Wednesday, 14 December 2011 10:16
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| Oil transit and other pipelines run from one BP's facility at the Prudhoe Bay oil field on Alaska's North Slope. AP Photo/Al Grillo, file. The Canadian Press. |
Despite the amenities, many residents just don't understand what the oil industry means to Alaska, Crockett told Alaska Dispatch.
They need to figure it out before the oil stops flowing and tens of thousands of jobs vanish statewide. Most critical is that the Legislature must pass a substantial production-tax cut to promote future development and boost the flow of oil in the trans-Alaska pipeline, she argues.
Crockett started her career with the trade association as a typist at the age of 17, shortly after graduating from West High School, and moved up through the ranks to become the group's executive director. She's retiring at the end of this month, but plans to continue living in Alaska. In an interview with the Dispatch, she reflects on some of the changes she's seen over the last four decades.
The conversation picks up as she's describing one of the bright spots of the state's recent oil and gas lease sale that netted $21 million.
Marilyn Crockett: We've got some new players. It demonstrates how well the exploration credit program is and how attractive it is for companies coming to Alaska to explore for the first time. The flip side is it's a generous program, but the companies say, "If we're successful and we hope we are, you will need to make changes to the production tax system, because our project won't be economic if you don't." That's what the Legislature is struggling with and we've encouraged folks to look at that. The exploration program is working very well, but it will take five to seven years for those developments to come on line and they have to pass the economic test.
So that's the dilemma that's going to face those companies eventually. Alaska is a high cost-operating environment, anyway, and they're discovering that. Repsol (a Madrid-based energy corporation), for example, has a very aggressive program. They partnered with (Denver-based Armstrong Oil and Gas Inc.) and picked up a lot of their leases. To get their plan under way and completed, they have chartered two 737s per week to transport goods and workers up to the North Slope and back.
That's a big deal, and indicative of how expensive it is to operate in that area. They're going after conventional oil.
Industry's view on ACES
Alaska Dispatch: So why does the state have to change the tax rate now if there's a five-to-seven-year window on development? Why not change it in two years or three years?
Marilyn Crockett: Well, let's say a company makes a discovery, that the drilling under way right now is successful. The company will start looking at the economics depending on what kind of a find they have. Conventional wisdom around the industry and the state is that it's not likely there will be any more Prudhoe Bays. So these will be smaller, 10,000 barrel-a-day fields. We hope it's more, but the reality is there's been an awful lot of work done up there, so it's going to be smaller pockets of oil, which will be more economically challenged, because the volume isn't there. So if one of those companies has a discovery this winter ... one of those numbers they'll crunch is what's going to be the production tax?
Dispatch: Alaska Governor Sean Parnell's proposed tax cut could cost the state more than $1 billion by 2017 and maybe more.
Crockett: Depends how you run the numbers. What we have found in talking to Alaskans, our view is the state is much better off to grow the pie than to take a bigger slice of the pie. Alaskans want jobs, they want revenues to the state, they want increased oil production because they're concerned about the precipitous decline we have right now. So the short-term investment and what folks are characterizing as giveaways or lost revenues to the state will be made up over the long term if (Parnell) is successful in getting the pipeline back up to 1 million barrels a day.
That will keep the pipeline going and the value of keeping the pipeline going is it continues to attract new companies to the state. And it also facilitates companies like Shell Oil and others exploring the offshore.
Dispatch: What if the Legislature chose a more moderate approach in terms of the oil tax bill, something some senators are considering now? Maybe it wouldn't be as much as Parnell has proposed ...
Crockett: It depends on what it is. Devil's in the details. The reality is that whatever change the Legislature adopts, and we sincerely hope they do, it has to be substantial enough to move the needle for the companies. If it doesn't influence the investment decisions made by these companies, a tweak won't do us any good. It won't influence how oil companies behave, so that's a lost opportunity.
How is Alaska's oil valued?
Dispatch: These oil companies are doing well. ConocoPhillips has said it netted $1 billion in Alaska in the first half of the year, so they're on track to net $2 billion a year. That's a huge amount. I can understand why Alaskans would ...
Crockett: Well the flip side of that is, that was at a time of high oil prices. I heard (state labor economist) Neal Fried the other day say this may be the first time in Alaska's history that we've seen prices over $100 a barrel for the entire year. So take a look at the numbers for any single company for 2011 and contrast that with their revenue for 2010 and it's less, despite the fact that it was extremely high oil prices. So if you're a company with worldwide opportunities, or opportunities just in the U.S. alone, and you look at where you're going to invest your money, you're going to invest it in the place with the greatest return. At $115 a barrel for crude oil, you're better off investing it in Texas or North Dakota or pick your geography, as opposed to Alaska, because you're going to get more bang for your buck down there. It's easy to throw around big numbers, because the industry is such a large industry. Billions are tossed around loosely, but the reality is that if you can make a billion over here and $2 billion over there, you're going to invest in the $2 billion return.
Dispatch: What has been Alaska's biggest failure in terms of developing its oil in the last 40 years? We were shipping 2 million barrels a day down the pipeline. Now we're at 630,000.
Crockett: I guess the real concern Alaskans and policy makers should have is the rate of decline. The production off the North Slope is declining at about 40,000 to 50,000 barrels a day, per year. Look at the newest fields that have been developed on the North Slope -- the Pioneer Oooguruk project and (Rome-based oil and gas multinational) Eni's Nikaitchuq project -- they're in the 10,000 barrel-a-day range. They're both in production now. They're not at that rate yet, because they're relatively new fields. But that's the generally-accepted ballpark estimate for those fields. So if you think about those two projects, multibillion-dollar projects individually, you add up the two and you get 20,000 barrels a day. You're going to need four of those kinds of developments per year just to keep flat. And we're not seeing any of those projects coming on line. There are no new projects in the queue that we can say, three years from now, we'll have another 10,000 barrel-a-day project. They're simply not there.
So much time has passed that a lot of Alaskans, especially newcomers, don't have the history, don't have a good understanding of what the industry means to this state. In Alaska, virtually all the resources are owned by the state. So as individual Alaskans we all have something at stake in terms of making sure that production continues. It brings in state revenues, it funds programs, it puts people to work, it means we have no state income tax. We get a PFD each year. I can remember the time we had a state income tax and there was no Permanent Fund Dividend, but we have a generation of Alaskans, really, my kids included, who never had a year go by where they didn't get a PFD. Those of us who have been here a long time remember what Anchorage was like before oil and gas production began. I can remember when there was one swimming pool in Anchorage, down by Valley of the Moon Park. It was called The Spa, and in seventh or eighth grade, that was a required curriculum, you had to learn to swim, so kids went there in the bus in January and did their swim lessons. Now, every, high school in Anchorage has a swimming pool. The amenities Alaskans have because of the revenues that have come in have completely transformed the state.
Dispatch: Why don't these young Alaskans understand the value of oil? What's changed?
Crockett: It's like, if you didn't know any different, you wouldn't have a reason to think of it in those terms. Oil revenues to the state make up 89 percent of the state's unrestricted general fund revenue (from private-sector sources). Imagine if that went away. There's no other revenue source or combination of revenue sources that could begin to come close to matching that revenue stream. That's why it's so important to Alaskans. We've spent quite a bit of time informing Alaska residents what the industry means here and why it's so important. (Economics professor) Scott Goldsmith with the University of Alaska Institute of Social and Economic Research has a number of publications analyzing and examining what revenues and jobs have meant to Alaska and how Alaska would look differently today had it not been for the major discovery on the slope in 1969.
Dispatch: Oil companies have listed some things they would do if Parnell's tax cut was passed. I think BP mentioned Lisburne expansion and M and S Pad expansion and other things, for example. So what if the Legislature tied a tax credit to those things? In other words, if those things are done, they get a tax credit.
Crockett: There are any number of ways to adjust the production tax system. That's one approach.
Dispatch: Would oil companies like that idea?
Crockett: The strong preference is for a tax system that is clear, predictable and works for everyone. We can cherry pick and say if you do those two things, you'll get a tax break. But that just further complicates an already extremely complicated system. So let's say you have a new player that comes in that doesn't have a Lisburne. Then you have another wrinkle to take into account. Anything like that further complicates the investment decision a company must make.
On ANWR and oil patch politics
Dispatch: Speaking of history, isn't the inability to open ANWR a pretty great disappointment? Didn't President Jimmy Carter say this was being set aside for possible oil development?
Crockett: For evaluation. We have files and files and files on ANILCA (1980 federal law creating most of Alaska's parklands) and ANCSA (1971 federal law creating Native corporations and setting the stage for oil development) and I remember very clearly the debate in Congress on setting aside the 1002 area. It was already a refuge, but it was enlarged and renamed the Arctic National Wildlife Refuge. Congress said we'll slice off this small area at the top of ANWR, and set it aside for evaluation for potential oil and gas development at some point, and Fish and Wildlife Service and Department of Interior have actually done that evaluation a couple of times.
(They concluded) there was considerable resource there and the area is suitable for oil and gas development. The challenge has been getting approval through Congress. We did get approval from Congress at one point and President Bill Clinton vetoed the bill.
So conventional wisdom is there is a good resource there, but the concerns of the environmental community have gotten hold of Congress and won't let go.
Dispatch: That's not necessarily a broken promise.
Crockett: I think it is by Congress. The evaluation has been done, it's been determined that the activity can take place, what's the problem? We did what you asked us to. You can look at the caribou population on the North Slope oil fields, and reach a very easy conclusion that caribou are not scared away by oil and gas activity. Their numbers have grown hugely.
Dispatch: So if all this is true, what's the disconnect? Where did we fail to open ANWR?
Crockett: Alaska is so far away and so removed from the rest of the Lower 48 that for some Congressmen it's not their problem. They've seen beautiful pictures of mountains, which is not where the coastal plain is. So for them, it's an easy, emotional vote. It's not their problem, it's not their issue. They're more concerned about their district. So I think that's where part of the challenge is. Environmental groups have continued to very actively advocate against opening the coastal plain. We just think it's a huge disappointment.
Dispatch: What are the biggest changes you've seen in the political climate, state or federal, over the last 40 years?
Crockett: Technology and communication have transformed how all of us behave and what we believe. If there's a news story in the Lower 48 that happens to be incorrect, that thing makes it around the world 14 times before the correction comes out, and people have already made up their mind. It has transformed Alaskans and Americans on how they reach decisions and view points on particular issues.
Dispatch: That's a big change certainly. How does that affect oil and gas development?
Crockett: If I take a look at the emails from environmental organizations, like the Center for Biological Diversity, they have a massive distribution system they do their outreach to. Grandmas in Kansas are looking at a picture of a polar bear and sending in their $10. So it's impacted oil and gas development in Alaska negatively from the perspective of environmental groups who don't want to see anything happen in Alaska or offshore of Alaska -- to the detriment of Alaskans that live here and understand it can be done safely. So you have others controlling your destiny in a roundabout sort of way.
Dispatch: They are active. But the oil companies and trade associations, they certainly do well financially, they're the top earners worldwide, why can't they counter that?
Crockett: Well, we do counter it. But Alaska Oil and Gas Association doesn't have an email distribution list of 4 million people. We do what we can, but we are extremely careful about putting out factual information. We're not going to tug on people's emotions to try to convince them our position is the right position. We're factual, straightforward.
Dispatch: Jobs are an emotional topic.
Crockett: We do talk about that. We (recently) hired the McDowell Group to update an economic study we did a couple of years ago, where they surveyed our primary member companies of AOGA, and surveyed the contracting, consultant community that provides services to the industry to determine the private-sector impact, the payroll impact, and broke it into six different geographic areas. The study found statewide that almost 45,000 jobs are directly related to oil and gas development, not including state jobs or spending of Permanent Fund Dividends. We are able to tell folks in the Matanuska-Susitna Borough there's no BP in Palmer or Exxon in Wasilla, but ... this is what it means for people who own homes, pay taxes, buy groceries.
Let's say you have a North Slope worker working two on and two off. He chooses to live in the Valley, he pays property taxes, his family probably goes to a doctor there, he shops at Carrs there, and it's those benefits to those communities, especially in terms of private-sector revenues, that provide the multiplier effect. You probably wouldn't have a Fred Meyer and a Carrs-Safeway in Wasilla if you didn't have oil and gas workers living there.
Dispatch: You've seen all these changes over the last 40 years. What can you leave Alaskans with in terms of how do we get more production from the oil and gas fields?
Crockett: I think it's important for all Alaskans to have a better understanding of the resource value we have here. We talk loosely about (Outer Continental Shelf oil and gas) development. I'm close to it. The person who works in that building across the street probably isn't. I liken it to living in the Detroit area. Everyone who lives in Detroit knows the most important industry they have is building cars. They know it. They understand it. Here in Alaska, not every single Alaskan knows how important oil and gas development is. Now if it was happening at the Port of Anchorage and they drove by it every day they might understand it, because they would see it. All of it is happening very remotely. Because we don't see it every day, we tend not to think about it. We have nice roads because of it and nice office buildings, so I think all of us here at AOGA and the state of Alaska, and our public policymakers, we all need to do a better job of making sure Alaskans understand what this industry means to this state. It's no small matter. It's huge. We've been spending a lot of time going to communities and having that discussion. The state has done a very good job with it. The governor has talked a number of times about his goal of getting production up to 1 million barrels a day and why it's so important.
Once people understand the critical nature of where we are, with production decline, you'll see calls into legislators saying, look I'm average Joe Citizen, I don't know how to fix this, but you've got to fix this, because I'm concerned about my future, my children's future and I want to live here a long time.