State picks up about half of Point Thomson development costs, Walker administration estimates

With more than 800 people employed at Point Thomson on Alaska's North Slope, ExxonMobil and its partners are on track to begin producing petroleum by late 2016 -- with the state picking up about half the $4 billion development cost through tax credits and reduced oil taxes, according to recent estimates from the Walker administration.

ExxonMobil resumed drilling this winter at the site at the end of an ice road 50 miles from Deadhorse. The company said its goal remains to start producing about 10,000 barrels a day of a liquid condensate that resembles kerosene by late 2016, to be shipped west in a 22-mile pipeline to the network of North Slope production facilities and then to the trans-Alaska pipeline.

ExxonMobil said in March that it and the other "working interest" owners had spent more than $2.6 billion on the project by the end of 2014, about 70 percent of that in Alaska. With the investment, the companies qualified for state incentives that have received relatively limited attention because the tax data has been deemed confidential under state law.

The state is not among the "working interest" owners, but it is a major indirect investor through tax credits and reduced oil taxes on other North Slope operations. Much of this subsidy took place under the former tax system, Alaska's Clear and Equitable Share or ACES, through procedures allowing the companies to claim credits and reduce their overall Alaska tax burden because of what they spent at Point Thomson.

While the effective subsidy for Point Thomson under ACES was about 75 percent, it is about 35 percent under the 2013 replacement for ACES, SB 21, the Walker administration says.

"Of the $2.6 billion we believe owners have spent to date on Point Thomson, we estimate the state has effectively paid for $1.5 billion through credits and reductions in owners' tax liabilities elsewhere on the North Slope," a summary prepared by the governor's office says. With about $1.5 billion yet to be spent, the "state's effective subsidy" is likely to climb by more than $525 million. The total would be about 50 percent of the $4 billion Point Thompson development.

The report says the cost estimate is not based on a review of confidential tax information, but on published reports and rough calculations of what taxes would be with and without Point Thomson spending.


The switch from ACES to SB 21 brought about a lower subsidy because of the elimination of one major credit program and the end of the progressive tax rate that increased with prices.

"Because the mechanism is simpler under SB 21 and is independent of oil price, we can with reasonable certainty predict the subsidy going forward will be a straight 35 percent," the review said.

The initial small-scale development project, which includes a 12-inch-diameter pipeline to carry the condensate to Prudhoe Bay, came about after decades of delay. It was prompted in large measure by pressure from the state and a legal settlement with the Parnell administration that outlined a series of steps and performance options that would allow Exxon and the other owners to keep the leases.

The big payoff from Point Thomson would take place if and when there is a large-scale natural gas pipeline, as the field contains about 25 percent of proven North Slope gas reserves. This year ExxonMobil said it hopes to complete the installation of processing modules from Korea.

"The Point Thomson field is a vital part of unlocking Alaska's North Slope gas resources," Jim Flood, an Arctic vice president for ExxonMobil, said in a statement last month about the resumption of drilling. "The initial production will give us invaluable insight into the potential development of the reservoir and help provide Alaskans with economic benefits."

The Point Thomson gas field has much higher pressure than other North Slope reservoirs. The first production plan is to have two injection wells and a production well cycling up to 200 million cubic feet of natural gas per day.

An ExxonMobil statement said that "future development will depend on a range of factors such as business considerations, investment climate and the fiscal and regulatory environment."

Dermot Cole

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