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The Myths About ACES

The Myths About ACES. Senator Bill Wielechowski January 5, 2012. Myth #1: Lower Taxes Leads to More Oil Production. Prior to our current fiscal structure, we had the Economic Limit Factor, or “ELF” Most fields paid zero or very low taxes. Philosophy was this would lead to more oil

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The Myths About ACES

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  1. The Myths About ACES Senator Bill Wielechowski January 5, 2012

  2. Myth #1:Lower Taxes Leads to More Oil Production Prior to our current fiscal structure, we had the Economic Limit Factor, or “ELF” Most fields paid zero or very low taxes. Philosophy was this would lead to more oil By 2006, 15 of 19 fields on the North Slope paid zero production taxes 2

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  4. Production Declines Before ACESACES passed November 2007 • 5.78 percent a year from 1998-2007 • 8.72 percent a year from 2004-2007 SOURCES: “Production C-2a: Crude Oil Production –History,” Revenue Sources Book, Fall 2007, Fall 2008, Fall 2009, Tax Division, Department of Revenue. 4

  5. Myth #2:ACES is Killing Investment In the years since ACES passed, oil industry investment in Alaska has increased consistently to all-time highs each year.

  6. Capital expenditures are rising

  7. And Investment is ForecastTo Increase. Source: Revenue Sources Book, Alaska Department of Revenue, Fall 2010

  8. Myth #3:New Investment on the North Slope Is For Maintenance ACES opponents have been making this claim for years. So in 2010 the Parnell Administration examined this issue and presented the following conclusion to the Legislature.

  9. In Fact, Oil Exploration On the North Slope is Booming • 7 explorers are actively working, many new to Alaska • 34 new wells are planned for this year, “exceeding the record to date, which was 33 in 1969, when 33 exploration wells were drilled after the discovery of the giant Prudhoe Bay field.”* * Petroleum News, Oct 2, 2011

  10. New North Slope Development WellsAre also Increasing 2006: 137 wells 2007: 153 wells 2008: 139 wells 2009: 132 wells 2010: 164 wells – highest # in 5 years Source: Alaska Oil and Gas Conservation Commission

  11. Myth #4: Oil Companies are Fleeing Alaska In 2006, the first year that tax filings were made under the net profit tax, 19 companies filed annual returns. In 2007, this grew to 26. In 2008, it grew to 36, and in 2009, 39 companies filed returns. 12

  12. Fierce CompetitionFor New Oil Leases And this December, 19 oil companies competed for 616,000 acres of new petroleum-rich lands, paying the state nearly $21 million. The bidding generated the sixth largest amount ever for tracts on the North Slope. 13

  13. Big Investors, Big Interest The large Spanish oil giant Repsol also will also begin exploring in Alaska this winter. The company hopes to spend at least $768 millionunder a "broad-reaching exploration and development program.” "The North Slope of Alaska is an especially promising area for Repsol as it has already shown to be oil-rich and carries low exploratory risk," Repsol said. 14

  14. Myth #5: ACES is Killing Jobs According to the Department of Labor, employment in the oil and gas industry has increasedsince ACES was implemented. 15

  15. New Jobs in the Oil Patch 16

  16. But… Who’s Getting the New Jobs? Unfortunately, unemployment claims for Alaskan oil and gas workers increased 160% from 2006 to 2010, while roughly 50% of all new oil and gas hires were non-residents in 2009. In April 2011, the Department of Labor found that 54% of all new oil and gas hires were non-residents. 17

  17. Myth #6:The Oil Cos Take All the Risk and Should Get All the Reward 18

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  19. Myth 7:Alaska is “Not Competitive” ‘Alaska’s taxes are so high, they are driving business away and producers can’t make a profit’ 20

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  21. BP: Alaska Net Income (Billions) ‘07: $2.5 ‘08: $2.0 ‘09: $1.9 ‘10: $2.3 (minus $1.5 billion in ‘10 deducted for non-Alaska costs, such as the Gulf spill) $8.7 billion in profit under ACES Source: BP Annual Report 22

  22. ConocoPhillips Alaska Net Income in Billions ‘07: $2.3 ‘08: $2.3 ‘09: $1.5 ‘10: $1.7 $7.8 billion in profit under ACES Source: ConocoPhillips Annual Report 23

  23. Alaska Profits vs. World ProfitsFrom Petroleum News (8/16/2009) Alaska O&G production makes up about 12% of ConocoPhillips’ worldwide output. Yet, in the 1st quarter of this year, Alaska operations earned the company 29% of its worldwide exploration and production income. In the 2nd quarter, 55% of ConocoPhillips’ E&P worldwide earnings came from Alaska. The avg AK E&P from 2009-2011 was 30.1% 24

  24. Healthy Rates of Return On 3/23/11, ConocoPhillips executives acknowledged that Alaska has “strong cash margins” and “very good rates of return” In 2007, consultants hired by the Legislature modeled the rate of return an oil company receives when investing in Prudhoe Bay. The following slide, developed by internationally recognized oil consultants Gaffney and Cline, estimates returns at 123% when oil sells at $80 a barrel. 25

  25. Profitability of Alaska Oil Wells 26

  26. Myth 8:Oil Cos Can Simply Ignore Their AK Leases and Have No Duty to Produce The companies have a legal duty to produce oil in areas they have leased if they can generate a reasonable profit. If they don’t develop lands Alaskans have leased to them for that purpose, they must relinquish their leases. 27

  27. Point Thomson:A Case in Point This is what is currently happening in the gas-rich Pt. Thomson area, where Exxon and its partners have failed to develop the area’s vast resources after more than 30 years of delay and 27 “plans of development .” Alaskans have a right to expect that resources they lease for development will be developed. 28

  28. Myth #9: The Pipeline Is On the VergeOf Shutting Down In 2004 reserves submission to London office, BP Exploration and BP Pipelines reported that Prudhoe and Kuparuk would be “cash flow positive at 2064.” On 8/16/10, BP’s expert concluded, “TAPS could effectively operate down to throughputs between 100,000 bbl/d and approximately 70,000 bbl/d” BP relied on this study to book its reserves with the SEC 29

  29. Myth 10:The North Dakota Myth According to Leg. Research, drilling increase in No. Dakota is not likely to due tax rates, but rather advent of hydraulic fracturing technology According to Pedro Van Meurs, North Dakota has one of the least attractive fiscal regimes in North America. Gross tax, higher royalties and lease rates – mostly to private land owners. Nowhere near the credits or deductions we have in Alaska If you really want to be like North Dakota, be prepared to pay a state income tax, a statewide sales tax, and to forfeit your PFD. 30

  30. Myth 11: Those Who Oppose Rolling Back Oil Taxes Are Anti-Business Recently, the Chamber of Commerce, RDC and Alaska Support Industry Alliance, graded legislators on their alleged support for Alaska businesses. Those who vocally opposed rolling back ACES uniformly received failing grades, while those who supported the Governor’s plans received A’s and B’s.

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