FAIRBANKS — When it comes to Alaska’s future of oil and gas development, there’s plenty in the ground to be excited about. It’s what is above ground that’s a cause for concern.
That’s the message Bill Armstrong, chairman of independent oil producer Armstrong Oil and Gas, had to say at a reception at the Fairbanks Pipeline Service Training Center on Thursday night.
The meeting comes in light of ongoing and, at times, conflicting reports of what’s in store for Alaska as throughput in the trans-Alaska oil pipeline falls and politicians battle about how to best remedy it.
Armstrong said the political discussion has oversimplified the state of Alaska’s oil production.
Much of Alaska’s history of oil production has focused on large oil fields managed by major oil companies and Armstrong says that’s about to change. Smaller independents like his company are in the start of developing hundreds of thousands of acres of untapped fields.
“I’m really optimistic about the possibility of the North Slope and of Alaska. The below-ground opportunities in Alaska and in the North Slope are fantastic,” he said. “The headaches are above ground.”
Armstrong said issues ranging from stringent regulations, tightly controlled infrastructure and yet-to-be-proven business economics of the new plays are all inhibiting a boom, but he said that, by far, the biggest factor is Alaska’s tax regime.
“The tip of the ice berg is just being started up there. There’s going to be a boom from the right environment,” he said. “The North Slope of Alaska is not competitive.”
Alaska’s tax structure has come under a fire of criticism for levying high taxes at high oil prices, the sort of prices that have driven the Lower 48 to a boom in production.
But Armstrong says the ruling discussion of whether as much as a
$2 billion-per-year tax cut will increase oil production or if it’s an industry giveaway doesn’t get at the heart of the issue. The problem, he and politicians like the members of the Bipartisan Senate Working Group say, is tax changes to traditional fields likely won’t go far to creating significant new investment or production.
Instead, Armstrong advocates for a tax regime that incentivizes increased oil production from new oil fields, leaving traditional fields for a later discussion.
“The high amount of production just makes it not competitive,” he said, “but it’s an easily solved problem. We were that close to solving it this year. ... We had it last, year but unfortunately at the last minute it got pulled.”
Armstrong was referring to a tax reform bill passed by the Bipartisan Senate Working Group during the end of the legislative session that cut taxes on new oil produced outside the traditional big oil fields. But without a cut for the major fields, Gov. Sean Parnell opposed it and the House killed it.
Armstrong and Repsol, a Spanish oil company, estimated that the tax cut put forward by the Senate would have garnered about $9 billion in investments, much more than the $5 billion pledged by the big three oil producers in the traditional fields.
And unlike the major North Slope producers, Armstrong has backed the members of the Bipartisan Senate Working Group, like Fairbanks Sens. Joe Paskvan and Joe Thomas. The group has been under fire for stopping the governor’s oil tax plan and a few key members have been the target of hundreds of thousands of dollars in ads aimed at dismantling the group.
Armstrong Oil and Gas Principal Ed Kerr said he was optimistic that the necessary tweaks for Alaska’s oil tax regime could be changed to promote non-traditional development and provide a Lower 48-like boom in Alaska.
“There are a lot of new fields that need to be developed on the North Slope and with a change in the North Slope taxes, you create a ton of new jobs and it creates a ton of revenue for the state where you didn’t have any prior to that,” he said. “Hopefully, together we can go and do two things, have some modicum of success in drilling and some modicum of success to modify the ACES tax law.”
Contact staff writer Matt Buxton at 459-7544 or follow him on Twitter: @FDNMpolitics.