What’s wrong with the North Slope, a world-class oil resource that has experienced flat investment rates at a time of soaring oil prices?
The State changes fiscal course too often and is micromanaging the industry and that creates instability, the Legislature’s tax consultants explained.
Janak Mayer, manager of PFC Energy’s upstream production, told the Special Senate Committee on TAPS Throughput that Alaska, like Alberta, is characterized as having high sovereign risk because it frequently changes its oil and gas fiscal terms. The State also is seen as pulling levers in the system to attempt to manage at the micro level.
Mayer cited the tax credit for the first jack-up rig in Cook Inlet as a good example of pulling micro levers in the fiscal system.
Companies want stability when making large capital investments with long payout periods, Mayer said, using Pioneer Natural Resources’ experience with the Oooguruk field as a good example of lack of fiscal stability.
The discovery and investment decision were made under ELF, Mayer said. That is the State’s former gross production tax, including an economic limit factor, hence the acronym ELF.
Oooguruk was challenged under ELF, Mayer said. Pioneer applied for and received royalty relief for some of the leases in the project in 2005 and Pioneer sanctioned the project even though it was a high-cost project with lots of issues.
Then the State changed its tax regime in the fall of 2006, passing the Petroleum Profits Tax (PPT). Two years later, when Oooguruk began production, the Legislature had enacted ACES, Alaska’s Clear and Equitable Share.
The project economics were much, much more challenging under ACES than they were under ELF, when the project was started, Mayer said.
Click here to read a Petroleum News Alaska story on Mayer’s presentation.