Tax reform in Alaska promises to attract more oil and gas investment, but even for an established player in the state such as ConocoPhillips, getting substantial new production onstream.
Alaska’s state legislature approved oil tax legislation reform earlier this month designed to establish a more attractive investment climate for oil and gas producers. Companies such as ConocoPhillips, ExxonMobil and BP have been calling for changes to Alaska’s fiscal system for years, arguing that it deters investment in the state’s substantial resources.
Tax reform is a positive sign, said Executive Vice-President of Exploration and Production Matt Fox during ConocoPhillips’ first-quarter 2013 earnings call on Thursday. “The change will encourage additional investment in Alaska.”
The company is still evaluating the competitiveness of various projects under the new system, but “I certainly expect to see us wanting to increase our investment”, he said.
ConocoPhillips’ first-quarter 2013 production in the state, from fields such as Alpine and Kuparuk, averaged 218,000 barrels per day of oil equivalent (boe/d), down by about 18,000 boe/d from the same period of 2012. The drop was the result of normal field decline, said Chief Financial Officer Jeff Sheets.
The company is bringing a new rig into the area to work over existing wells, which should add some production. But there will be a lag before Fox expects substantial output growth. “You won’t really see any significant change in the short term,” he said.
While some projects can begin contributing more to production in the 2014-15 timeframe, for larger projects – such as adding new drill sites in Kuparuk or the National Petroleum Reserve – Alaska (NPR-A) – “these things take quite a bit longer than that to get moving”, Fox said.
And tax reforms at the state level will do little to speed progress on ConocoPhillips’ activities offshore Alaska in the Chukchi Sea. The company announced that it was putting its 2014 exploration drilling plans for the Chukchi on hold on 10 April, citing uncertainty in federal regulatory requirements and permitting standards.
“We were on the cusp of having to make some very significant commitments for rigs, for vessels, and so on,” he said. “We just felt as if there wasn’t enough stability in the way that the regulatory framework was shaping up for us to do that with confidence, knowing that we would be able to get the permits and get out there and actually drill when the rigs turned up.”
Fox said that ConocoPhillips could “potentially” move ahead with Chukchi exploration in 2015, but that will depend on how regulations evolve.
“We still like the prospect in the Chukchi, there’s a lot of potential out there,” said Fox.
“We haven’t given up on drilling in the Chukchi,” but “we have to make sure we fully understand the regulatory framework.”
Conoco chairman and CEO Ryan Lance echoed this view in comments made at an event in New York on Wednesday, “the reality is for me to drill in 2014, I need to put my permit in today, but I don’t know what the rules are going to be, so we’ll wait until 2015.”
