Q&A with Glacier Oil & Gas CEO Carl Giesler
The West McArthur River Unit, operated by Glacier Oil & Gas, currently produces oil that is now being processed at the Kustatan production facility; in summer 2018 Glacier Oil & Gas is planning to drill at their Sabre oil prospect, located just northeast of the West McArthur River Unit.
IMAGE COURTESY OF GLACIER OIL & GAS
Development, political changes, and Cook Inlet
Business is pleased to highlight Glacier Oil & Gas; the company’s CEO Carl Giesler provides insight into the company and oil and gas development in Cook Inlet.
Alaska Business: What are your plans for 2018 in Cook Inlet?
Giesler: Generally, in the Cook Inlet, Glacier plans to continue developing our oil assets off the Osprey Platform at our Redoubt Unit. In particular, we plan to replace the ESP and add perforations to RU-09 and add another low-on-structure water-injection well, RU-04.
We also look forward to drilling next summer our Sabre oil prospect just northeast of our West McArthur River Unit. That field and our Starfish prospect at our Badami Unit on the North Slope are both potential “company changers.”
Alaska Business: How have legislative decisions regarding oil and gas credits and state tax policy affected your plans for 2018 and beyond in Cook Inlet?
Giesler: It’s a pretty direct, slowing impact. Simply-put, the seemingly endless-loop of legislative decisions and discussion on oil and gas tax policy creates uncertainty.
The lack of stability and visibility in oil and gas fiscal policy has made attracting capital challenging, even for quite promising risk/reward drilling investments.
The seven oil and gas fiscal policy changes in twelve years have not been lost on our equity owners. They’re slower to provide equity drilling dollars than they would be in a more stable policy environment. Particularly with Brent [a sweet light crude oil trading classification] now past $55. It was disappointing to have to delay Sabre from last spring to next summer. We’re concerned that other projects attractive from both a production—and financial-standpoint—could get delayed, too.
The policy gyrations have also not been lost on our banks. Many of the banks we’ve talked to about a revolving credit facility literally end the conversation when we mention that our assets are in Alaska. The state’s oil and gas sector has relatively few operators. The current fiscal policy uncertainty compounds the difficulty banks have committing human and financial resources to a relatively small addressable market for lending services. Also, some banks have been burned by making loans against earned cashable tax credits that have not been paid.
And, of course, there’s the knock-on, indirect impacts of the fiscal uncertainty: greater uncertainty means less capital, which means less investment, which means less production, smaller royalty checks to the state, and fewer jobs, etc.
To touch specifically on the tax-credit topic that seems to have dominated the conversation the last two-plus years, it’s a bit beside the point. The greater issue for us is the lack of stability and visibility in policy. We “get” that the state’s tough budget predicament made necessary the accelerated sunsetting of the cashable tax credit program.
Alaska Business: What is necessary for the oil and gas industry to thrive in Cook Inlet?
Giesler: First and foremost, re-establish stability and visibility in the oil and gas fiscal regime. SB21 seems to be working, with production in the state having increased since its adoption. Let it—and the industry—keep working. Operators in Alaska seem to have adjusted to lower-for-longer oil and are moving ahead with exploration and production projects.
Second, broaden the conversation beyond tax policy to revenue generation. From the state’s perspective, a royalty dollar should equal a tax dollar. That begs the question of what policies bring the most revenue to Alaska. Our thinking is that those policies will be the ones that attract more capital and operators to the state. What builds a more robust and sustainable oil and gas investment/royalty generation eco-system? With more capital and more operators, the state will have more investment and a more robust oil service sector. That, of course, means more production, royalties, and jobs. Besides, it seems people have become exhausted with the now two-year, seemingly-endless and myopic focus on taxes and tax credits.
Finally, “finish the job” on ending the cashable tax credit program: lay out a general payment plan for credits earned, even if it will be over several years. It’s not enough to stop accruing tax credit liabilities; the state needs to follow through on the payments upon which operators relied when making investments.
Generally, setting a payment plan will help the state’s credibility. More tangibly, it will grow production. My sense is that every operator that gets a dollar for past-earned tax credits will turn-around and invest that dollar in more production. Glacier Oil & Gas certainly will. To the extent we know when earned credits will get paid, we use that knowledge to accelerate our drilling plans.
Glacier Oil & Gas has invested $10 million to redirect oil from the West McArthur River Unit processing facility to the Kustatan production facility, which is more modern and reliable and already processed oil from the company’s Redoubt Unit.
IMAGE COURTESY OF GLACIER OIL & GAS
Alaska Business: What is your strategy for weathering the lower-for-longer oil environment; how have you increased efficiency or decreased costs?
Giesler: Up-front, we’ve already strengthened our safety profile. After emerging from restructuring, our first investment was to commit more than $10 million to redirect our West McArthur oil from that field’s aging and problematic processing facilities to our more modern and reliable Kustatan facility to the south that processes our Redoubt oil. This project not only significantly reduced safety and environmental risks but also improved our processing efficiency and significantly reduced operating costs. The entirety of our Cook Inlet oil is now processed at a single facility. We also invested close to $1 million to stabilize our subsea pipelines in the Inlet.
We’ve also already right-sized our cost-structure and reconfigured our team’s capability to “do more with less.” Both G&A [general and administrative expenses] as well as LOE [level of effort, ongoing or periodic activity to support a project] are down meaningfully.
Our primary focus now is growing production in a safe, regulatory-compliant, efficient, effective, and financially-responsible manner.
Alaska Business: What are the core values that guide your company, and how have those values aided your company in the face of a challenging industry environment?
Giesler: The health and safety of our employees and contractors top the list. We also work hard to be good neighbors to Alaska, taking special interest in safeguarding the environment and minimizing our footprint. And, of course, we want to maintain regulatory-compliance and play by the rules.
Next is being technically-driven and financially-disciplined. We’re paid to make investments that result in safe production and generate appropriate risk-adjusted returns on the capital to which we’re entrusted.
We’ve adopted a saying at Glacier that our goal is “to be exciting by being boring.” If we operate safely and by the rules and drill good wells that generate jobs and make oil and gas as well as money, we should be both “boring” and “exciting.”
Glacier Oil & Gas has plans to continue developing oil assets at the Osprey Platform in the Redoubt Unit, which they operate.
IMAGE COURTESY OF GLACIER OIL & GAS
Alaska Business: Looking ahead, what do you see for the future of Alaska’s oil and gas industry? What are you optimistic about and what are you cautious of?
Giesler: We’re optimistic generally about the sector and specifically that the safe, responsible production growth in the state over the last couple years will continue.
The state has good rock and a lot of it. It also has good people who work hard: from the “boots on the ground” operations teams working to solve a myriad of issues daily to the legislators and public employees working to meet the state’s needs in a lower-for-longer oil price and budget environment.
The issues we’re cautious about—oil and gas fiscal and regulatory policy—will work themselves out. Too many smart people are grappling with them for there not to be reasonable answers.
And, our optimism about the state’s oil and gas industry translates into optimism about Alaska itself. The oil and gas sector is the bedrock of the state’s economy; their trajectories are inextricably tied.
This article first appeared in the November 2017 print edition of Alaska Business Monthly.
In This Issue
Mining in 2019: The Year in Review
Following a year when metal prices were both up and down—sometimes dramatically; when international trade squabbles spooked investors to both enter and exit the metals markets; and when mining companies started the year cautiously bullish but ended it cautious bearish, those involved in Alaska mineral exploration, development, and production are once again asking themselves: “Where did we succeed, where did we fail, and where do we go from here?”