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BP to spend $1 billion in Alaska’s North Slope
Fuel Fix ^ | June 2, 2013 | Jennifer A. Dlouhy

Posted on 06/03/2013 5:07:55 AM PDT by thackney

BP is set to announce Monday that it will sink $1 billion into revving up crude production from Alaska’s declining North Slope, weeks after the state decided to give the oil industry a $750 million annual tax cut.

The British oil giant plans to add two drilling rigs to its Prudhoe Bay field, bringing the count up to nine, the highest in about six years. New well work and drilling, along with upgrades of existing facilities, could support 200 new jobs, the company said.

Separately, with the agreement of its working interest partners at Prudhoe Bay, including ConocoPhillips and Exxon Mobil Corp., BP will begin evaluating another $3 billion in additional development projects in the field’s west end.

The prospective development could include the construction of drilling pads and expansion of existing ones, possibly facilitating the drilling of more than 110 wells, following two to three years of appraisal and engineering work.

BP also will begin expansions and upgrades aimed at reducing bottlenecks at existing Prudhoe Bay facilities and better using the capacity of gathering centers that separate oil from natural gas and water. As the field has aged, more water is pulled out of the ground along with oil, and the facilities have been adapted to that dynamic. But newer areas generally yield an oilier mix. Handling them more efficiently can mean more production overall.

“There’s a lot more potential out there than when we brought these facilities up several decades ago, so we need some more facility capacity,” BP Alaska’s regional president, Janet Weiss, said in an interview. “It’s really about smartly using technology and the gathering centers’ capacity to fully utilize what’s up there and expand upon that.”

All of the changes seek to reverse the fortunes of Alaska’s North Slope — and the Trans-Alaska Pipeline System that transports the harvested oil to Valdez. Oil production from the North Slope peaked in 1988 at an average 2.02 million barrels per day, most of it from the Prudhoe Bay field that BP operates. It has been dropping ever since.

“What we’re after here is changing decline … trying to significantly reduce it,” Weiss said. “To do that, we’ve got to have the facility capacity, and we’ve got to have more rigs.”

BP is crediting Alaska’s just-inked tax changes with unleashing the new investment. Weiss said it was key to getting all partners on board in starting to appraise new west end development.

The new plan will tax oil production at a flat 35 percent rate, replacing an approach adopted under former Gov. Sarah Palin that started with a 25 percent base rate that climbed along with the oil prices to above 50 percent. By taking advantage of other incentives, oil companies could end up with a new effective tax rate as low as 14 percent.

Even as companies focus on extracting oil from dense rock formations in North Dakota and West Texas, the Prudhoe Bay Oil Field remains the nation’s largest oil field. Oil companies argued that the tax cuts were essential to support investments in infrastructure, fresh analysis and enhanced oil recovery methods.

BP, ConocoPhillips and Exxon Mobil made the case that Alaska’s tax structure was outmatched by North Dakota and other states when it came to encouraging investment — even though new production is essential to ensure oil keeps flowing through the Trans Alaska Pipeline System and the resulting revenue keeps flowing to state coffers and residents. Alaska residents have for decades collected annual dividend checks from the state’s permanent fund — largely financed by oil dollars — that was $878 per person in 2012.

The tax break “puts us back in the game,” Weiss said. “It puts us on more of a playing field where we’re going to be able to attract capital.”

But many Alaska Democrats opposed the change, calling the tax break a giveaway of the state’s oil resources. And angry residents have already launched repeal campaigns, with hopes to put the issue to a statewide vote next year.

Just days after Alaska Gov. Sean Parnell signed the new tax bill into law, ConocoPhillips announced it would add a new rig to its Kuparuk field on the North Slope.

Critics suggest oil companies are eager to trumpet new North Slope investments as evidence that the tax cut was a good idea, even if the spending was in the works well before the state rewrote its tax code.

“A smart oil company will try to keep the generous tax reductions by saying the new bill is responsible for all of its new investment,” said state Rep. Les Gara, a Democrat from Anchorage, in an Alaska Dispatch opinion piece.

Even without the tax break, Gara said, “ConocoPhillips, Exxon Mobil and BP have every incentive to develop as much oil as possible in a field in which they have invested billions for infrastructure.”

BP’s Weiss acknowledged some of the projects might have gone forward even without the tax cut.

“It’s not that they wouldn’t have gone forward eventually, but this way we can reduce decline faster,” Weiss said.

BP said it expects to increase well work on the North Slope as soon as the fourth quarter of 2013, with the first additional rig expected on-site by 2015. A second would arrive in 2016.

TOPICS: News/Current Events; US: Alaska
KEYWORDS: bp; energy; northslope; oil

1 posted on 06/03/2013 5:07:55 AM PDT by thackney
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To: thackney

I wonder how this will effect the BP Prudhoe Royalty Trust

2 posted on 06/03/2013 5:21:50 AM PDT by bert ((K.E. N.P. N.C. +12 .....Obama Denies Role in Government)
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To: bert

It will certainly be used in their marketing.

3 posted on 06/03/2013 5:24:14 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

Alaska gets it.....JOBS

4 posted on 06/03/2013 5:37:58 AM PDT by Sacajaweau
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To: Sacajaweau

Finally. It took far too long get the taxes back to reasonable. Many of us moved on to work places the understood there are limits to the government take.

5 posted on 06/03/2013 5:47:32 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney
I think Texas was one of those places where it was worth moving for the taxes and good jobs.

My friends moved to Florida....but the housing collapsed...and so did their assets.

6 posted on 06/03/2013 5:56:48 AM PDT by Sacajaweau
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To: thackney

200 new jobs? Time for the Obama administration to step in and kill this.

7 posted on 06/03/2013 6:00:21 AM PDT by OrioleFan (Republicans believe every day is July 4th, Democrats believe every day is April 15th.)
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To: Sacajaweau

In 2007, I moved from Alaska back to Texas. It seemed obvious to me what was coming to many were blinded by the glare of incoming tax dollars.

For a while, from Texas I worked Alaskan North Slope projects but now I have moved on from that and I mostly focused on local Midstream projects these days.

8 posted on 06/03/2013 6:06:04 AM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

What’s the state tax situation in AK? Did Palin make it worse? The article isn’t clear. I believe the ‘tax rebate’ is a giant gimmick. They don’t have better things to spend the tax revenue on, then lower it.

9 posted on 06/03/2013 2:34:44 PM PDT by 1010RD (First, Do No Harm)
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To: 1010RD

Some information here about the oil tax system put in place under the Palin Administration.

Recently this was changed.

10 posted on 06/03/2013 2:49:48 PM PDT by thackney (life is fragile, handle with prayer)
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To: thackney

Wow, very interesting. Was this Palin’s doing?

11 posted on 06/03/2013 5:41:21 PM PDT by 1010RD (First, Do No Harm)
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