Make Alaska Competitive Coalition
Featuring
John Minge
BP Exploration (Alaska), Inc.
Speech, as provided.
Remarks of John Mingé Make Alaska Competitive Event 23 minutes April 14, 20011
Thank you Linda and thank you all for joining me here today.
A lot of people may say this is too little too late, but I don’t think so. We are here doing our best, we love this place and want to bring jobs and investment to Alaska.
First, let me start by extending my thanks to the tens of thousands of Alaskans who have actually stepped up and gotten involved in the effort to improve the business environment and create more opportunities in Alaskans. It’s great to live in a state where the people will come out and speak up and the fact that there are so many of you here today, on such short notice that tells me a lot.
This whole campaign all started at the grass roots level. The Make Alaska Competitive Coalition was formed by a group of concerned citizens who put their own money into educating Alaskans that we have a problem. We owe Jim Jansen, Mark Langland and the Board of the Make Alaska Competitive Coalition a great debt of gratitude.
We also need to remember Governor Parnell. I’ve been very impressed with what he has done. He stood up and recognized the problem. The governor acted as a leader and he did something about it. That’s why he introduced HB 110.
And I would be remiss if I did not thank the Resource Development Council, the Alaska State Chamber, the Alliance and many other groups who have worked diligently in support of HB 110 during this legislative session.
This has truly been a partnership. We have all been working together on a shared goal - making Alaska’s tax system more competitive to attract additional investment to the state. This is an example of how industry, government and the community should work together in the future.
The session is three days away from the end and some legislators have made it pretty clear that they do not see a bill passing this session. So, you might be asking, why are we all here today? Why bother?
Well, as I said, I was asked by the people (of MAC) and I got here as soon as I could. Secondly, this is too important an issue to give up. I firmly believe, I have no doubt in my mind, that there will be a tax change, because the one we have is not competitive. It’s a matter of time - when, not if. So we’ve got to keep going and not worry about if a session ends in three days or not.
One of the big messages I will say is that we don’t lack opportunities. In a new fiscal environment we have got tons of things to do. What we need to do, with all the producers, contractors and stakeholders is work together to make those opportunities come to bear.
So why is it so important that we keep fighting for a better investment climate? This is a great state, I love it, and I have not been here long, as many of you know. But the people who are my friends know that every single day I love this place. I love everything that is Alaska, and it really does come down to the people who are here, the working relationships and the spirit that is Alaska. We have a special place to live. My team and I will continue to speak out because we want to make this state great for future generations.
There are three things that I want to stress today:
I have a great deal of respect for our elected officials. They have a tough job to do, I think they ask good questions – and I can empathize with the concerns.
Some may listen or read my speech and try to poke holes – some may say that all we’re trying to do is line the pockets of big oil. They might try to find carefully chosen words that give us an out on our commitments.
People who know me know that I’m a pretty straight forward guy. I’m not going to use carefully chosen words – and I’m not going to spin doctor statements – that doesn’t work for me.
People I’ve done business with know that I believe that business is sustainable if it is conducted with principles of mutual benefit and fairness. As an Alaskan and as a businessman – I want the state to get its fair share of the oil value and the job opportunities. I want the quality of life we all enjoy today to be shared with future generations.
But I believe the ACES tax change went too far.
It needs to be changed if Alaska is going to see the investment levels that should be occurring given the remaining large volumes of resources still to be developed against a backdrop of high oil prices we are experiencing.
I come to this conclusion based on the lack of competitiveness and commercial viability of many of our projects. These projects would be competitive in other parts of the world, but they aren’t in Alaska.
We all know that the volumes flowing through the pipeline are declining. We can all predict with certainty what will happen if we don’t change our investment climate – that decline will continue. The only way to offset the decline and put more barrels in the pipeline is through new investment. Investment that goes beyond what is being spent today.
The easy oil has been produced, many people have testified to that, and costs of development are much higher today than they’ve been in the past.
We have significant investment dollars going into the infrastructure and pipeline upgrades that are needed – but they are not adding oil into the pipeline. It takes far more dollars to produce a barrel of oil today than it did in the past – and under the current tax system, the risk/reward balance has shifted too far to the State – the consequences of that are that investments are constrained against what should be occurring today.
Last week, General Mark Hamilton, Alyeska CEO Admiral Tom Barrett and I were asked to speak at a CAP event for employees, families and retirees. Admiral Barrett’s talked about the declining throughput of TAPs and the issues that Alyeska will face as the flow continues to decline. Something that you might be surprised to know that TAPS is flowing at its lowest level ever.
The 640 thousand barrels a day running through TAPs today is 60 thousand barrels lower than when the pipeline first started. Admiral Barrett said that as flow continues to decline – every day the pipeline is operating in uncharted territory.
The Admiral had a great story – one I think is worth sharing. He said the pipeline is a bit like a car – and one day you’re driving along the highway and the oil light starts flashing on the dashboard. So what do you do, you stop and check the oil. He reminded everyone that when the engine oil is low, there’s a line on the dipstick that says “add oil” – and he said when he pulled the dipstick on TAPS – the level is below the “add oil” line. It was a telling visual – we need to add oil to TAPS – that’s what the Governor’s bill is all about.
Oil is added through new investment – and new investments need to be commercially viable and competitive. Working together in partnership we can create such an environment.
That is why BP has not been quiet in its support for HB 110. Since the session began we have been very active in Juneau. First and foremost we have given testimony to the two House Committees that asked us to appear before them. BP has also spoken at a number of venues across the state in support of HB 110 including a luncheon for legislators in Juneau.
In February and March, my Chief Financial Officer, Claire Fitzpatrick, who is with us today, appeared before the House Resources and the House Finance Committees. In her testimony, she told the committees that Alaska was not competitive and that an improved fiscal environment is proven to increase activity and investment.
It was in those hearings that BP first talked about the additional activity that would occur if the HB 110 were to pass.
Claire told the legislature that BP was prepared to advance the Gas Partial Processing Plant and I-Pad developments with our partners if HB-110 passed. She also testified that the governor’s proposal would result in more drilling.
I Pad alone will result in drilling some 50 new wells to access about 80 million barrels of additional reserves. That is a large amount of oil – like finding another small oilfield, but it’s not small. Again, we do not lack opportunities in a new fiscal environment.
Through its previous exploration activities, BP has already identified over 5 billion barrels of resources.
Our focus is not on finding more, but finding ways of developing the huge volumes that we have already found.
This is what we mean when we say the best place to find oil is in the big fields where we have already found it. Big fields get bigger and the prize is significant. I-Pad is an example of that.
The way to unlock these resources is through a competitive fiscal policy
If these projects go ahead, what would it mean for Alaskans? As a starter - jobs. Every rig that we have operating employs between 100 and 150 people.
Of course, with new wells comes new production. That production means more barrels in the pipeline and more royalties and revenue for the state.
Gas Partial Processing will remove a production bottleneck --- that also means more barrels in the pipeline and more royalties and revenue.
These projects represent roughly $2 billion in investment.
Last week Jim Mulva did a great job. The MAC committee asked to come back to Alaska after a visit the week before and he stated his commitment to these projects. In fact, he looked ahead at $5 billion more investment, enabled by tax reform.
I totally support that.
And, I’ll tell you, as I look ahead I see even more opportunities than $5 billion – I see significantly more. We have not done enough of the engineering work to get perfectly specific yet. But there are many projects in the hopper I know will work and I am excited about moving forward.
Someone said we were planning to do this anyway – that is NOT true. It was true before ACES, but it is not true now. ACES made them uneconomic. When the higher oil taxes passed, we quit working on them.
We don’t have the workforce in place to spin on a dime and develop all the plans and economics that allow a description of the exact investments and production they deliver. I wish it were that easy to do all this in 90 days – our business is more complicated than that. We’re not trying to hold back and play a game.
We want to make the absolute commitments, but the fact is we have a lot of engineering work to do and a lot of detailed work to do to fully understand the business cases and risk profiles.
But $5 billion is just the start in terms of what is possible. I see more that and much more.
I’ve done enough study and I’ve worked around the world enough to know that HB110 would make a significant difference in our investment profiles over the next years.
If HB110 were to pass, there are many projects that we would start working immediately.
You as businessmen would recognize that it doesn’t make a whole lot of sense to work uneconomic things. To hire people, pay them a good wage, benefits, find office space and have them work things that are not economic. That’s a quick way to go out of business. So we can’t do all that front end investment, but I can guarantee you with this change there are projects we would start working immediately. I know our partners would as well.
In fact, Wendy King is here from Conoco, and I talked to Trond Erik this morning, I said I want to go beyond the $5 billion, I want to talk about the significant opportunities that go beyond $5 billion and they were totally supportive, totally supportive that there is more to play for.
Another example of a commitment is completing seismic activity. You have to shoot seismic to generate prospects to drill more wells in the future. A couple of weeks ago, I approved two seismic acquisition programs on behalf of BP. One for Milne Point and one for Point McIntyre in anticipation that the tax law will change. These seismic programs will be shot in 2012-13 and they will cost BP and our partners roughly $100 million.
I don’t have the exact investment estimates of what that seismic program will develop, but I would say at least 20 to 40 additional wells that would be competitive under the HB-110.
But I’m willing to take that risk. I’m willing to risk $100 million for that seismic two to three years ahead because I believe that ultimately a tax law will change because it has to. Otherwise the incremental investment dollars are not going to come to Alaska.
I just returned from Houston where I spent a lot of time talking with our company’s top leadership about the opportunities in Alaska.
We all agree we are not limited by the opportunities; we are limited by the competitiveness and commercial viability under the current tax regime in Alaska.
People always say, what can you promise? We haven’t done all the work, so I can’t promise in a legal sense. But I will stake my career and my reputation on the fact that we will invest more than $5 billion incrementally on new projects with the passage of HB110. And that the passage will make a big difference to Alaska and it will be good for all Alaskans.
Before I talk about jobs, there is one other thing I want to address. There are some numbers circulating that came out, and it’s always about a give away and I just don’t get it. Alaska makes more money if there is more production and more investment, it’s a multiplier effect. Some of the things that are out there, well, I don’t see how Alaska benefits with less investment and less production
I think that all the producers have been very consistent in what we said. I think we are all willing to stake our reputation on this matter.
The important thing is what we have told the legislature – an improved fiscal environment is proven to increase activity. This has been proven in many places and there has been testimony to that fact.
Another big thing that is dear to my heart is Alaska hire, jobs for Alaskans. This is a big deal. When I go to the Slope, or when I’m on an airplane I don’t like to see people who have these great jobs on the Slope that are going somewhere else.
I want us and this industry to create more jobs and have a higher percentage of people working in our business that live in Alaska.
Before I came over here today, I had a meeting with Labor and Workforce Commissioner Click Bishop. We talked about workforce development and Alaska hire. He and I agreed that it needs to be a priority for the industry to increase the number of Alaskans in our workforce.
As I said earlier, I believe that business is sustainable if it is conducted with principles of mutual benefit and that includes jobs. Alaska hire makes business sense.
I think our company, BP, actually does a good job in hiring Alaskans -- 82% of our employees are Alaskans. Last year we hired 100 new technicians for the North Slope, and we’re going to be about the same number this year. Because a large part of our workforce is retirement eligible, about 40 percent is retirement eligible. We’ve got to have a pipeline of people coming into this state to fill these jobs for the long term. We went outside only when we couldn’t find the appropriate skill sets here.
The University of Alaska system has generated some great talent. And it is actually BP's number one school for college recruitment of engineering graduates.
Which was a surprise when I saw that statistic, since it goes beyond Texas A&M, Texas University and Washington State University, which is the best university in the USA. That wasn’t on my script.
Not all of those graduates start their career in Alaska, but they have a career path that will bring them home if they want. And what we find when we hire Alaskans, Alaskans want to work in Alaska.
Can we do better? Absolutely. I'm committed to working in partnership with the state and our contractors to find ways to hire more Alaskans.
Linda, who introduced me said John can’t you do more? Can’t you make it an expectation that people live here? You know, I think we can. There are all kinds of legal issues that we have to watch. But I have that expectation.
I want people who work in our oilfields to live in Alaska. I want to create jobs and opportunities for Alaskans. I want to use my influence where I can in an appropriate way with the contractors to raise the number.
Thanks for all you have done to make your voices heard in Juneau and all over Alaska. Your partnership with industry is making a difference.
Like I’ve said, I believe the time to change is now. We have checked the stick on the pipeline and it says add oil. The way to put more barrels in the pipe is to attract investment and the way to attract investment is a competitive tax regime. New production will not happen overnight. It will take time to complete the work that will create a sustainable future for Alaskans.
I absolutely see 50 years more, there is plenty of work to do. The sooner we make a change the sooner Alaskans will see the benefits.
I want to assure you that BP remains in this for the long haul. While it appears that the Senate will not move the bill this session, this is not the end. We know that Senators will continue to seek answers to the questions and concerns they have.
As I mentioned earlier, I respect the job they have to do. BP remains ready, willing and able to testify and answer Alaskan’s questions. We will also continue to work with Alaskans to promote changes to Alaska’s investment climate.
From a proud Alaskan to all of you, I make this pledge: We won’t give up. This is too important to me, my family, my neighbors, my employees and all of you.
Thank you.
