Governor touts new North Slope oil development as a way to bridge fiscal gap
For the past few weeks, Gov. Mike Dunleavy has been touting the possibility of increased oil production on the North Slope and new oil investment as a way to bridge the state’s fiscal gap.
“We’re excited by the prospects of new oil on the Slope,” he said on Tuesday during the announcement of a funding agreement for the University of Alaska. “We’re anticipating 250-300,000 barrels of new oil by 2025-27, if we could stretch things out until then, we may be in pretty good shape.”
Since 2017, ConocoPhillips has been been busy at work on its Willow project, a field that is estimated to deliver 100,000 barrels per day at peak production. As of July 30, the first oil for Willow is planned for 2025-26.
The first oil was originally slated for 2024-25 but Natalie Lowman, a spokesperson for ConocoPhillips, said the company increased the recoverable oil estimate to 400-750 barrels, impacting how long it takes to bring the area online.
A final investment decision, the point when the board of directors determines if it wants to invest billions into extracting the oil, is expected sometime in 2021, said Lowman.
A second big hope for the industry on the North Slope is the Pikka Unit. Oil Search, a Papua New Guinea-based company that is new to Alaska, is managing the project and expects a final investment decision could come as early as 2020.
Larry Persily, a former deputy commissioner at the Department of Revenue, is dubious about the impact that new developments will have to help the state’s fiscal challenges. Persily points to steadily declining production at legacy fields and the need to increase production at other fields to mitigate the revenue loss.
“You’ve got to have more to just break even,” he said. “You may have an overall gain but not enough to fix the state’s budget, some people want to believe - wanted to believe for decades. Hasn’t happened, isn’t going to happen.”
Revenue Commissioner Bruce Tangeman agrees that the state shouldn’t rely on money that hasn’t materialized. “You cannot count on the revenue side, that’s why this governor is so interested in getting the expenditure side under control.”
In recent years, the State of Alaska had seen positive signs of increasing oil investment from $4.4 billion in FY18 to $4.6 billion in FY19. In FY20, $5.5 billion is being forecast in new oil investment.
Tangeman said if the state receives more revenue than expected it should be banked for future generations.
Sen. Bill Wielechowski, D-Anchorage, a long-time advocate of changing the state’s oil tax structure, reiterated his support on Wednesday for ending refundable oil tax credits. “Alaska is an extremely profitable place to do business,” he said, referencing the strong profitability of ConocoPhillips in Alaska.
Lawmakers and the administration expect conversations to take place over oil taxes during the next regular legislative session in January. Tangeman said the administration welcomes the debate but cautions against raising taxes, saying it may lead to investment leaving Alaska.
“We have no interest whatsoever in once again changing oil taxes, which has been done far too many times in the state over the last decade or so,” he said.