The ADN’s March 13 headline, “Alaska’s next big North Slope oil project is mired in a feud with ConocoPhillips, and reportedly for sale,” highlights a situation that would not exist in this owner state if Alaska acted like a landlord and managed its oilfields the same way other owner states all over the world manage theirs.
Oil Search, an oil exploration company from Papua New Guinea, came to Alaska and, in good faith, teamed up with Spain’s oil company Repsol, as a minority partner, to produce oil from Alaska’s North Slope.
Together, in 2017, they bought out wildcatter Bill Armstrong’s Pikka discovery for $850 million and proceeded with drilling more wells and constructing gravel roads and pads.
Last December, in need of more capital, Oil Search sold a majority interest to Australia’s Santos Ltd.
With ink hardly even dry on the contract, Australia’s Santos Ltd. has come to grips with the hard realities of doing business on Alaska’s North Slope and has already put its stake up for sale.
Santos Ltd.’s problem has nothing to do with government taxes or regulations; their problem has to do with the lack of government regulation — a lack of the government regulation that the overwhelming majority of oil-producing owner states provide.
ConocoPhillips is demanding hundreds of millions of dollars in exchange for the right to cross roads it owns that connect the Pikka prospect to the North Slope’s Prudhoe Bay oil hub.
The message here: You can leave the oil in the ground or you can give ConocoPhillips all your profits for the next 30 years, or you can sell ConocoPhillips your interests today for a fraction of the $850 million paid to Armstrong and the hundreds of millions of dollars already spent on roads and pads.
Armstrong was familiar with tactics of the Big Three oil producers and very likely anticipated Conoco’s extortion as part of his incentive to sell.
When residential developers build subdivisions and sell lots to builders, they cannot sell a single lot until sewer lines, water lines, streets, streetlights, sidewalks and hydrants have all been completed to city or state engineering specifications and deeded over to the city or state. From that day forward, the road is government-owned and maintained, and free to all users.
The North Slope is a spiderweb of roads, collector lines and conditioning facilities, all leading to the trans-Alaska oil pipeline. Without reasonable economic access to the North Slope’s conditioning facilities and transportation systems, newcomers cannot do business.
Remember Anadarko Petroleum? Anadarko spent hundreds of millions of dollars fighting the Big Three for fair access to Alaska’s pipeline infrastructure. After years of frustration, Anadarko packed their bags and left.
Most of the world’s oil is produced in countries that provide access to all infrastructures necessary for production. Pipelines are transportation corridors, just like bike paths, sidewalks, highways and railroads.
Article 8 of Alaska’s constitution stipulates that Alaska’s lease to Conoco is “subject to reasonable concurrent uses.” I suspect the state Supreme Court would agree that charging more than a fair share of maintenance costs violates Article 8.
Article 18 of Alaska’s constitution guarantees the state’s authority to take Conoco’s road for purposes of public access and egress and their pipelines for purposes of guaranteeing companies like Anadarko or Santos Ltd. the ability to market and deliver the oil they find.
If we Alaskans want to see the North Slope flourish, if we want to see the pipeline filled to capacity again, we need to get over that Lower 48 mentality that public ownership of our resources and the infrastructure to deliver it to market is tantamount to communism. We need to take charge of our oilfields and develop a network of public rights-of-way that any newcomer can tap into.
Ray Metcalfe spent four years roughnecking and drilling in Alaska’s oil fields in the 1960s and ‘70s, and in the ‘70s and early ‘80s was in the Alaska Legislature, where in 1982 he was the co-author of the original investment strategy for the Permanent Fund. In 2005 and 2006, he was a whistleblower on VECO owner Bill Allen for paying bribes to six legislators in exchange for their votes to give Alaska’s oil away.
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.