AD Main Menu

ConocoPhillips: Oil tax cut could spur mothballed Alaska oil projects

Patti Epler

ConocoPhillips, one of Alaska's Big 3 North Slope oil producers, would pursue a number of projects that have been shelved or are technologically challenging if the Legislature cuts taxes on the oil industry, the company's chairman said Thursday.

Jim Mulva's speech to the Make Alaska Competitive breakfast meeting was the strongest suggestion yet that a major Alaska oil company would increase its investment in Alaska if the tax structure is changed.

"We will increase our drilling activity on the North Slope, driving for new innovative ways to increase production in existing fields," Mulva said. "We will proactively pursue more North Slope projects to move the needle on production while employing more Alaskans and creating new opportunities for local businesses."

Mulva also said the company would "aggressively pursue" more satellite projects beyond the CD-5 developmentĀ  that has been held up by the U.S. Army Corps of Engineeers. Mulva talked about other projects near the Alpine field as well as the West Sak heavy oil project at Kuparuk.

Mulva mentioned a gas processing facility at Prudhoe Bay that the oil companies have been considering for some time, a project that was put on hold when oil prices dropped a few years ago. BP's chief financial officer, Claire Fitzpatrick, mentioned the same project when she spoke to the Legislature in the past few weeks.

Alaska's business climate deteriorating for oil and gas?

But Mulva, like Fitzpatrick, couched the project in terms of something the companies would take another look at. He said it could amount to as much as $2 billion in new investment but did not specifically commit to launching it if the tax change passes.

The House has passed a measure, introduced by Gov. Sean Parnell, that would substantially reduce taxes on oil production while providing billions of dollars in new incentives for work in existing fields as well as new exploration.

Senate leaders, however, say they likely won't pass a tax cut package this year because they are waiting on studies, due in September, that will help them analyze what sort of tax change might be needed, if any.

Other opponents says the tax measure would cost the state $2 billion a year without any promises of new work, more jobs or more investment by the industry. Lawmakers have been pushing industry executives since January to make some sort of commitment to new exploration but industry executives have been reluctant to do so.

Parnell immediately hailed Mulva's comments as a "strong commitment to new investment if we pass legislation to reduce oil taxes."

But critics of the tax cut characterized Mulva's speech as more of the same non-committal remarks that vaguely promise to do something if the tax proposal passes.

"I question the timing," said Rep. David Guttenberg, a Fairbanks Democrat and member of the House Finance Committee who remains opposed to the governor's bill. "Where were they through the House hearings?"

He said committee members asked for information on specific projects but were told it was proprietary. "Now when it's to their advantage they're putting it on the table. It makes it hard for us not to be cynical," he said.

Guttenberg said the gas facility and other developments mentioned by Mulva have been in the works for years. "These projects clearly should be going forward now regardless of what we do," he said, adding that it is in the companies' best interests to keep the flow of oil through the pipeline as high as possible because it risks their production facilities if throughout falls too low.

Mulva told the breakfast gathering that North Slope oil production is being sustained by old investments. "Past investments, as good as they are for decades, can only fuel the state economy for just so long," he said.

"ConocoPhillips remains committed to advancing major projects and activities here if the Alaska business climate is improved," Mulva said.

He said the business climate has deteriorated in Alaska due to increased litigation, "numerous roadblocks" in obtaining federal permits and the state tax structure with its increasing surcharge as the price of oil climbs. Tax changes are needed as well as new incentives to spur discovery of new fields, he said.

He urged the state to continue to be a "true partner" and play its part in helping the industry get at the "huge resources" remaining on the Slope and offshore, developments that are more costly than past projects.

Mulva also defended industry's investments in maintenance of existing fields and facilities. Some lawmakers have questioned what companies have been using tax credits for. Legislators say they thought the credits were for new exploration, not to maintain aging infrastructure.

"Alaska is so fundamentally important to our company," Mulva said.

Contact Patti Epler at patti(at)alaskadispatch.com