Posted on 02/23/2006 1:05:30 PM PST by thackney
Governor Proposes Legislation to Modernize Oil Taxes Announces that agreement reached on gas pipeline
(Juneau) – Governor Frank H. Murkowski announced Tuesday that the State of Alaska and the producers have reached agreement on a natural gas pipeline contract. He also announced that he is proposing legislation to reform the state’s oil production tax.
“Completion of the gas pipeline contract represents a major milestone in securing a natural gas pipeline, which will provide hope and opportunity for Alaska’s future. Modernizing our oil tax system will provide Alaskans with revenue today,” said the governor. “These are two historic events, ones that will define the state’s economy for decades to come.”
"We are pleased to have completed the gas portion of the Fiscal Contract and are working to finalize durable oil contract terms that incorporate the new oil tax structure. This is a significant milestone. We see merit in a profits-based oil tax system, provided it appropriately balances risk and reward to enable additional investment,” said Steve Marshall, president of BP Alaska.
“ConocoPhillips is pleased that all parties have reached an agreement in principle with the State of Alaska on the base fiscal contract terms for an Alaska gas pipeline project. We also believe that a well-constructed net profits tax could benefit Alaska and provide the fiscal certainty that will support future investment,” said Jim Bowles, president of ConocoPhillips Alaska.
“Oil contract terms consistent with the governor’s proposed tax bill would provide the predictability and durability necessary to advance the gas project to the next phase. ExxonMobil also confirms that we have reached agreement with the governor on the major provisions of the gas fiscal contract,” said Richard Owen, vice president of ExxonMobil Alaska Production, Inc. “We look forward to working with the administration to finalize the materials and initiate the public comment period.”
The governor stated that technical issues connected to the gas contract must still be addressed along with oil fiscal stability terms. He also noted that the oil tax legislation will be transmitted to the Legislature for full public and legislative consideration.
“The legislation I am proposing strikes a balance,” said Murkowski. “As governor, I must be mindful of all operators, the smallest to the largest, with an eye on the ultimate goal of a sound economic and investment climate in the state of Alaska.”
The current production tax on oil is based on a percentage of the gross value of production and is driven by the Economic Limit Factor, which no longer works. The Kuparuk field, the second-largest oil field in the nation, will no longer pay a production tax this year and Prudhoe Bay will pay near zero taxes in 12-14 years.
The proposed legislation will deliver significantly higher oil revenues to Alaska. At current oil prices, Alaska will receive an additional $1 billion in production tax revenue.
“Alaskans deserves a fair share of revenues from our oil wealth – particularly at this time of higher oil prices. With the producers seeking greater fiscal stability in return for a commitment to move forward on a natural gas pipeline, this is the most appropriate time to reform our ineffective and inadequate tax system,” Murkowski said.
The new tax system will be based on the percentage of the net profit, or revenues minus capital and operating expenditures. Under the system, the producers will pay a 20 percent tax rate and receive a 20 percent tradable tax credit. Tax revenues would be lower when initial large capital investments are made and, consequently, higher as the production increases.
The petroleum production tax will provide a $73 million annual standard tax deduction that will provide an incentive for oil exploration by smaller independents.
Lots of information by ConocoPhillips at:
http://www.conocophillipsalaska.com/347-149GasBrochure.pdf
So this is the pipeline thru Canada to the lower 48 states?
Thanks...
From the ConocoPhillips link:
Project Overview
• Pipeline Design Rate
4.3 bcfd
• Expansion Potential
> 1 bcfd
• Compressor Stations
24
• Total Pipeline Compression Horsepower
1.2 million
• Alaska to Alberta
2,100 miles
• Alberta to Market
1,500 miles
• Pipeline Diameter
48-52 inches
• Operating Pressure
2,000-2,500 psi
• Tons of Steel
5-6 million
• Construction Man Hours
54 million
Note: This document was written before the current agreement. It appears to reflect the general intent but may differ on some specific data.
More information from the State of Alaska:
http://www.gov.state.ak.us/gasline/
But there's anywhere between 34 and 150 trillion cubic feet of natural gas that will be coming to market, and that's a good thing.
I am not convinced that this will actually cause oil to be left in the ground. Gas injection is only one of the ways we do enhanced oil recovery on the North Slope. Sea Water is injected, CO2 can be separated from the gas stream and re-injected. ESP's can replace Gas Lift production wells. We will have to make changes, that is assured. But we also have some fields that are nearly entirely gas that are not being produced today. Those should be our first targets. And when we figure out how to economically produce methane hydrates, WOW, what a volume to produce.
methane hydrates,....any of that on the north shore?
Gas hydrates
As well as conventional natural gas and coal bed methane,Alaska holds huge volumes of gas trapped in gas hydrates. Gas hydrates exist in large quantities under the permafrost of northern Alaska.There are gas hydrate plays under the Beaufort and Chukchi Seas. Seismic evidence also points to the existence of gas hydrates under the Bering Sea and below the deep water south of the Gulf of Alaska continental shelf.
A 2001 report by Kirk Sherwood and James Craig of MMS suggested that there might be as much as 169,000 tcf of gas tied up in gas hydrates Alaska-wide. Researchers have estimated that there may be as much as 519 tcf of gas in gas hydrates beneath the permafrost of northern Alaska.
The bottom line, though, is we'll recover as much oil from the North Slope as is economically practical, regardless of the means. Switching from natural gas reinjection may mean less ultimate recovery or it may not.
But the last barrels we get from that field will be the most costly to extract.
Both of these, the tax and the construction contract, are at the State Legislature today to be blended. The tax part needs to be incorporated into the Stranded Gas Act. The Gov said that he couldn't have the contract without the tax structure first. The Gov is way ahead of everybody on this.
They are using the figure of 50 trillion cf to structure the contract.
But there's been no incentive to hunt gas reserves with no pipeline in place to sell it.
50 TCF is probably a conservatively low number, but within the expected range.
I am more familiar with the gas having some CO2 and having a surface stripping operation to re-inject it. Similiar to this type operation.
What I don't know is whether there's even a source of C02 in the area which makes this discussion remotely relevant.
The U.S. Geological Survey’s 1995 National Assessment of United States Oil and Gas Resources recognized 11 oil and gas plays in northern Alaska, in an area extending from the southern Brooks Range to the coasts of the Beaufort and Chukchi Seas. Seven of these plays had already yielded confirmed oil and gas at the time of the USGS assessment.
The assessment estimated the following quantities of technically recoverable oil and gas in place: 2.34 billion to 15.43 billion barrels of oil, 23.27 trillion cubic feet to 124.33 tcf of natural gas and 0.44 billion to 2.08 billion barrels of NGL.
These 1995 estimates now seem much too low. A U.S. Department of Energy report in 2001, for example, estimated the ultimate recoverable oil reserves on the whole of the North Slope to be 22.2 billion barrels, including reserves from existing fields as well as undiscovered resources.
A 2002 U.S. Geological Survey assessment of the National Petroleum Reserve-Alaska, a 23 million acre tract of land at the west end of the North Slope, resulted in estimates of 6.7 billion to 15.0 billion barrels of technically recoverable oil and 40.4 tcf to 85.3 tcf of natural gas. The mean estimates for technically recoverable oil and gas were 10.6 billion barrels and 61.4 tcf.
...
Most people consider the Brooks Range foothills belt along the south side of the North Slope to be a gas province, with the possibility of substantial gas reserves. And a new assessment of North Slope gas by USGS is likely to propose a figure as high as 211 tcf for undiscovered natural gas in northern Alaska.
...
The Minerals Management Service has identified 14 possible oil and gas plays in the Beaufort Sea. MMS estimates conventionally recoverable oil in the range 3.56 billion to 11.84 billion barrels, with a mean estimate of 6.94 billion barrels.Conventionally recoverable gas estimates range from 12.86 tcf to 63.27 tcf, with a mean of 32.07 tcf.
...
MMS estimates that there are somewhere between 8.6 billion and 25.0 billion barrels of conventionally recoverable oil under the Chukchi, with a mean estimate of 15.46 billion barrels.The corresponding figures for conventionally recoverable gas are 13.56 tcf to 154.31 tcf, with a mean of 60.11 tcf.
...
MMS views the Hope Basin to the south of the Chukchi Sea as primarily a gas province. Gas from this area could support mining operations and other local industrial activities.The mean expectation for conventionally recoverable gas is 3.38 tcf, but there could be as much as 11.06 tcf.
...
For central Alaska, the USGS 1995 assessment estimates up to 0.06 billion barrels of technically recoverable oil, with a mean of 0.32 billion barrels. The assessment estimates 0.51 tcf to 7.31 tcf of conventional natural gas, with a mean of 2.76 tcf.However, a 2004 USGS assessment estimated up to 600 million barrels of oil and up to almost 15 tcf of gas in just the Yukon Flats Basin. Mean values for the Yukon Flats Basin in this assessment were 173 million barrels of oil and 5.5 tcf of gas.
There are some who attempt now and then to gin up support for natural gas production from Minto Flats outside Fairbanks. The new tax plan the Gov got this week might encourage some of the smaller operators to try some of these small fields that the biggies want to bypass.
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