OPINION: The Willow project is going forward. Let’s not squander it

Willow is really happening. Some aren’t happy about this, but many Alaskans will benefit from construction of this new oil field on the North Slope, the first major project in 22 years.

ConocoPhillips gave the go-ahead for its investment Dec. 22, after the Ninth Circuit Court of Appeals turned down legal challenges.

In the near term, Willow will be a big boost for the state’s oil services and support industries that were devastated after the 2016 oil price collapse and, in 2020, the pandemic.

The state’s petroleum workforce dropped to about half of what it was in 2015. It has just started to recover. Willow will help speed the recovery along with another new oilfield, Pikka, being developed by Santos, Ltd., an Australian company.

However, the greatest beneficiaries of Willow, financially, will be residents of North Slope Inupiat villages who will enjoy a huge influx of revenue and projects paid for by shared oil royalties and taxes from Willow.

The Inupiat are entitled to this windfall. They live there. It’s their land. Not in a legal sense, because Willow is on federal land in the National Petroleum Reserve-Alaska, or NPR-A, but in a kind of moral sense.

Congress granted a generous sharing of NPR-A oil royalties to these North Slope communities as a part of royalties share with the state of Alaska. The state has supported this.

From the Inupiat point of view, this is justified because Native people on the North Slope were shorted in the Alaska Native Claims Settlement Act of 1971. Other regions got far more land in 1971 than the Inupiat.

When Congress passed the National Petroleum Reserves Production Act in 1976, it included the special royalty-sharing provision to fund projects in North Slope communities affected by oil development. The amounts of money involved have been small, but will become more substantial.

Next year $40 million will be available for projects in five communities along with the North Slope Brough. These are Utqiavik, formerly Barrow; Wainwright; Nuiqsut; Atqasuk and Anaktuvuk Pass. Even though Anaktvuk is not within NPR-A, it is included because its major subsistence resource, caribou, are affected by activity in the petroleum reserve.

By 2033, $1.42 billion will be made available for the communities.

That’s the cumulative for the first three years of Willow royalty sharing from the time the field begins production in 2029 to 2033, according to estimates by the state Department of Revenue.

Interestingly, that’s more than the state’s cumulative 2029-2033 Willow tax and royalty share of $924.9 million and $418 million estimated in new tax revenue to the North Slope Borough for the same period along with ConocoPhillips’ earnings of $724 million for the same period.

These relationships change 10 years later for several reasons. The state’s cumulative income, from 2029, grows to $4.396 billion, mostly from taxes. Funds available for the communities reaches $2.88 billion cumulative.

North Slope Borough revenue, mostly from taxes, grows to $970 million, again cumulative from 2029. The federal share grows to $4.9 billion, again from 2029.

ConocoPhillips’ share, cumulative to 2043, meanwhile, grows to $4.9 billion, according to the revenue department estimate.

Here’s how this works:

The federal 1976 National Petroleum Reserves Production Act splits the royalty and other oil revenues with the state of Alaska 50-50. However, the federal law says the state’s share of the royalty is to go to projects in communities within the NPR-A affected by oil activity.

To be clear, the money shared with these communities is for municipal projects and programs, not direct payments to people. The projects are vetted by the state Division of Community and Regional Affairs to ensure they meet criteria for use of the funds. The funds must also be approved by the Legislature.

This is a lot of money, and I think a lot of good can come from it — but I can see problems ahead, too.

The rules governing use give a lot of latitude. Construction, operation and maintenance of essential public facilities by a municipality are allowed as are programs, for example, to protect fish and wildlife habitat, air and water quality, and social and cultural values.

This is pretty wide open. To date, the NPR-A shared revenues have mostly gone to support public services. But $40 million next year is a fair chunk of change. In five years, after Willow starts producing, the funds available will get to hundreds of millions of dollars per year.

This is enough that the Legislature might start looking at this, because there will be budget needs across the state. This could get messy.

If legislators, or a governor, start diverting the money, I could easily see a lawsuit because the 1976 federal NPR-A statute clearly sets out the distribution.

I can see this problem coming. The best solution is for the North Slope community leaders to get ahead of this with good planning and some carefully thought-out projects that meet the region’s needs.

An example might be regional infrastructure, such as a road network connecting these communities with the Dalton Highway, the all-year state highway connecting the North Slope oilfields with Interior Alaska.

Another idea: A deep-water Arctic port to support commercial shipping as well as national defense needs. That would certainly go over well in Congress.

Willow’s revenues are temporary. All oilfields decline over time, so let’s make good use of this windfall.

Tim Bradner is publisher of the Alaska Legislative Digest and Alaska Economic Report.

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