Morning Headlamp — “The Good, the bad, and the ugly” Oil and Gas Tax Credits

February 29, 2016 | Posted in : News

The good, the bad, and the ugly. Janak Mayer of Enalytica briefed Alaskan lawmakers on the details and implications of Gov. Bill Walker’s oil and gas tax credit plan. Mayer said bad aspects of HB 247 are that incremental revenues could chill investment. Under SB 21, it takes a new project on the North Slope about five years before it starts generating an annual profit, Mayer showed, and another three or four years before investment has been recovered and the project as a whole becomes profitable. Headlamp would argue that “bad” and “ugly” outweighs whatever “good” the Governor sees in HB 247. As Mayer accurately points out, a regressive tax regime will only further hurt an industry that desperately needs private sector investment to survive.

“On warm standby.” Citing record low oil prices Brooks Range Petroleum Corp.’s Mustang Project has been postponed—with first oil expected to be produced from the field in late 2017, after telling the state last year it was shooting for late 2016. The project is located in the Miluveach Unit near ConocoPhillips’ large Kuparuk River oil field. The Alaska Industrial Development and Export Authority, a state public corporation, has invested heavily in the project, including committing to pay for a large portion of the $215 million facility that will process up to 15,000 barrels of oil daily once it’s complete. AIDEA officials have said their investment has helped move the Mustang project forward. They’ve called the state investment a model for future state partnerships with independent oil producers. Small companies such as Brooks Range generally don’t have the financial flexibility of large North Slope operators such as ConocoPhillips. Headlamp notes that the Governor’s veto of $200 million in tax credits from the FY 2016 budget impacted financing for the project and hopes that a partnership between Brooks Range and AIDEA can bring the Mustang Project back on schedule. Continued investment in a low price environment will be crucial to the project’s sustainability and critical to efforts to put more oil in TAPS

Halfway to anything? Nearly halfway through the session, it remains unclear what pieces the Legislature will pull together to tackle a multibillion-dollar state budget deficit exacerbated by low oil prices. In addition to budget cuts, current proposals include taxes, the use of Alaska Permanent Fund earnings, changes to the state’s oil and gas tax credit system, along with reforms to the State’s Medicaid and criminal justice systems. House Minority Leader Chris Tuck, said the committee process is set up to compartmentalize subjects, but that makes it hard to see the bigger picture. It’s important to find out what lawmakers on both sides would like to see as part of a fiscal plan, he said. “We have a strong desire to share the responsibility and the burden,” he said. “We’re trying to think of every idea we can to foster that along.” Headlamp would remind readers it was Tuck’s caucus that held the legislature hostage last year, forcing the body to increase the final budget, which added to Alaska’s deficit. Headlamp hopes his ideas won’t produce a repeat of last year. 

 

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First Reads

Legislature’s Consultants Outline “Good, Bad, and Ugly” of Oil Tax Credit Plan
Alaska Commons, Craig Tuten, February 28, 2016

North Slope oil project, backed with millions from state, on hold
Alaska Dispatch News, Alex DeMarban, February 27, 2016

With state money tight, Alaska lawmakers report $250,000 in free travel
Alaska Dispatch News, Nathaniel Herz, February 27, 2016

Obama energy policy costing jobs, fuel security
Foster’s, Prof. V.K. Mathur, February 28, 2016

Alaska legislators nearing half-way point of session
Associated Press, Becky Bohrer, February 27, 2016

Interview: Lt. Gov. Mallott shares Arctic priorities
Alaska Dispatch News, Shady Grove Oliver, February 27, 2016

 

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Friday Fast Five

February 26, 2016 | Posted in : News

Top Story of the Week

Following last week’s press conference, state officials have released the exact details concerning their plans for AKLNG’s budget. The state originally asked for $35.7 million for the AK LNG project in the coming budget year. Now it’s asking for $28.7 million—a cut of $7 million.

Top Reads of the Week

Moody’s slaps ‘recession’ label on Alaska, but are we really there?
Alaska Dispatch News, Alex DeMarban, February 23, 2016
Moody’s Analytics concluded recently that Alaska and three other resource-dependent states have entered recession as oil prices skid, but Alaska’s economists aren’t so sure and the state’s latest employment data shows continued growth.

Video: President Obama responds to Gov. Walker, talks about Alaska trip
Alaska Dispatch News, February 23, 2016
President Barack Obama told the nation’s governors Monday night that states producing oil, gas and coal need to recognize an international trend line toward renewable energy that will continue after his presidency. (Walker at 1:18:00 mark)

State encourages small-scale efforts to hunt for oil and gas in Southcentral
Alaska Dispatch News, Alex DeMarban, February 19, 2016
The state is trying to encourage oil and gas drilling in a large chunk of Southcentral Alaska under an exploration licensing program geared toward small-scale efforts that might help local communities.

Quote of the Week

“At a time when prices are low, that sets off some alarm bells.”— Corri Feige, Director of the Division of Oil and Gas, Department of Natural Resources

 

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Morning Headlamp — Knapp advocates for a plan & CP is still committed in AK

February 26, 2016 | Posted in : News

Hyperbole and Hypocrisy continue to be the foundation of Dermot Cole’s budget analysis. Headlamp reads with amusement Cole’s chastisement of Rep. Tammie Wilson, accusing her of a “pick a number, any number” strategy with the university budget.  Where was Mr. Cole for HB 253 (mining taxes) and HB 247(oil and gas tax credits) – when the administration couldn’t describe how they arrived at their numbers for taxing industry and provided no modeling or fiscal analysis to defend their legislation?  Cole must have been mortified when Division of Tax Director Ken Alper told the House Resources committee that they didn’t see a need to spend funds to assess their own legislation that places punitive taxes on industries that are currently cash flow negative…

ConocoPhillips: committed in AK. Despite announcements that ConocoPhillips plans to cut capital spending for its worldwide oil and gas exploration and production operations, Alaska will not be drastically affected. In anticipation of continued low oil prices, the Houston-based major reduced its 2016 capital budget from the previously announced $7.7 billion to $6.4 billion, a decrease of 37 percent compared with 2015 capital expenditures of $10.1 billion. According to ConocoPhillips Alaska spokeswoman Natalie Lowman, the previously released $1.3 billion capex in Alaska will only see a “slight” decrease from $1.4 billion. Headlamp is thrilled to see that an industry leader is still committed to resource development in Alaska. Now it’s our turn to meet them halfway. Alaska must craft policies that don’t threaten this investment, or dissuade future opportunities. Investment is a two-way street.

A House committee on Thursday proposed an 11 percent cut to the Legislature’s own $72 million budget, putting its own reductions in line with those proposed for state agencies by Gov. Bill Walker. The House committee preserved a previously approved $4 million cut that would move Anchorage lawmakers out of their newly renovated offices downtown. It’s also proposing five days of mandatory furloughs for full-time legislative employees, which would save another $700,000. There’s a $300,000 cut to the House Finance Committee’s budget, which is used to pay for some salaries and travel, and another $200,000 in the “session expenses” category, which pays for more salaries, travel and staff for a subsidized legislative cafeteria. “The public said, ‘We want to see the Legislature reduce their budget,’ and we did,” said Rep. Mark Neuman, who chairs the House’s finance subcommittee for the legislative budget. Headlamp is happy to see Alaskan lawmakers are taking the budget and wasteful government spending seriously.

Lawmakers need your help. The Alaska House Finance Committee is taking four days of public testimony on the state operating budget next week as legislators look to put finishing touches on a reduced spending plan in the face of a massive state budget deficit. Headlamp strongly supports getting involved in Alaska’s future decision making. To see a full schedule of public testimony times, click here.

 

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First Reads

How will fixing Alaska’s budget affect the economy?
Alaska Dispatch News, Annie Zak, February 25, 2016

Voters to decide about raising homeowner tax break
Fairbanks Daily News Miner, Amanda Bohman, February 26, 2016

Shell’s failed Arctic quest for oil still a point of pride, departing executive says
Alaska Dispatch News, Jennifer A. Dlouhy, February 25, 2016

After scrutiny of travel and salaries, House proposes big cut to Legislature’s budget
Alaska Dispatch News, Nathaniel Herz, February 25, 2016

Economist Gunnar Knapp to Legislature: You Need a Plan
Alaska Commons, Craig Tuten, February 25, 2016

COP Alaska dodges cuts
Petroleum News, Kay Cashman, February 25, 2016

 

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Morning Headlamp — “Alarms” going off for AK oil and gas industry

February 25, 2016 | Posted in : News

Setting off some alarms. Before the House Resources Committee, Tax Division Director Ken Alper discussed why he thinks the current oil tax regime established in 2013 with passage of SB 21 can potentially cost the State revenue. Gov. Bill Walker introduced HB 247 in part to address these credits, while raising the floor from four percent to five percent. The Department of Revenue (DOR) estimates raising the floor will generate $100 million in Fiscal Year 2017. The department of Revenue claims that the proposed changes could save an additional $400 million during FY 2016, however, they have provided no data or analysis to support the claim.   Corri Feige, Director of the Division of Oil and Gas, said Wednesday that oil companies halfway through development of projects are concerned about any changes to tax policy. “Changes in taxes generally are lumped into the bucket… of cost,” she said during an earlier presentation to House Resources on oil and gas activity in Alaska. “At a time when prices are low, that sets off some alarm bells.” “Do you have any idea what the rating agencies’ responses were to consideration that we’re here looking at imposing a major tax increase on our only sustaining industry in a time when that industry is facing severe economic losses?” Rep. Mike Hawker asked. Headlamp agrees with Rep. Hawker. What does it say about our potential financial security when the state continues to hamper its principal industry? As taxes increase ratings agencies will certainly take notice.

An old tactic for a new problem. Following national editorials decrying federal restrictions that prohibit production in the oil-rich onshore coastal region in the North Slope Governor Bill Walker has taken another step toward his goal further developing Alaskan natural resources. Walker says he brings the federal land restriction up whenever he is in earshot of a national politician and another part of his advocacy plan is a contract with North Slope oil and gas expert Andy Mack. While the governor considers Mack an asset in the pursuit of opening up 1002, he also currently serves as managing director of Pt Capital, a private equity firm with an array of Arctic investments including Alaska businesses. Alice Rogoff, owner/publisher of the Alaska Dispatch and a supporter of the Governor has strong ties to PT Capital.  While Headlamp is happy to hear Gov. Walker is doing all he can to secure sustainable resource development in Alaska, we caution any additional government spending on advisors at a time where we need to be cutting spending and question where Mr. Mack was when an amendment to designate the 1002 area as wilderness passed a House committee late Tuesday evening. 

Putting the fun in fund. The Alaska Permanent Fund Corp. Board of Trustees heard “to the point” presentations on new ways to address ongoing Permanent Fund debate by Anchorage Republicans Rep. Mike Hawker and Sen. Lesil McGuire and officials from Gov. Bill Walker’s administration on Feb. 19. Legislators largely agree that filling the state’s $3.5 billion-plus budget deficit will require some utilization of the Permanent Fund’s earning power. McGuire proposes to use an annual draw equal to 5 percent of the rolling five-year average market value of the Permanent Fund, or POMV, from the Earnings Reserve to add $2 billion, and hopefully more in future years, to the General Fund in fiscal year 2017 beginning July 1. Hawker’s House Bill 224 prioritizes a balanced budget over everything else, including dividends. It’s based on the “fiscal responsibility rule” of necessities over luxuries, Hawker said to the trustees. “My bill simply says to the Legislature that we need to provide our schools; we need to provide our roads; we need to provide health and service benefits; we need to do all this before we pay dividends,” he said. His plan has goals similar to the administration’s proposal, but reaches them more simply, he said. It uses savings to mitigate oil and financial market volatility.

 

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First Reads

APOC fines campaign groups tied to governor’s aide
Alaska Dispatch News, Alex DeMarban, February 24, 2016

Trustees hear plans for Fund
Alaska Journal of Commerce, Elwood Brehmer, February 24, 2016

Governor pays contractor $12,500/month to advocate ANWR development
KTUU, Austin Baird, February 24, 2016

Alaska history teaches us how to handle budget crunch — and how not to
Alaska Dispatch News, Rick Mystrom, February 24, 2016

How Migrating Oil Tax Credits are a Major Drag on Alaska
Alaska Commons, Craig Tuten, February 24, 2016

 

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Morning Headlamp — There doesn’t need to be a recession & Walker’s AKLNG cuts

February 24, 2016 | Posted in : News

Not a recession…if AK lawmakers do something about it. A recent Moody’s analysis argues that Alaska and three other states have entered into a recession as oil prices continue to fall—Alaskan economists disagree. New York-based Moody’s Analytics, which relies on data from the U.S. Census Bureau and other national sources to provide investors with state-by-state economic analysis, said in a report provided to clients in late December that Alaska joined North Dakota, West Virginia and Wyoming in a recession.  “We’re not saying we are and we’re not saying we’re not,” said Dan Robinson, research and analysis director for the state Labor Department. “It’s a little bit of an academic question so we wouldn’t see the need to argue with someone who says we’re in recession now.” The “recession” label may mean most to investors eyeing projects in Alaska such as new apartment buildings or oil and gas plays, officials said. It can also have an important psychological effect that weighs on the economy, Robinson said.

As Headlamp says frequently, investment is culture-driven. While some people can argue over whether or not we are in a recession, Headlamp must unfortunately remind our readers that the support industry has and will continue to lay off hundreds (if not thousands) of people. Instead of bickering over lagged employment data, people should face reality and take proactive steps to protect the strongest industry the state has. Moody’s analysis should be a red flag for Alaskan voters and lawmakers—protect our economic future before we slip into a serious recession.

Walker cuts AKLNG. State officials have finally given specifics on how much will be cut from AKLNG’s budget—$7 million. Deputy Natural Resources Commissioner Marty Rutherford told the House Finance Committee Tuesday the change reflects slow negotiations with the state’s three pipeline partners. As well as the low price of gas. Somehow ignoring the fact that the State’s timeline for AKLNG negotiations is unrealistic—how does Gov. Walker think this will expedite the project? Headlamp would like to reiterate a key question from yesterday’s committee hearing: if you remove this funding, will it weaken our ability to continue the AKLNG mega-project when commodity prices correct? What signals does the State send to our partners when announcing cuts like these? Cutting the necessary resources to a project of this scale risks losing the investment we have already poured into it.

The Senate Labor and Commerce Committee heard public testimony last night on Gov. Bill Walker’s proposed personal income tax. In its current form, the personal income tax would be 6 percent of your federal tax liability, or the amount you pay in taxes to the federal government. Tax Division Director Ken Alper presented the bill, and faced tough questions by the committee concerning how the tax would impact Alaska’s struggling economy. Many Alaskans called in to voice their opposition against Walker’s plan (SB 134). The bill’s fiscal note calls for the hiring of 44 full time employees to administer the income tax program, at a cost of over $8 million by 2020. Roughly 45% of Alaskans would not pay an income tax under Walker’s plan, thus unfairly laying the burden of paying for state government on hardworking Alaskans. Headlamp believes state government must be downsized to $4.5 billion in UGF spending this year, before discussions of new revenue like SB 134 occur.   

The White House has released video of Gov. Walker and President Obama’s exchange at the National Governors Associations dinner this week. To watch what was said, check it out here (Note: exchange begins at 1:18:00 mark).

Sen. Lisa Murkowski pressed Secretary of the Interior Sally Jewell on her department’s $13.4 billion budget request, noting that it would further restrict resource production in federal areas and ignore budget realities by increasing mandatory spending. “I am very troubled by the approach that Interior is trying to take for Alaska and the rest of our nation,” Murkowski said. “The Administration claims that this budget ‘…invests in Alaska’s long-term economic and environmental well-being.’ But time and again, I have looked through this budget proposal and unfortunately what I see is the continuation of a blocking effort, a preemption of our ability to safely develop our vast resources, and that takes away our best opportunities to grow and prosper.”

 

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First Reads

Moody’s slaps ‘recession’ label on Alaska, but are we really there?
Alaska Dispatch News, Alex DeMarban, February 23, 2016

Exporting liquefied natural gas: A golden opportunity we must seize
The Hill, Charlie Riedl, February 23, 2016

State income tax is a sure way to hasten Alaska’s economic decline
Alaska Dispatch News, Ross Bieling, February 23, 2016

With negotiations delayed, Administration proposes $7M cut to gas line budget
Alaska Public Radio News, Andrew Kitchenman, February 23, 2016

Walker’s proposed income tax to get hearing
Fairbanks Daily News Miner, Rashah McChesney, February 23, 2016

Video: President Obama responds to Gov. Walker, talks about Alaska trip
Alaska Dispatch News, Erica Martinson, February 23, 2016

UA president pushes back against proposed budget cuts
Alaska Dispatch News, Suzanna Caldwell, February 23, 2016

 

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Morning Headlamp — “New oil” optimism and Gov. Walker “pleads” with the President

February 23, 2016 | Posted in : News

In with the “new oil.” According to a new study, “new oil” fields are generating about 50,000 barrels a day and are helping aid Alaska’s production decline. That proportion of new oil could grow in the next two years if planned projects are completed, giving it an even larger share of overall production. Democratic lawmakers have criticized the small oil fields—claiming that the production tax rates are not high enough. Kara Moriarty, president of the Alaska Oil and Gas Association, pointed out that “new oil” pays income taxes and property taxes in addition to royalties, regardless of prices. “Bottom line, Rep. Gara seems to support raising taxes on an industry that by the state’s own admission is losing money,” Moriarty said. “We are hopeful the Department of Revenue will share a full analysis and impact of the governor’s tax policy proposal in public and with the House Resources Committee in the near future. Headlamp is happy to hear about the development of these new oil plays.  SB 21 and our credit system, restored competitiveness and attracted billions in new capital to the state, and has helped Alaska thus far avoid the calamities occurring in the Lower 48 oil and gas industry. Daily headlines in the Lower 48 are filled with news of major layoffs, countless rig shut downs, and companies filing for bankruptcy. Uprooting the tax system, as Gov. Walker and Rep. Gara want, will undoubtedly result in job losses, project delays, and push Alaska closer to the brink of recession. 

Walker pleads with Obama for oil. At yesterday’s National Governors Association meeting at the White House, Gov. Bill Walker pleaded for more access to drill on federal land, pointing to the state’s massive budget deficit. “We got problems,” Walker told the president. “We have an oil pipeline that’s empty. I need to fill it up. There’s a lot of oil up there, and we’re going to get it safely. And thank you for some of your positions you’ve taken, but we need to put oil in that pipeline.” Headlamp would like to thank Gov. Walker for taking Alaskan issues directly to the President and stressing Alaska’s—and the nation’s—need for responsible resource development on public lands.

Sen. Lisa Murkowski, released a new analysis by the Congressional Research Service of the Obama Administration’s revised proposed tax on oil, demonstrating that the slight increase in the rate actually costs an additional $8 billion over the next decade – for a total of $319 billion. When the actual budget was unveiled on February 9, the administration increased the fee to $10.25. Details of the proposal remain ambiguous. “This mathematical sleight of hand may look innocent, but that additional quarter actually raises the cost of the tax or ‘fee’ by nearly $8 billion,” Murkowski said. “Far from a rounding error, this increase would only put an additional burden on America’s oil producers, which dampens our domestic energy production.” Hiking taxes on an industry that is reeling because of low oil prices is flat out wrong. Furthermore, this tax will eventually be passed on to consumers through higher costs of energy and at the pump.

Sen. Bill Wielechowski introduced Senate Bill 188 Monday. It proposes to increase taxes on oil companies when profits rise above $20 a barrel by 0.3 percent per every additional dollar of profit beyond that amount. Wielechowski said the goal is to safeguard dividend checks by insuring that money taken in times of low oil prices will count towards dividends again in the future. “Every percent adds about $100 million for the state of Alaska so you’d have to see the price of oil go up pretty significantly before the money starts coming in,” Wielechowski explained. “Which means everyone’s making money. Instead of reaching into the same pot of money (the oil and gas industry) that is always relied upon, Headlamp suggests Sen. Wielechowski craft legislation that grows the economic pie.

 

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First Reads

Hackles raised in Juneau over analysis showing ‘new oil’ enjoys tax-free deal
Alaska Dispatch News, Alex DeMarban, February 22, 2016

Alaska export business performing at near record levels, experts say
KTUU, Steve MacDonald, February 22, 2016

Recession Already a Reality in Alaska, North Dakota, West Virginia, Wyoming
Industry Week, Steve Matthews, February 22, 2016

Anchorage lawmaker introduces bill to repay Permanent Fund earnings when used for government spending
KTVA, Liz Raines, February 22, 2016

 

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Walker’s Oil and Gas Tax Credit Overhaul Review

February 23, 2016 | Posted in : News

This week, the House Resources committee will hold daily hearings on HB 247 – the Governor’s bill that dramatically alters the state’s oil and gas tax credit system.  Yesterday, the committee heard from the administration on specific details of the bill. On Wednesday, the director of the Division of Oil and Gas, Corri Feige, will present an update on what’s happening in the industry. Legislative consultants, Enalytica, will present an analysis of the bill on Thursday and Friday. Headlamp looks forward to hearing someone finally present critical financial information on such a drastic change to our tax system.

The Walker administration has not publicized—or potentially done—any modeling of the economic impact HB 247 would have on Alaska’s economy. The $60,000 the state spent on an analysis done by ISER Director Gunnar Knapp, which examines different options to reduce the deficit, intentionally ignores the changes the Governor has suggested in HB 274, claiming that the effects are too complex and difficult to predict.

Governor Walker’s plan has proposed to cut $400 million from the state’s oil and gas tax credit program. In addition, the bill would extract $100 million more from the industry by changing the minimum tax.

Headlamp is disappointed and confused. When campaigning and when he was first elected, the Governor promised not to change oil taxes. “I do not intend to offer changes to SB21. Alaska voters trusted SB21 proponents that promised it would result in a halt in the decline of oil production, increased jobs and investment on the North Slope remaining flat or increasing and that it would be relatively revenue neutral as compared to ACES,” said Walker. As we have repeatedly stressed, there are plenty of ways to address Alaska’s budget deficit without penalizing one industry over all others. The Governor is asking the legislature to drastically change a tax system, that voters approved, without knowing how this change will impact jobs and the economy. More importantly, the Governor is suggesting substantial changes without understanding how Alaska’s key industry, the oil and gas industry, will be impacted in this low oil price environment.

A successful gas commercialization project, like AKLNG, depends on a healthy oil industry.  If the oil industry is again penalized with higher taxes, and more instability, the industry will be reluctant to invest $45-$65 billion in the largest construction project in North America. Headlamp questions how punishing our AKLNG partners with higher taxes will help advance the project that many see as critically necessary for Alaska’s economic future?

 

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Morning Headlamp—Walker needs to check his numbers on oil and gas taxes and one step at a time for AKLNG

February 22, 2016 | Posted in : News

Focusing on the task(s) at hand. Last Wednesday, representatives of the Alaska LNG Project partners — the state of Alaska, BP, ExxonMobil, and ConocoPhillips — said at an Anchorage press conference that despite market uncertainty, AKLNG will move steadily into pre-FEED. In a public meeting Saturday at the Kenai Visitor Center, Alaska LNG Community Stakeholder Advisor Josselyn O’Connor said these possible changes were not prompting hesitation with the project’s work. “Our marching orders are to get through and complete pre-FEED,” O’Connor said, using the project’s acronym for pre-Front End Engineering and Design — the preparatory work needed to decide whether to invest in building the 806-mile pipeline to carry natural gas from the North Slope. In the coming months, Alaska LNG will have to submit 13 reports of the project’s estimated effect on the local environment and culture to the Federal Energy Regulatory Commission, a national licensing authority. Alaskans are confused about the status of this project; as AKLNG employees continue work, Governor Walker removes $7 million in funding for AKLNG support positions in DNR and holds a press conference to announce change…but no detail.  Headlamp has said it before:  Uncertainty is the enemy of investment. 

House members question whether Walker’s administration has done enough analysis of proposed oil and gas tax changes – as well as other tax increases Walker has proposed. Speaker of the House Mike Chenault says it’s important for legislators to study economic models showing how the changes will affect the state’s economy. The state didn’t conduct statistical modeling before Walker proposed the tax changes. “They were told basically they have no modeling – or that they were working on modeling” Chenault said. “Well, it’s hard to put together a tax bill if you don’t have modeling.” Economic modeling is the backbone of any fiscal reform—it’s frankly irresponsible not to model potential changes before voting on them. Headlamp agrees with concerned House members, the Walker administration must be well-informed before they propose such sweeping changes.

Oil exploration closer to home. In an effort to encourage oil and gas drilling in a large chunk of Southcentral Alaska, a preliminary determination document was signed on February 2, 2016 by Corri Feige, director of the state Division of Oil and Gas. The document is part of a plan to declare about 50 million acres of state land open for oil and gas exploration. The proposed area north and east of Anchorage extends to the Canadian border, with boundaries encompassing some state waters — such as Prince William Sound — and communities that include Talkeetna, Tok and Cordova. Jonathan Shick, pre-exploration team lead for the state said that the program is “geared toward smaller-scale investors and exploring unknown areas.” Headlamp is always happy to hear when responsible resource development is proposed for Alaskans. Hopefully the exploratory licenses will evolve into drilling licenses and Alaskan’s can prosper through small-scale drilling operations.

Global LNG developments. A liquefied natural gas (LNG) tanker docked on Sunday at the Sabine Pass terminal in Louisiana, with only days to go before the United States ships its first export cargo of seaborne gas from the lower 48 states. Set to load the first shale gas to export markets, the Asia Vision LNG tanker docked at Cheniere Energy’s Sabine Pass LNG terminal on Sunday, Reuter’s ship tracking data showed. Once operational, Sabine Pass will be the first LNG export terminal outside of Alaska. The United States has been exporting LNG mostly to Japan from Alaska since 1969.

 

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First Reads

AK LNG project pace holds steady
Peninsula Clarion, Ben Boettger, February 21, 2016

House Speaker questions administration’s analysis of oil, gas tax changes
Alaska Public Radio News, Andrew Kitchenman, February 19, 2016

What’s it like to work at an oil field on the North Slope?
Alaska Dispatch News, Annie Zak, February 19, 2016

First U.S. shale gas exports imminent as tanker docks at Sabine Pass
Reuters, Jacob Gronholt-Pederson, February 22, 2016

State encourages small-scale efforts to hunt for oil and gas in Southcentral
Alaska Dispatch News, Alex DeMarban, February 19, 2016

House wants details on impacts of oil, gas tax changes
KTOO, Andrew Kitchenman, February 19, 2016

An inevitable delay for natural gas: Price slump, supply glut a one-two punch to Alaska LNG timeline
Fairbanks Daily News Miner, February 19, 2016

 

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Morning Headlamp— Budget talks and Dermot Cole weighs in on AKLNG’s future

February 19, 2016 | Posted in : News

As budget talks continue, lawmakers and Governor Bill Walker are struggling to find middle ground on where cuts to the budget can be found. Walker is now proposing $135.5 million less in spending this year. He amended his budget for the next fiscal year, which starts in June, to include reductions in some areas but additions in others. The governor eliminated his Pension Obligation Bond proposal for funding the state pension program, from this year’s budget, which cuts spending back $220 million. But he added money back in to keep a state trooper in Kodiak, a state attorney’s office in Dillingham and restored $2 million in funding for Pre-kindergarten grants. House Finance co-chair Rep. Steve Thompson says his committee is looking at $4.5 billion to $4.7 billion in funding – $50 million to $250 million less than the governor’s $4.75 billion budget. Thompson says the house hopes to have a budget by March 9th.

The people of Alaska aren’t gonna stand for their pockets being picked to the level that he has proposed. Earnings reserve, dividends, sales tax, tobacco tax, sin tax, income tax, fuel tax, kitchen sink tax… I don’t think they’re gonna support that. So rather than lose that battle, I’d rather not fight it.” said Sen Pete Kelly when asked about the possibility of higher taxes. Headlamp agrees with Sen. Kelly. The state is absolutely facing tough decisions, but kicking the can by adding tax after tax is a simplistic and shortsighted attempt to balance the budget.

According to a Peninsula Clarion editorial, while times are certainly tough for the oil and gas industry, progress is essential. The piece stresses the important fact that, “the reality is that slower progress is preferable to no progress. It’s far better to adjust expectations now, than to find Alaska with nothing to show for its efforts a year down the road.”

In his Alaska Dispatch News column, Dermot Cole examined the future of the AKLNG megaproject. According to Cole, “companies must find markets for the gas or risk losing the value of the resource.” While Mr. Cole is certainly right, finding a market for LNG will ultimately lead to the overall success of the project, AKLNG has a market abroad. Looking internationally, LNG could satisfy the energy needs of some of the fastest growing economies in Asia.

 

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First Reads

Alaska lawmakers, governor still undecided on ‘right size’ of government
KTVA, Liz Raines, February 18, 2016

Is this the end of the gas line dream — again?
Alaska Dispatch News, Dermot Cole, February 18, 2016

A reality check on LNG progress
Peninsula Clarion, February 18, 2016

For Alaska’s Cable Company, Excessive State Spending is a Bottom-Line Issue
Town Hall, Brian McNicoll, February 19, 2016

 

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Morning Headlamp—Walker LNG Presser Provides More Questions than Answers

February 18, 2016 | Posted in : News

So…where’s the news? In yesterday’s press conference, Gov. Bill Walker said the state and industry partners are looking at different options for moving forward amid low oil prices. But he insisted that the project is still moving forward, and preliminary engineering and design work should be completed this fall. Walker said the state will explore options to see what can be done to provide certainty to taxes and royalties without an amendment. “The elephant in the room has been for some time — what do we do in the challenging times of low oil prices and how does that impact the project?” Walker said. All three industry partners acknowledge the task at hand but also reaffirmed their commitment to the megaproject. Rebecca Logan, general manager of the Alaska Support Industry Alliance trade group, commented that the financial pressure of a low-oil price environment should not be compounded by higher industry taxes.

It appears that more information on the “options” the Governor hinted it should become public “sometime in early March.”

In this era of low oil prices, the state must adopt policies that incentivize private sector investment regardless of price climate. Prices have, and will always fluctuate—how Alaska responds policy wise to the market is what matters.  Regardless, the success of the project will depend on a healthy Alaskan oil economy. Changing Alaska’s oil tax structure amid low prices, such as the Governor is proposing, is not a path forward to attract new investment.

ConocoPhillips Alaska Inc. is planning a two-well exploration program this year at the western end of its Greater Mooses Tooth unit in the National Petroleum Reserve-Alaska. ConocoPhillips recently sanctioned a $900 million GMT-1 development at the eastern end of the unit, at lease AA 81798. The project includes construction of a drilling pad, a 7.7-mile road and associated facilities and pipelines and an initial nine-well drilling program with the capacity for 33 wells. The timeline calls for production by late 2018. Toward the end of 2015, ConocoPhillips CEO Ryan Lance said, “Over the past couple of years, we’ve been able to change the profile of our Alaska business. We’ve transformed the declining production base into one that can deliver stable production for a decade.”

According to an Alaska Journal of Commerce editorial, Gov. Walker’s press conference was, “the Seinfeld of press conferences.” According to Jensen, Alaska is facing a “desperate need to hold this project together through a brutal price cycle nobody saw coming, Walker must rethink his proposals to hike taxes on our project partners.”

Headlamp could not agree more with this piece by Mr. Jensen. Gov. Walker’s proposal to significantly raise taxes on our AKLNG partners, who are bleeding dry by low oil prices, is a terrible policy decision and breaks his campaign promise not to alter the state’s oil tax regime under SB 21. Alaska will never see a gasline project if we sabotage the oil industry.

The Bureau of Land Management has already spent more than $100 million cleaning up abandoned wells in Alaska’s National Petroleum Reserve and is currently pushing to finish the job. Sen. Lisa Murkowski secured an additional $50 million for the BLM through the Helium Stewardship Act of 2013 to use towards cleanup efforts of the legacy wells. “The Helium Act funding will allow us to clean up a significant number of the legacy wells to protect the public and the environment,” said BLM Alaska State Director Bud Cribley. “Remediation of the remaining wells will require tremendous additional resources over the coming years, but we are committed to doing our part to finish the job. The BLM is continuing to work with the Alaska Oil and Gas Conservation Commission and other stakeholders to prioritize which wells to clean up first, based on risks to human health and the environment. By the end of this summer, the BLM is expected to have spent $150 million on the legacy well project. Headlamp is encouraged to see the BLM being held accountable for their legacy well mess. It’s astonishing how long this process has taken. There would be lawsuits, protests, clamoring for people to be fired or likely jailed if the State, or private sector, had ever done anything remotely close to what the BLM has done. Everyone, especially our federal government must be held accountable to the same standards and be required to comply with the same laws. No one, or no agency is above the rule of law.

 

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First Reads

Alaska gas project partners to consider options
Associated Press, Becky Bohrer, February 17, 2016

AJOC EDITORIAL: No news is bad news for AK LNG Project
Alaska Journal of Commerce, Andrew Jensen, February 17, 2016

Gazprom: Arctic offshore oil more than doubled at Russia’s Prirazlomnaya
Alaska Dispatch News, Trude Pettersen, February 17, 2016

Producers, Walker admit AK LNG stall
Alaska Journal of Commerce, Elwood Brehmer, February 17, 2016

Alaska gas line setback is all but certain, Walker administration officials say
Alaska Dispatch News, Nathaniel Herz, February 17, 2016

Conoco plans NPR-A exploration program from Greater Mooses Tooth unit
Alaska Dispatch News, Eric Lidji, February 16, 2016

BLM announces major cleanup of ‘legacy wells’
KTVA, Shannon Ballard, February 17, 2016

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