One major explores: others concentrate on production: a sober fact is oil production is in decline and unless new exploration increases, it will continue to do so, making North Slope oil fields uneconomic by 2025.

• Author: Bradner, Mike

For some time now, the state of Alaska has been tilting its oil and gas policies toward attracting independent companies to Alaska to explore. Production from the large, maturing oil fields on the North Slope is declining, and Alaska needs to get new oil discovered to replace the large fields now being depleted.

However, with the exception of ConocoPhillips Alaska Inc., the large major companies are no Longer drilling exploration wells. To get new wells drilled, new companies must be attracted to the state.

The policy of courting independents has been at least partly successful because new companies are exploring and new oil is being found. The state's efforts in creating its annual area-wide lease sale program on the North Slope and Cook Inlet, taking steps to streamline its permitting and, more recently, to adopt new exploration incentive tax credits, have helped lure new explorers and get wells drilled.

A SOBER REALIZATION

But this is not enough. A study by the state Department of Revenue in 2003 and confirmed recently by a large company, BP, indicates that unless the amount of investment in exploration and development is at least doubled not enough new oil will be found and the rate of production decline will continue. BP estimates that at least $3 billion a year in investment is needed, about twice what is occurring now, to slow the decline in North Slope production from 6 percent to 3 percent a year. If the 6 percent decline continues, the North Slope oil fields may become uneconomic by 2025, BP says. If the decline is slowed to 3 percent, the fields will produce oil until 2050 at least.

This sobering realization is that it will take the efforts of both types of companies, independent explorers and the major producers, to stem the decline of production. This is what is behind Gov. Frank Murkowski's proposal for a new state Petroleum Profits Tax. While increasing the current state tax, it also contains investment tax credits and other incentives to encourage investment not only by new explorers but also by the existing major producers.

DIFFERING ROLES

Independent and major oil and gas companies will play important roles in the further development of Alaska's oil and gas development, but their parts will be different. Independents, which are usually defined as companies that are not fully integrated, with their own "downstream" refining and marketing divisions, are focused on the "upstream" side of the petroleum business. They explore for, develop and produce oil and gas. They sometimes own pipelines that transport their oil and gas, but these resources are ultimately sold to...