Oil industry review: slow season wrap-up.

Author:Bohi, Heidi
Position::OIL & GAS


A look at what five companies are doing in Alaska. Many in the Alaska oil and gas industry are scaling back investment due to the State's production tax business model.


"Frankly, there's not that much going on," says Natalie Lowman, director of communications for ConocoPhillips Alaska, looking back on the past several months and projecting ahead to the upcoming season. While the company is continuing to produce oil, the reduction in investments is tied to high production taxes that don't incenctivize the industry.

ConocoPhillips did not drill any exploratory wells in the 2009-2010 winter drilling season. Instead, she says, they are focused on preparing for exploration in the Chukchi Sea in 2012. In 2008 and 2009, they collected biological and oceanographic baseline data over specific ConocoPhillips prospects in the Chukchi Sea, studied ice and sea state conditions, and collected air quality data to use in support of permits that will be submitted this year.

The core producing fields, including Prudhoe Bay and Kuparuk, are on significant decline. Increasing recovery in assets like these could generate significant new jobs and investment in the state. But, she says, after more than two years of history with the Alaska's Clear and Equitable Share (ACES) production tax, ConocoPhillips is focusing on two major areas that may encourage more investment that will generate jobs in Alaska. An improvement to the progressive feature of ACES will create an incentive for investors to pursue projects that may not otherwise be attractive in the current volatile business climate. More focus is also needed on exploration, development and production projects in all the fields on the North Slope, including Prudhoe Bay and Kuparuk.

"Increasing even 1 percent recovery in each of these fields would result in significant new volumes going down TAPS," Lowman says.

In early February, the U.S. Corps of Engineers denied a key permit that would have allowed development of Alpine satellite CD5 to go forward. Extremely disappointed with the decision, the company has diligently tried to permit this project for almost five years. ConocoPhillips appealed the denial on April 2. The CD5 project represents more than $600 million in investments, and 400 direct new jobs per year during construction, plus hundreds more support jobs. Until this issue is resolved with the Corps of Engineers, this project cannot move forward.

Last year at this time, oil prices had fallen dramatically and the industry was under significant pressure, which ConocoPhillips responded to by focusing on cost management and close scrutiny of investments. "Looking ahead, we will continue to carefully consider each investment decision and will focus on operating well, controlling costs and assessing the overall business climate in this uncertain price environment," Lowman says.

"As we look to continue improving oil...

To continue reading