The head of BP Exploration said the company plans to boost capital spending in Alaska to $1.2 billion in 2014, up from $900 million the year before, a result of the new oil-production tax cut.
The additional $300 million budgeted will essentially be divided into two parts, with about half of the money buying new wells and additional well-enhancement work, efforts that will increase oil flow from existing fields in the short-term, said Janet Weiss, BP Exploration president, on Monday.
The rest of the increased spending will consist of upfront investment in long-term projects, primarily BP’s long-delayed Liberty field in the Beaufort Sea, as well as the Alaska LNG mega-project and the Point Thomson gas field, where BP is a partner with Exxon Mobil Corp. and ConocoPhillips, she said.
“Our plan is to reinvest 90 cents on every dollar we make back into Alaska,” she said. “That’s a 60 percent increase over the levels” seen before taxes were cut, she said.
Before the tax cut passed last spring, BP added two new rigs to its North Slope operations, increasing the company’s rig count to seven. The additional wells and well-enhancement work that began in 2013 have already begun to “soften” the annual oil production decline of 6 percent seen on the North Slope for years, Weiss said.
She said the decline has been reduced by two percentage points at fields that BP operates, including greater Prudhoe Bay at the top of Alaska, for decades the nation’s largest oil field. She declined to say how many new barrels of oil BP is producing.
“Boy, I tell you, with the additional well work we’re doing and with the additional wells drilled we’re making a dent in decline even now,” she said.
Hopefully, oil production in Alaska will one day “incline” as it has in several other states, she said in her speech at the Anchorage Chamber of Commerce, growing beyond current production of about 550,000 barrels of oil per day.
Rep. Les Gara, D-Anchorage, said the additional spending would have happened without a cut.
“No company is going to leave valuable oil in the largest field in North America in the ground,” he said, adding that capital spending on the North Slope had increased yearly before the tax cut.
He added that the “oil giveaway” launched by Gov. Sean Parnell is worth $12 billion in 10 years to Exxon Mobil, BP and ConocoPhillips. But with the cut in place, the administration is predicting less oil than it was under the old tax law, he said.
Under the new law, production is estimated to fall to 285,000 barrels a day in 10 years, he said. That’s a new number the administration didn’t report last year, he said.
“Senate Bill 21 was a sales pitch to poverty,” he said.
Members of the Parnell administration have said they’re producing more conservative oil production forecasts than the overinflated estimates of the past, in hopes that true production will ultimately be higher than expected.
Voters in August will have the chance to reject the tax cut. In the battle to win the hearts and minds of voters, BP and its major partners in Alaska -- Exxon Mobil and ConocoPhillips -- have been quick to announce new projects they say resulted from the cut.
ConocoPhillips announced in December it would increase its capital spending budget in Alaska this year, by more than 50 percent to $1.7 billion. Exxon Mobil is also spending more through its efforts to develop the long-fallow Point Thompson field, the result of an out-of-court agreement between the state and the oil giant that forced new activity there.
If voters reject the tax cut, BP and partners Exxon Mobil and ConocoPhillips will have to go back to the drawing board to determine what projects can continue moving forward despite the higher taxes, Weiss said.
A lack of agreement between all three companies could put the brakes on projects, she said.
“The Senate Bill 21 tax cut “enabled agreement by all three for a more aggressive and progressive development plan. So just one has to say, ‘No,’ and something comes down,” she said.
With the buy-in of its partners, BP is moving forward on a 3-D seismic survey of the northern edge of Prudhoe Bay, on shore and near the shore, covering 190 square miles, she said. The area could hold possibly 55 million barrels of new oil and lead to 30 wells, she said.
She also said BP has launched the first development drilling program at Milne Point in five years. Seven coil tubing drill wells are planned for 2014.
The tax cut has increased the possibility of developing technically challenging projects too, including at Sag River, where BP is moving ahead with a 15-well program for 2015 and 2016, she said.
The cut has also made the long-sought $45 billion to $65 billion-plus LNG project more likely, because a healthy oil industry will be necessary to make that project happen, she said.
An audience member at the Chamber speech said that despite the tax cut, other oil basins around the world still offer better fiscal terms for oil producers. He asked Weiss whether taxes should be cut further.
“There might be more to do in the future, but let us continue with the momentum we’ve built,” she said.
Weiss also said BP is working on two other projects, both of which were previously announced:
• The addition of two new rigs at Prudhoe Bay, with one added in 2015 and another in 2016, resulting in 30 to 40 new wells and expenditures of about $200 million a year for five years.
• Assessing development at the West End of Prudhoe Bay, a $3.2 billion program that could result in the first new well pad built at Prudhoe Bay in a decade. Weiss said that if approved and developed, the project could add an additional 40,000 barrels of oil a day to the pipeline.
Contact Alex Demarban at alex(at)alaskadispatch.com