaska oil tax cut will increase the value of the Umiat oil field to Linc Energy by about $1 billion, the company said Friday, though it did not predict any increase in production over what was expected under the old ACES tax system.

Over the next year, in the run-up to the statewide vote on repealing the tax cut, there will be no end of alleged cause-and-effect announcements from the decision to increase oil company profits in hopes of generating more oil production.

After the bill won approval, Gov. Sean Parnell began calling it the "More Alaska Production Act," but it would be more accurate to call it the "More Alaska Profits Act."

As the arguments over repeal take shape, it will be important for reporters in Alaska to try to unravel as many details as possible and avoid the oversimplified claims that have dominated this debate for years.

To that end, the announcement from Linc Energy, an Australian company that bought the Umiat field two years ago, is instructive.

The company has not changed its estimate of the "probable" reserves of 155 million barrels at Umiat or its goal of reaching a peak production of 50,000 barrels per day because of the tax cut.

But what has changed is the value of Umiat to Linc Energy.

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The company said Friday the net present value of the probable reserves has been increased to $2.5 billion, up from $1.5 billion a year ago.

Net present value is a financial tool used to determine how much an investment is worth after taking expectations of inflation and future costs into account. The idea is that a dollar today is worth more than a dollar tomorrow.

Linc hired the Ryder Scott Co., a Denver firm, to produce an independent estimate of its probable reserves in 2012. Ryder Scott released an updated report Wednesday with a higher value, but no change in production.

"There was no change in cumulative production and no new technical evaluation work done between April, 2012 and September, 2013," the Ryder Scott Co. said.

The Linc investment at Umiat took place in the summer of 2011.

Gov. Sean Parnell praised the move at the time, saying, "Production of up to 50,000 barrels of oil a day will benefit all Alaskans and the communities in the region by helping sustain the long-term operation" of the trans-Alaska pipeline.

And Peter Bond, the chief executive officer of Linc Energy, said the company was "greatly assisted by a number of generous state of Alaska incentives" under what was then the ACES tax regime.

"These incentives provide a natural opportunity to create a "win-win" situation for the State of Alaska, local communities and companies like Linc Energy, who are keen to invest in new resource projects in the region," Bond said in a June 16, 2011 press release.

A year ago the company released the Ryder Scott Co. estimate that the "probable" reserves at Umiat total 154 million barrels with a net present value of $1.5 billion.

Bond, the chief executive who said the ACES system was a "win-win," used the exact same term in a press release Friday about Senate Bill 21 and the $1 billion increase.

"We see this legislation as a win-win for the citizens of Alaska and for Linc Energy," Bond said in his statement.

As before, the peak production goal is 50,000 barrels per day.

A $1 billion increase is a win for Linc Energy. With the production goal unchanged, it's premature to call this a win for the state.

Contact Dermot Cole at dermot(at)alaskadispatch.com. Follow him on Twitter @DermotMCole

Dermot Cole

Former ADN columnist Dermot Cole is a longtime reporter, editor and author.

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