HB 247 Undermines Railbelt Energy Security

On Monday, we outlined how HB 247, Gov. Walker’s oil and gas tax credit legislation, could negatively impact projects and threaten new production on the North Slope. Today we’re covering the impacts HB 247 could have on oil and gas production in Cook Inlet, and the downstream effects less production would mean for Alaska’s railbelt population.

Historically, oil and gas development in Cook Inlet has played a large role in the health of Southcentral Alaska’s economy. Hence the reason why we believe it is imperative for Alaskans to understand how HB 247 threatens production from projects already sanctioned, and projects under consideration (exploration phase) with the potential to add considerable amounts of new production. The map below from the Alaska Department of Natural Resources (DOR) Division of Oil and Gas shows industry activity across the Cook Inlet basin as of May, 2016.

226

The following Cook Inlet projects are threatened by HB 247:

  • Cosmopolitan Unit, BlueCrest Energy: BlueCrest began producing oil in April, 2016. This represents the first oil from a new field in Cook Inlet in over a decade. Total project cost $525 million. 50-million-barrel field. Peak production estimated at 16,900 barrels per day. Significant gas reserves as well. Why HB 247 threatens their project: BlueCrest is due $121 million in credits from the state, to date they have received only $24 million. They sanctioned the project and spent hundreds of millions, under the presumption that the state would abide by the law, pay credits owed, and keep the system in place.
  • Kitchen Lights Unit, Furie Operating Alaska, LLC: Furie has been operating in the Kitchen Lights Unit (KLU) since 2009. $700 million invested to date. Estimated reserves: 500 billion to 3.5 trillion cubic feet of natural gas, 70 million barrels of oil. Gas production began in November, 2015. Gas supply contract (GSA) with Homer Electric Association (HEA) through 2018, lowered gas prices for HEA customers 12-16%. Why HB 247 threatens their project: Furie plans to drill 10 exploratory wells over next 5 years, seeking oil development as well in 2018-19. Without credits the economics of these plans change drastically.
  • Hilcorp Alaska LLC: Largest lease holder in Cook Inlet. $1 billion invested over past 4 years, drilled over 50 wells. Has played significant role in doubling Cook Inlet oil production since 2010; up from 7,500 barrels per day in 2010 to almost 18,000 barrels per day now. GSA signed with Chugach Electric through 2018 that will result in an 8% decrease in gas prices starting in 2018. Why HB 247 threatens Hilcorp’s presence in Cook Inlet: imposing new taxes in Cook Inlet changes project economics significantly. Hilcorp no longer receives any cashable credits from the state because they produce 50,000 or more barrels of oil in Alaska.
  • Donlin Gold Project: Massive proposed gold mine project located roughly 315 miles south west of Anchorage. Deposit is estimated to hold 33.6 million ounces of gold. $6.7 billion project cost. 3,000 jobs during construction. 1,400 jobs during mine operation. 27-year lifespan projection. Project needs an average of more than 150 megawatts of electricity to power the mill and facilities. Donlin Gold has proposed the construction of a 312-mile-long natural gas pipeline to its project site from the west side of Cook Inlet. How HB 247 threatens Donlin Gold: Donlin has estimated they would require 33 million cubic feet of gas per day, which equals roughly 10% of Southcentral Alaska’s current gas supply. Without continued exploration and development of natural gas in Cook Inlet (which tax credits have successfully resulted in) the long term gas supply needed by Donlin comes into question.

What’s at risk: Tens of thousands of barrels in production; plentiful, stable, and affordable natural gas supply needed to heat our homes and power our businesses; thousands of jobs; and hundreds of millions in new revenue to the state and local governments.

Final takeaway: HB 247 is still bad policy. Incentives impact investment; investment impacts production; increased production is good for all Alaskans.