A Citizen’s Guide

As Alaska legislators consider what production tax rate to impose on oil companies, a BP executive Wednesday tried to convince a Fairbanks audience that ensuring long-term investment in the state matters more than getting the highest tax rate on oil.

Oil company profits are not the state’s enemy, said Ken Konrad, BP’s senior vice president of gas. “The enemy for Alaska … is production decline.”

Konrad made his comments at the Fairbanks Princess Lodge to about 20 members of the Fairbanks chapter of the Alaska Industry Support Alliance, a statewide organization representing the oil and gas support industry.

While the state’s oil reserves are substantial, production of North Slope oil has fallen by about 6 percent per year since a peak more than 15 years ago, he said. Slowing that decline to 3 percent would take a doubling of current investment.

“There’s still a huge resource base up there,” he said. “The key is being able to attract investment.”

Konrad said when BP began negotiations with the state, it asked for a 12.5 percent production tax, which he said he thought would have stimulated a good deal of increased investment. The company agreed to the governor’s proposal of a 20 percent tax coupled with a 20 percent investment credit in order to move forward on developing the state’s natural gas.

In the weeks since Murkowski proposed his petroleum production tax, many legislators have recommended increasing the tax rate to 25 percent.

A Department of Revenue report requested by Democratic legislators and released earlier this week found that oil companies would still make billions in yearly profits with a production tax rate above that proposed by the governor.

Konrad repeated the refrain oil companies have made for weeks in legislative hearings and public advertisements—that an increase in the tax rate will turn companies away from Alaska.

“If taxes go up, investment goes down,” he said.

Konrad acknowledged that with oil selling for $60 a barrel, BP’s profits are “very high,” but disputed the idea that the profits were enough to encourage heavy investment in the state by existing and new companies.

“If it’s so outlandishly profitable, where is everybody?” he asked. Konrad said the governor’s proposed oil tax could make the state slightly less attractive to companies than it is under the current tax system, but would probably have little or no impact.

The decline in oil production could be lessened by a gas pipeline, he said, as companies exploring for gas could also find oil.

Konrad urged legislators not to go for every last penny of tax but to act in a way that would encourage long-term investment.

“When you pull the investment in, the revenue pie increases for everybody,” he said. He also described how the oil tax was important to BP because of the company’s plans to build a natural gas pipeline in partnership with ConcocoPhillips, Exxon Mobil, and the state.

Undertaking a project like that, he said, amounts to committing to continuing North Slope oil production for the next 40 or 50 years.

“It’s huge,” he said.

Staff writer Stefan Milkowski can be reached at smilkowski@newsminer.com or 459-7577.