Open for business: the resources are there, but is there enough incentive for worlwide producers to invest in Alaska?

• Author: Bradner, Mike

In a world increasingly worried about oil shortages, how does Alaska shape up?

In terms of attracting investment, how competitive are we? Given our ample fossil energy resources, why aren't energy companies stumbling all over themselves to get to Alaska?

There are few objective ways to measure competitiveness and even the ones that are cited by some--the Wood Mackenzie survey of oil and gas producing regions, for example--should be used only as a guide.

Wood Mackenzie's survey finds Alaska at or near last place among oil-producing regions surveyed but middle-of-the-pack in terms of profitability.

On the face of it, that doesn't look very good, but it's also the view of only one analytical group. Dan Dickinson, director of Alaska's state tax division, said there are others that have surveyed Alaska's competitiveness and have come to far different conclusions.

In a talk to the Alaska Support Industry Alliance last January, Dickinson said that at higher oil prices, these analysts have found Alaska to be a very good place to invest, partly because of the structure of Alaska's tax and royalty system. This allows an oil and gas producer to make higher profits when prices are high than in many other producing regions, he said

Cheeckhakos

Meanwhile, an encouraging trend is that there are new companies coming to Alaska, firms like Pioneer Natural Resources and Kerr McGee Corp. There is also one major company returning, Shell, after a decade of absence.

Why is this? It's because at least a few industry managers believe Alaska is still a place where they can make money.

No quantitative analysis can really spell this out because in the end it is always an executive's subjective assessment of opportunities and risks that is more important.

What really attracts interest is that the best place to look for new oil is where it has already been discovered and geologists agree widely that there is a lot of undiscovered petroleum in Alaska.

On the downside, there's political risk, the possibility of tax increases or permit delays due to environmental lawsuits or local opposition, cost over-runs or resource risks. All of these are factors that cannot easily be modeled.

There's also the resource risk, the chance that the geologists may be wrong and that the valuable minerals may not really be there in economic quantities.

Prolific North Slope

The upside of this, the opportunities, always depend on a company's particular competitive situation.

One way to assess our competitiveness is to listen to a senior manager of a company new to Alaska explain his or her views.

In a September talk to an Arctic energy conference, Ken...