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Without tax break, BP abandons Alaska heavy-oil project

Alex DeMarban

So far, the debate over a state oil-tax cut hasn't gone the way Alaska's three major oil producers wanted, so one of them has announced it's scaling back pioneering-but-costly North Slope exploration. That's the takeaway from a Journal of Commerce article that says BP has announced plans to reduce investment in technically challenging efforts in Alaska's Arctic oil and gas fields, including shutting down an experimental heavy-oil production project on the North Slope.

BP Alaska President John Minge blamed the Alaska Legislature's unwillingness to reduce its oil-production taxes to encourage long-term development, according to the article.

“We have realized there is a certain mismatch in our strategy and it is time to take corrective steps. We have been too heavily focused on developing challenged resources,” Minge is quoted as saying during a Nov. 14 presentation to the Resource Development Council.

BP will shift its focus toward more conventional, short-term projects, including making production facilities more efficient, Minge said.

BP, the Prudhoe Bay operator, early last year provided Alaska Dispatch with a specific list of projects it would pursue if the state reduced oil taxes. Gov. Sean Parnell  had proposed cutting the production taxes as much as $2 billion a year, depending on the price of oil. The House approved of the cut but the bipartisan majority in the Senate at the time did not. However, several members of that bipartisan group were not re-elected, suggesting that Parnell’s plan may have better prospects when the Legislature convenes in January.  

One project BP had promised to work on was developing viscous and heavy oil, using an auguring technology that brings up oil and sand. BP has punched three heavy oil wells into the Ugnu oil deposit, which the Journal article calls a "massive undeveloped resource with about 23 billion barrels of oil." The nonconventional wells produced several hundred barrels a day, the article says. All together, nearly 600,000 barrels of oil a day flow south through the trans-Alaska pipeline. 

According to the article, the wells will not be shut down immediately, but they will not be maintained and will close as operating problems arise.

Also on the chopping block will be other challenging efforts, including drilling production wells in the Sag River formation that overlays Prudhoe Bay, another project BP had promised to develop if its state oil taxes were cut.

Time will tell if BP will return to those efforts, given that the state legislature is dominated by Republicans.