Producers let Walker save face in pulling gas tax

Starting with Shell’s announcement Sept. 28 it would be suspending its Arctic exploration program indefinitely, it’s been a rough couple months for resource development in Alaska by any standard.

Having regulated Shell’s effort into uneconomic status, the Interior Department then canceled Arctic Outer Continental Shelf lease sales for 2016 and 2017 and refused to stop the clock on Shell’s leases in the Chukchi and Beaufort seas despite the fact that Shell lost a full year in 2010 because of a federal drilling moratorium following the Deepwater Horizon disaster.

In between, Repsol and Armstrong announced they were deferring planned work for this winter at their Colville Delta prospect where they’ve spent the past four years proving out a substantial discovery.

The result is that some 500 contract employees won’t be working there this year.

Unlike the situation with Shell — which has no silver lining and ripple effects now include the suspension of work studying a deepwater port at Nome — there was at least some positive in the statement from Repsol and Armstrong.

The companies announced that when developed, the Colville Delta prospect could produce 120,000 barrels per day. That would be a much-needed, huge boost to throughput in the Trans-Alaska Pipeline System although current prices and the prospect of years of permitting makes the timing of production impossible to guess.

Just look at ConocoPhillips’ CD-5 project — a notable bright spot as oil is now flowing for the first time from the National Petroleum Reserve-Alaska. It took 12 years between the environmental impact statement and the first oil at CD-5, a testament to federal obstacles and the anti-development cabal of NGOs that are often indistinguishable.

ConocoPhillips did receive a key permit for its Greater Moose’s Tooth-1 project, although whether its board of directors will sanction development in the current climate of oil layoffs and capital expenditure pullback is also an open question.

Amid federal roadblocks in the OCS and the natural price cycle that the state cannot control, Gov. Bill Walker decided to monkey around further with the Alaska LNG Project by calling the Legislature into a special session with instructions to consider his threat of a gas reserves tax against producers who decide against participating.

Setting himself up for another fight with the Legislature he surely knew he was destined to lose, the producers threw Walker a lifeline for  a way out of his ill-conceived, undefined and probably legally indefensible idea.

ConocoPhillips and BP sent Walker one-page letters stating they would provide the gas they own at the Prudhoe Bay and Point Thomson fields even if they choose not to participate in AK LNG.

Walker touted the letters as “written assurances” that gas would go to the project as he abruptly removed the gas reserves tax from the special session (although it has to be questioned whether his office even managed to draft a bill to introduce given the seat-of-his-pants way the governor first pitched the idea on Sept. 24).

The letters from ConocoPhillips and BP, of course, are hardly binding as they include the caveat that gas would be provided on a “mutually agreeable” and “commercially reasonable” terms. The ConocoPhillips letter also stipulates that any such arrangement would be “subject to management approval.”

So once again, Walker caused a huge fuss over nothing, much the way he announced he would pursue a competing project to AK LNG this past March until the Legislature stopped him by taking his money away from the Alaska Gasline Development Corp.

While constantly raising fears of a producer pullout from AK LNG, it’s hard to see how Walker can look at the North Slope today and believe that ConocoPhillips, BP and ExxonMobil are not committed to Alaska.

In the past month, CD-5 and Drillsite 2S in the Kuparuk field have begun producing for ConocoPhillips and will add some 24,000 barrels of new oil to TAPS in this fiscal year, representing billions of investment.

To the east at Point Thomson, ExxonMobil and BP have spent some $4 billion with a “B” actually constructing the first phase of AK LNG. Point Thomson will supply 25 percent of the gas to the project, but for now will supply 10,000 barrels per day of natural gas liquids to TAPS starting the first quarter of next year.

It is also the big three producers who have been buying up land in Nikiski for the future site of the LNG processing plant and applying for and receiving the necessary export permits, triggering the scoping process for the environmental impact statement.

The producers’ AK LNG spending and permitting in addition to the billions of dollars invested resulting in 34,000 new barrels of liquids for TAPS in this fiscal year calls to mind the truism that money talks and you-know-what walks.

The producers’ money is talking, and it’s time for the governor to start listening.

11/24/2016 - 3:26pm