AJOC EDITORIAL: Wielechowski keeps digging


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Democrat Sen. Bill Wielechowski has a response to my editorial from last issue.

It’s at this link, so go ahead and read it first.

I’ll wait.

 

OK, you’re back.

A week after his misleading characterization of the ConocoPhillips second quarter earnings report was exposed here, he wastes no time repeating his faulty grip on the facts in the very first sentence.

Sen. Wielechowski alleges that an “entire column” was spent “trying to dispute that Alaska is a very profitable place to do business for the oil industry.”

As usual, Wielechowski has it wrong. It was never disputed that Alaska is profitable for the oil industry.

Nor was it disputed that ConocoPhillips makes $34 per barrel in Alaska.

What was disputed was Wielechowski’s declaration that Alaska is a more profitable place to produce oil than the Lower 48.

He conveniently fails to acknowledge in his response that it was pointed out ConocoPhillips makes more than $40 per barrel in the Lower 48.

North Slope oil sells for $109 per barrel and Lower 48 oil sells for $94 per barrel, so that means ConocoPhillips has a 31.1 percent margin in Alaska and a 42.5 percent margin or better in the Lower 48.

The bottom line is ConocoPhillips makes more per barrel of oil in the Lower 48 than it does in Alaska even at a lower price.

On oil.

I emphasize “on oil” because Wielechowski cannot credibly cite references such as chairing the Resources Committee or reading a lot of financial reports while continuing to wrongly conflate barrels of oil with barrels of oil equivalent.

I won’t use the space again to explain why this is all kinds of wrong, but I have to flag Wielechowski’s assertion regarding the Lower 48 that ConocoPhillips “made the poor choice to invest in a place where oil sells for a lower price and where they find more gas than oil.”

He then wonders, if he were a shareholder, why ConocoPhillips “keeps investing in a place where oil sells for much less and where they keeping finding less profitable natural gas while looking for oil, such that it drags down their total profits by so much.”

For someone who says he admires what the oil industry does, he sure has a low opinion of how ConocoPhillips grosses more than $2.5 billion and spends more than $1.3 billion per quarter in the Lower 48.

His implication is that the company is spending billions per year drilling holes without knowing whether gas or oil is going to come out.

That $1.3 billion figure cited here last week — the spending Wielechowski claims is dragging down profits — is for capital expenditures. Those are different from operating expenses.

Capital expenditures are investments in increased future capacity as compared to operating expenses that sustain existing production.

How does Wielechowski imagine that CP is spending this much money per quarter on cap-ex?

Where does he think the “skyrocketing production” in the future is going to come from?

Unlike the federal government, ConocoPhillips doesn’t have a printing press.

It seems strange to have to state the obvious to someone who says he has a degree in finance, but the company is reinvesting its revenue.

Reinvesting revenue reduces taxable income. Reducing taxable income reduces net income, or profits.

In Wielechowski’s bizarro financial world, though, a company that has $1.3 billion in revenue to reinvest every quarter isn’t profitable.

In the real world, that is how companies grow. It’s how real people have jobs.

It is certainly a strange take for someone who claims he wants ConocoPhillips to reinvest its revenue in Alaska.

By his logic, it would be a “poor choice” for ConocoPhillips to invest in an Alaska natural gas pipeline.

Speaking of cap-ex and future production, Wielechowski claims I didn’t address his statement about ConocoPhillips telling investors production was going to keep declining in Alaska.

I actually quoted that paragraph, like his entire Aug. 1 press release, word for word. He can go back and read it.

Maybe he was mad and didn’t finish the entire column, but his response doesn’t address the fact that ConocoPhillips capital expenditures have increased 47.7 percent in Alaska so far this year, from $545 million in 2013 to $805 million in 2014.

He does however claim that the 10-year production forecast accounts for “all of the supposed new production from SB 21.”

I’ve avoided calling anything else of Wielechowski’s a lie, but this statement is, and he knows it.

The note accompanying the forecast explicitly states that a full year of SB 21 won’t be accounted for until December.

There is almost nothing in the state’s April forecast that includes production from SB 21, as it had been in effect for only four months.

Meanwhile, as Wielechowski points to a hypothetical number 10 years away, we have an actual number this year that shows the production decline was 0 for the first time in more than a decade.

Talk about sticking your head in the sand.

Andrew Jensen can be reached at andrew.jensen@alaskajournal.com.

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