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Beware the shale gas giveaway

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Posted: Sunday, October 21, 2012 12:00 am | Updated: 11:39 am, Mon Jan 21, 2013.

Community perspective

Recent articles in local papers and community forums hosted by Alaska senators have promoted Great Bear Petroleum and its North Slope shale oil play as the answer to stemming the decline in the trans-Alaska oil pipeline system.

Beware. Great Bear, and the politicians who tout it as the silver bullet for declining production, are not telling the whole truth about the company, its development plans and what they could cost the state of Alaska.

On Feb. 28, 2011, Ed Duncan, president and CEO of Great Bear, testified in a House Resources Committee hearing in support of HB 110 — Gov. Sean Parnell’s bill to change Alaska’s Clear and Equitable Share oil tax. Duncan repeatedly stated that in order for his shale oil play to be successful, a change in the tax structure was necessary.

Duncan told legislators that “Alaska has some fiscal terms that are suppressing the development of that great basin” and “reduction of the production tax burden would improve Great Bear’s ultimate commercial outcome, which would improve the probability of attracting critical capital investment to the state, to the plays and to the business.”

In this same presentation, Duncan unveiled a development plan that called for 250 wells per year for 20 years, starting in 2013.

Fast forward to April 25, 2012: Duncan came before the Legislature again, this time the Senate Resources Committee, to provide an update on Great Bear’s development plan. What a difference a year makes.

Duncan’s newest presentation called for up to 24 wells in 2013-2014 and projected up to 192 wells in 2015 and 2016 — a far cry from the 250 wells per year for 20 years that was presented the year before.

In this presentation, Duncan also introduced a new strategy for making his project commercially viable — driving down the profits of local oil service companies and incentivizing people to move up from Outside.

Say what? The champions of local hire — Sens. Joe Paskvan, Hollis French and Bill Wielechowski (who spent $150,000 on a study of Alaska hiring practices on the North Slope) — must have been shocked to hear such a strategy.

Duncan claimed that the high cost of operating in the region was due to lack of competition among oil field service companies, not the high cost of energy, labor and materials. He said competition would “drive down the cost” (See Anchorage Daily News, Sept. 22).

This shows that Duncan believes our costs are self-inflicted. Bringing in oil service companies from the Lower 48 that don’t have experience doing business in Alaska to compete with local companies won’t reduce those market-driven costs, but it will force local companies to reduce their profits in order to compete. In the same article, Duncan suggested relocation incentives to bring folks up from the Lower 48.

Apparently the senators weren’t listening. They continued to promote Great Bear’s development plan as the answer to declining production.

What Duncan and his supporters in the Senate have failed to disclose is just how much money the state will give Great Bear for its exploration activities.

If Great Bear accomplishes what it has outlined in its development plans before the Legislature, the state could pay it close to $1.2 billion in tax credits. That’s $1.2 billion pushed across the table with no production guarantee.

It appears that senators like Paskvan, Wielechowski and French — who advocate local hire, oppose HB 110 and demand guarantees in return for tax relief — aren’t being intellectually honest.

It appears that senators like Paskvan, Wielechowski and French are publicly opposing a “$2 billion giveaway with no guarantees” while quietly supporting and promoting a $1.2 billion giveaway with no guarantees — a $1.2 billion giveaway to a company that intends to drive down the profits of Alaska companies and replace Alaskans with cheap Outside labor, to a company that reduced its development plan by 90 percent in one year.

A giveaway. No guarantee. No local hire. Beware.

Jeff Landfield of Anchorage was a delegate to the 2008 Alaska Republican convention. He unsuccessfully sought the Republican nomination in Senate District K this year, finishing second to incumbent state Sen. Lesil McGuire.

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