Morning Headlamp – Alaska’s international energy potential: capitalize or squander

“Do we have to go broke before we fix Alaska? I guess that’s my question to the Legislature,” Governor Bill Walker said. Gov. Walker has been under increased pressure to convince lawmakers, and Alaskans, on his fiscal plan. Legislative leaders called the budget responsible and a product of hard-fought compromise that further reduced state spending. But Walker’s budget director, Pat Pitney, said that in some cases it included use of one-time funding and booked expenses in the current year. That’s problematic because it will have to be accounted for in future budgeting, Pitney said. When you take those items into account, “we haven’t substantially moved the dial,” budget director Pat Pitney said.

Global leaders in moving backwards. According to IHS Energy Senior Vice President Atul Arya said Alaska is globally unique in discussing the possibility of raising taxes or cutting incentives during the prolonged downturn in oil markets. “What I find most interesting — in the most recent time, most everybody is creating incentives to help attract investments into their countries,” he said. “Even places like India and China, which are not really hotbeds of oil and gas activity, have done more to attract investors, and of course there are many other countries who are doing that in the last year or so.” The IHS official also noted the global demand for LNG will continue to grow to about 350 million tons by 2020. Headlamp couldn’t agree more with Arya! It makes no sense in an Alaskan, national, or even international context to tax an industry that’s already hurting. Alaska has the potential to be a global hub of energy production if bad policy doesn’t get in the way.

REI builds relationships across the Pacific. Resources Energy Inc. plans to move their project into the front-end engineering and design, or FEED, stage within the next few months. FEED should take roughly two years, at which point a final investment decision would be made. Construction would then take about another two years to put start-up sometime in 2020 or 2021. A Japanese delegation toured Port McKenzie and were impressed to say the least according to General Manager Mary Ann Pease. Pease said the Japanese delegation members continue to emphasize Alaska’s ability to reliably support the country’s energy security.

Wells Fargo, First National Bank Alaska, and Northrim BanCorphave continued to increase loan portfolios and deposits, though they acknowledge the state’s precarious oil-driven position.

Wells Fargo — a sizable underwriter of oil and gas operations — has seen several revenue streams associated with oil and gas decline. More than 1,200 oil and gas industry workers received unemployment benefits in 2015, up 545 from the prior year. The Department of Labor indicates that this trend has continued through the first quarter of this year with a total decrease of 1,900 jobs in the oil and gas sector as compared to the same period last year.

Meanwhile, in Wyoming. After oil prices have slowly crept up to around $50, some Wyoming drilling operations have begun to reexamine oil production. The renewed optimism comes as analysts continue to debate oil’s trajectory. Kirkwood Oil and Gas, for example, has targeted $65 a barrel for a return to Powder River Basin, where the company has 90 undeveloped well locations. “I think things are going to pick up here. We’re betting on it,” said Steve Kirkwood, who runs the Casper-based firm. He projected the company could begin drilling again in the fourth quarter. Headlamp applauds Wyoming’s oil and gas producers wading back into the market despite the pervasive pessimism from some market critics, and hopes that Alaska will be joining them soon – if taxes don’t drive investment away. 

The comment period on the Bureau of Ocean Energy Management (BOEM) outer continental shelf proposal closes in two weeks. Are you like Headlamp and think Alaskans should have the right to pursue safe, sustainable resource development? Tell the BOEM what you think here.


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First Reads

Alaska governor urges action on plan to address deficit
Associated Press, Becky Bohrer, June 1, 2016

Budget deal is done, but oil tax reform remains elusive
Alaska Public Radio News, Rachel Waldholz, June 1, 2016

Analyst: Alaska in a bind on taxes, LNG
Alaska Journal of Commerce, Elwood Brehmer, June 1, 2016

REI announces move to FEED for Cook Inlet gas project
Alaska Journal of Commerce, Elwood Brehmer, June 1, 2016

Walker to Legislature: Your job isn’t done yet
Alaska Journal of Commerce, Elwood Brehmer, June 1, 2016

Banks see some impacts of oil crash, fiscal uncertainty
Alaska Journal of Commerce, DJ Summers, June 1, 2016

With oil near $50, Wyoming oil companies dust off drilling plans
Casper Star Tribune, Benjamin Storrow, June 1, 2016