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Alaska oil production to continue decline, company officials testify

Dermot Cole

FAIRBANKS — While the long-running debate in Alaska over oil taxes enters a new stage Tuesday with the first statewide vote to repeal or endorse a tax system enacted by the Alaska Legislature, the election results will hardly be the final word.

The oil production decline, which began a quarter-century ago, will remain a key focus, just as it had been under the three previous oil tax systems in Alaska.

Some involved in the campaign against repeal of the SB 21 oil tax cut have made much of assertions that the decline in production has slowed or almost stopped, but executives of ConocoPhillips and ExxonMobil Corp. who deal with tariffs for the trans-Alaska oil pipeline offered contradictory forecasts within the past few weeks in testimony to the state.

"I have no reason to believe that the annual decline in TAPS (Trans-Alaska Pipeline System) volumes will reverse in 2014 or the foreseeable future," ConocoPhillips commercial supervisor Josepth Falcone said Aug. 6 in testimony presented to the Regulatory Commission of Alaska. He is responsible for the business and economic analysis of the pipeline branch of the firm.

Jeffrey Ray, an executive of ExxonMobil, made a similar statement in a July 31 document filed with the RCA.

"Do you expect that the decline in TAPS throughput will reverse in the foreseeable future?" Ray was asked as part of his testimony.

“No, I have no reason to believe that this trend will reverse itself in the foreseeable future,” said Ray, who is TAPS coordinator in the business development and joint interest department.

Both statements were part of proceedings before the state agency to set transportation charges for shipping crude in the 800-mile-long trans-Alaska pipeline.

In addition, both men said that the volume of oil shipped in the pipeline in 2013 is not an accurate reflection of future production.

“In my opinion,” Ray said, “the historical test-year volume exceeds the representative level of future throughput by at least 5.3 percent, an amount which is consistent with the historical annual percentage decline in TAPS throughput over the past five years.”

Andrea Urbanek, a ConocoPhillips spokeswoman, said in an email the pipeline branch of her company is separate from the exploration and production division. Urbanek said the pipeline company uses the Alaska Department of Revenue's forecasts and historical decline analysis when it makes predictions about oil flow for tariff calculations.

"The purpose of the forecast, which is based on known and measurable inputs, is to create just and reasonable shipping rates for companies that ship oil on TAPS," Urbanek said in an email. To the extent that future forecasts from the state revenue department and the historical record support a "different decline trend," the company will propose tariff adjustments, she said.

"While there is good reason to believe that SB 21 will lead to production increases that will offset historical decline, it will take time for the effects of new production to be reflected in the tariff. Hopefully the upcoming referendum will not undo the positive benefits of SB 21," Urbanek said.

The revenue department forecast for fiscal 2015 anticipates oil production will drop to 507,000 barrels a day, with additional declines for the next decade. The revenue department has said new production estimates in the fall may change that situation, as more information is gathered on future plans, but the numbers remain uncertain.

State figures showed that oil production in fiscal 2014 dropped by 0.13 percent from fiscal 2013. But calendar year numbers show a decline of about 3.5 percent compared to the same period a year ago.