Time for Walker to change course

Governor needs to encourage, not discourage, new production for TAPS
  • (Photo courtesy of the Office of Gov. Bill Walker)

In the past few years, some of our state leaders, particularly when discussing the state's fiscal challenges, have been trying to convince the public that the days of oil pumping billions of dollars into the state's economy and coffers is over. This notion seems to have taken root in the current administration, as evidenced by the fact that Gov. Bill Walker has failed to discuss, as part of a broader fiscal plan, how we can get more oil running through the Trans-Alaska Pipeline System.

Walker's inability to develop policies that will result in additional production is odd given that more oil through TAPs means more funding for our schools, first responders and social service agencies. More oil would also bolster the Permanent Fund, provide good paying jobs, and pump billions of dollars into the Alaska economy.

Conversely, the continuing decline of oil production almost certainly guarantees that the state will never be able to balance its books, businesses will shutter, and economic opportunities will be lost.

But declining oil production, a contracting economy and a government unable to pay its bills do not have to be our fate.

Alaska's oil and gas endowment remains staggering. New discoveries on the North Slope, led largely by independent companies, demonstrate that oil production can continue to play a vital role in solving our fiscal crisis and reviving our economy. In particular, Caelus Energy, one of the handful of independents risking hundreds of millions of dollars in Alaska to find new oil, announced a tremendous discovery holding more than 2 billion to 3 billion barrels of recoverable oil on the North Slope, which would make this field the second largest discovery in Alaska's history. This follows the announcement that Armstrong Energy's Pikka Unit may hold over a billion barrels of recoverable oil and could be, according to the Department of Natural Resources, the third largest field ever discovered in Alaska.

These discoveries, coupled with the considerable amount of reserves in existing legacy fields and the new developments being pursued by ConocoPhillips, Hilcorp Energy and Brooks Range Petroleum Corporation could result in an additional 300,000 to 500,000 barrels of new oil production per day within the next five to 10 years.

Those kinds of numbers translate into billions of dollars for our state's economy, general fund, and Permanent Fund, thousands of jobs for Alaska workers, and a bright future for our children.

While the potential benefits associated with these new discoveries are huge, the challenges are daunting. To get the oil developed requires tens of billions of dollars in investment, thousands of trained Alaskans, permits from federal and state agencies, and fending off the inevitable litigation from environmental groups.

Perhaps the biggest challenge Alaska faces is attracting the capital required to develop these projects. Anyone who has ever tried to get projects developed in Alaska knows that investors are reluctant to spend money here because of high costs and long timelines and because projects become imperiled by permitting delays, litigation, and shifting state tax policies that make it impossible to determine the economics of a particular development.

Unfortunately, Walker is not rising to the challenge to develop credible policies that will ensure these new fields move into production in a timely manner.  Instead, Walker has been spending all of his time on a liquefied natural gas project and issuing statements about how he is going to convince the Obama administration to open up the Arctic National Wildlife Refuge. Although most Alaskans can agree that both of those would be a good thing, none of this will happen anytime soon, if ever.

Further, his erratic attempt over the past two years at tax reform has spooked investors who have frozen lines of credit to the companies exploring and developing our state's resources. This in turn has resulted in hundreds of millions of dollars that were poised to be invested in Alaska fleeing the state with lenders blackballing Alaska and, as they leave, swearing never to invest here again.

Most troubling of all, the Walker administration has proposed additional changes to the tax regime that would destroy the economics of many new oil developments and would force the new independents to delay investment decisions, or leave the state, because they cannot find investors willing to risk money in Alaska. Walker's proposed tax reforms, unfortunately, suggest an unfamiliarity with a fundamental law of economics: Companies are not going to be able to raise the capital necessary to pursue risky projects that our tax laws have made unprofitable.

This is not to say that we cannot change our tax laws — it is apparent that changes need to be made to create a more balanced system at all price levels. But we must be careful that any changes do not drive away investment and delay the development of projects that will rejuvenate the state's economy and help pay for essential services.

The bottom line is that in recent years independent companies have made significant oil discoveries on the North Slope that could keep oil flowing into TAPS for years to come. The development of these fields will also ensure that the state has a vibrant economy, a competitive North Slope, and the money to help close the deficit. Walker's actions, however, indicate an indifference to whether these discoveries move into development in a timely fashion. Worse, he has embraced tax policies that kill the economics of these projects and that will result in returning control of the North Slope to the three legacy producers.

Moving forward, the choices facing Walker are simple. He can either continue on the present unproductive course of discouraging investment and keeping our resources buried in the ground or he can advocate for tax policies that create a positive investment climate and promote responsible development of our natural resources. Walker's legacy will largely be determined by which option he chooses.

Jonathan Katchen works at a law firm in Anchorage that represents independent oil and gas companies operating in Alaska.

11/02/2016 - 1:02pm