JUNEAU, Alaska — Gov. Sean Parnell’s goal of nearly doubling the flow of oil through the trans-Alaska pipeline could be achieved over the next 10 to 15 years — but not without major fiscal and policy changes, a consultant said.
Pedro van Meurs, an oil and gas consultant, told a joint hearing of the Senate Resources and Finance committees that Parnell’s tax-cut bill “does not even come close” to going far enough to hit the Republican governor’s goal of 1 million barrels a day. He said “more elaborate” legislation is needed if Alaska wants significant increases in production.
Reaching Parnell’s goal includes new production in legacy fields and drilling in the Arctic and federally controlled Arctic National Wildlife Refuge. The Artic isn’t yet online and the refuge is currently off limits. But Van Meurs told senators he believes the goal can be reached with state resources alone, if changes are made.
About 600,000 barrels currently flow through the pipeline. Parnell wants to reach his target within a decade.
Increased production considered vital to Alaska’s financial future. About 90 percent of the state’s unrestricted revenue comes from oil taxes.
Van Meurs, a consultant to the Legislature, said the changes he’s proposing — which he plans to lay out over two days of hearings — would lead to $7.5 billion in additional investment. Part of his plan calls for the state to define competitive, fixed fiscal terms for its oil and gas resources, such as new and existing light oil, heavy and ultra-heavy oil, natural gas and shale oil.
He also calls for offering fiscal stability for large new projects.
Van Meurs said it would be difficult to introduce the changes he’s proposing in what he called a somewhat unfavorable political climate in Alaska.
He cited the deal-by-deal approach the state has taken for major projects, which he said is common for places with smaller populations, and a dependency on the three major oil companies for much of the state’s unrestricted revenues.
Those companies are in “harvest mode,” he said, meaning that they draw cash out of Alaska for investment elsewhere. He said they’ve operated this way for a long time, and that he cannot see much for them to invest in in Alaska— in spite of vast remaining reserves on the North Slope — if fiscal terms aren’t changed.
Sen. Hollis French, D-Anchorage, questioned the concept of providing long-term contracts promising fiscal stability. Under the state constitution, he said the power of taxation shall never be surrendered or contracted away. Van Meurs suggested this is something the Alaska Supreme Court could decide.
Van Meurs found the government’s take for Alaska is reasonable, but perhaps slightly on the high side, compared to other exporters for existing production. He said there should be more favorable terms for industry in other areas.
Oil and gas companies have said Alaska’s current tax structure eats too deeply into their profits at times of high oil prices and discourages new investments.
A version of Parnell’s oil and gas industry tax cut bill cleared a divided House last year before stalling in the Senate. Critics called it a corporate giveaway, with no guarantees the state would get anything in return.
Supporters, including the oil industry, have called a tax cut necessary to boost investment and reverse the trend of declining production.
Senate leaders said they needed more information to make a sound policy call and plan to write their own tax bill this session.