There is a rumor that oil companies will walk away if they have to pay Alaska a fair amount to extract Alaska’s oil. There are several good reasons why the rumor is false. The most important reason is that oil companies make more money here, in Alaska, than other places in the world or in the Lower 48. This is proven by looking at annual operating statements from ConocoPhillips. When there are attractive profits, the companies will not walk away. Alaska’s legacy fields have attractive profits.
Alaska also has an advantage in that our oil, called Alaska North Slope (ANS), is higher priced than Texas’ West Texas Intermediate (WTI) and even Brent (North Sea) pricing. Recently, ANS pricing was more than $3 per barrel higher than WTI and about $1 higher per barrel than Brent.
Not only is ANS pricing good for Alaska oil, the vast majority of the infrastructure on our North Slope is paid for (sunk costs). Billions and billions in sunk costs exist here which can, with reasonable maintenance, be used for decades to come. This means Alaska’s legacy fields can continue to produce oil at a low price and still make profits.
Plus, expansion by oil companies to the west, toward and into NPR-A, will use this paid-for infrastructure, including the trans-Alaska oil pipeline system. A rational oil company will not walk away.
The lack of the rumor’s truthfulness is also shown by application of legal principles. If an oil company walks away, it would lose the value of its sunk costs and forfeit its leases back to Alaska, which issued the lease. Even if the oil company tries a slow walk away, it would violate the leases’ continuing duty to produce, while profitable. Both strategies are deficient legal options.
The oil companies will not walk away from attractive profits from Alaska’s high-volume legacy fields when they make more money in Alaska, the oil is higher priced and the infrastructure is paid for. But, let’s assume an oil company were to act irrationally and/or breach the lease: Where do they go? The combination of royalty and production revenue on Texas land is about 30% of market value. The 30% of market value is also true in North Dakota. There is no risk-free place with major resources for a company to go.
There are few places on Earth with major oil resources, and most of the other places are not free countries — think Russia, Iraq, Kuwait and Saudi Arabia, etc. There is nowhere oil companies can go which does not impose great demands and risks, including nationalization. When Alaska receives its fair share, it will not expose Alaska to the rumored walk-away risk.
Alaska is attractive under the Fair Share Act.
Importantly, no oil company can ever take Alaska’s plentiful resources with them. Alaska’s owned oil basins, reservoirs, and fields will always stay in Alaska, as they are the earth itself. This is why Alaska’s legacy fields are Alaska’s golden goose. Alaska owns the North Slope resources and no oil company is our golden goose. Our “golden goose” resources will forever stay in Alaska.
Do not be misled by idle talk that the average cost for wells is more expensive in Alaska. Alaska’s wells are capable of producing oil in much higher volumes. Many Lower 48 wells — numbered in the hundreds of thousands — are called stripper wells and produce about five barrels per day, up to 10-15 barrels per day. Stripper wells are cheaper to drill when compared to the bigger and better wells needed in Alaska to handle the higher volume of oil produced here. But, the greater volume, from the bigger and better Alaskan wells, produces oil at a lower cost per barrel. And gas injection pumps, used as an enhanced oil recovery method, are more efficient and effective at Alaskan winter temperatures. So be cautious of idle talk on well drilling cost which tries to convince you that fair revenue to Alaska will cause a walk away.
Oil’s walk-away “rumor” is an attempt to wrongly influence your vote using fearmongering and misinformation; reject it.
Alaska’s oil resources are world class, with attractive profits. ANS sells higher. Our legacy fields and infrastructures, including high volume oil wells, are paid for. Oil companies signed a lease so they must produce oil or forfeit their lease. There is nowhere on Earth to go to get high-volume oil which does not impose great demands and risks, including 30% of market value combined royalty and production cost. Alaska’s golden goose legacy fields — our geology — will always stay in Alaska.
Oil companies will not walk away when Alaska gets its fair share of the revenue from our legacy fields. Vote yes on 1; vote for Alaska’s fair share.
Joe Paskvan is a lifelong Alaskan and retired attorney. He served in the Alaska State Senate from 2008 to 2012, including a year as co-chair of the Senate Resources committee. He lives in Fairbanks.
The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to firstname.lastname@example.org or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.