Oil Companies Ask for Big Tax Breaks Promising Big Investments on the North Slope: Some Lawmakers Not So Sure

JUNEAU, Alaska — So what could you do with a tax break of $700-thousand a day for the next ten years? A lot, huh.

Well the three major oil producers on the North Slope say they couldn't do much with that kind of money. Just manage a continued, steady decline there.

On Wednesday, representatives of the three big producers testified before the Alaska Senate Finance Committeee. They told committee members that they need a tax break of almost $5-million a day to stop Prudhoe Bay's decline -- and start bringing the numbers back up.

Some lawmakers are skeptical of that promise. They think the tax break the producers are asking for is too much. $5 million a day adds up to $18 billion dollars over the next ten years.

But everyone in Alaska is facing a serious problem. Oil money makes up 90 percent of the state's operating revenue. And each year Prudhoe Bay -- the greatest proven oil find in North American history -- declines by about 6 percent a year.

Right now -- as you read this article -- Prudhoe is putting out about 576-thousand barrels of oil a day. At least that's what a continuous readout -- in State Representative Craig Johnson's (R) Anchorage office says.

That's down from a peak of about 2 million barrels a day back in the late 1980's.

So what can be done to stop it?

Governor Sean Parnell (R) Alaska says he has the answer. Give the oil companies an $18 billion dollar tax break over the next ten years. Parnell says that in return for that kind of tax-cut, North Slope companies have promised $14 billion dollars in investments. Parnell says not only would that be enough to arrest the decline. It would start to reverse it. The oil flow in the pipeline would slowly begin to increase.

BP Alaska President John Minge agrees. In an interview last week, Minge told Channel 2 that the Parnell tax plan -- known as House Bill 110 -- would stop the north slope decline within as little as 2 or 3 years. Then, Minge says, the numbers would go up.

Not everyone is so optimistic. The state Senate Resources Committee viewed the Parnell plan as a tax "give-away". Something that gave the oil companies a big tax break in return for an investment agreement that fell far short of a legally-binding document.

They recommended a far less generous tax break -- one that gives the oil companies $250 million a year over the next ten years. Parnell has criticized that plan, calling it the real giveaway. He says senators have put $250 million on the table, but haven't gotten any commitment whatsoever in return from the oil companies. But the state senators who backed the plan say the incentives are in the tax structure itself. It offers tax reductions for new oil finds.

But oil company executives -- testifying before the Senate Finance Committee on Wednesday -- said the tax break is too little and it fails to provide incentives for existing fields. In fact one BP executive -- Damian Bilbao -- pointed out to the committee that the greatest oil find in this continent's history was the aforementioned Prudhoe Bay. But what was North America's second greatest oil find? Without a hint of irony, Bilbao answered his own queston: Prudhoe Bay!

How could that be? Technological investments, like directional drilling, and new technology that released "viscous oil" has managed to free previously unrecoverable oil from Prudhoe. And the amounts are tremendous. This second "technological" Prudhoe Bay amounts to an oil field that also dwarfs all other proven finds on the continent.

That is why the oil companies say they need a big tax break. To commit the billions to Alaska that's needed to bring Prudhoe back to life again. They say that the North Slope -- when combined with expected new finds in the Beaufort and Chukchi Seas -- along with the NPRA... Will bring the North Slope back to life.

And they say it's all integrated. That in order for the new finds to work, the decline at Prudhoe has to be reversed.

The whole thing is being discussed in marathon hearings at Senate Finance... Hearings that are not likely to end until sometime next week or even later.

The oil executives say that without big tax breaks, places such as the Gulf of Mexico, North Dakota and Texas are more attractive for investment money.

But a number of lawmakers doubt the authenticity of those claims. They say that with well above $100 a barrel, the oil companies have a very good reason to expand investments at the North Slope.
That's the place where all the oil is.

The debate -- in the Senate and then the House -- is likely to drag on for weeks.