Alaska is not participating in the current boom the oil industry is experiencing across the nation and abroad because of its high costs and a tax regime that takes virtually all of the upside at high oil prices, said ConocoPhillips Chief Economist Marianne Kah.

Speaking at the Alliance Meet Alaska conference in January, Kah outlined a number of competitive disadvantages the state has in attracting investment, and she discussed investment criteria most companies look at when deciding where to invest.

The first is prospectivity – does the region have large hydrocarbon resources and in field sizes to be economic?

“While Alaska has many resource opportunities, the field size is smaller and therefore it can’t hold the same order of taxation that other places we might invest can hold,” Kah said.

The cost structure is also a major factor – not just exploration and development costs, but also transportation to get the oil to market.

With its high costs, Alaska doesn’t fare well. “It’s far from market and it’s expensive to operate in the Arctic,” Kah said. “So again, from a cost point of view, it can’t hold the same rate of taxes that other places we operate can,” Kah said.

Alaska’s long cycle time – to get from initial investment to a cash return – is also a negative. She explained that timelines for projects in the Arctic span years due to short drilling seasons, federal rules and regulations, and litigation.

With regard to tax rates, she noted the 49th state is far less prospective than Kazakhstan and Venezuela, which “can afford to have a higher tax rate than Alaska.”

Kah said Alaska has the highest cost of any other prospect in her company’s portfolio, but she noted what nature has dealt can be changed by the fiscal regime.

When it comes to the impact of taxes on investment, Kah said there is “a whole body of economic literature which points out that the marginal rate is really what determines investment, it’s not the average rate or the effective rate.” She defined the marginal rate as what a company is taxed on its last dollar invested and earned.

Under Alaska’s Clear and Equitable Share (ACES), Alaska has the highest tax rate of any of the developed countries that ConocoPhillips is operating within. “And of course the tax rate goes up substantially as the price of oil rises,” she said, referring to the progressivity factor in the law. “There is no upside for investment in Alaska.”

Alaska is near the tax rate of Kazakhstan and Venezuela, but both countries have higher prospectivity and lower costs than Alaska, Kah emphasized.

“There is a tight oil and shale gas revolution taking place in the United States today, offering a lot of investment opportunities,” Kah said. Noting that revolution is poised to go global, Kah warned that “industry has a lot of places to invest and Alaska does have to compete.”

Kah said Alaska is not participating in the oil production renaissance taking place in the rest of the nation and its role in supplying energy is diminishing on a relative and absolute basis as production steadily declines.

“Alaska is not participating in this renaissance and there is really no reason for that – there’s a lot of resources up here. The reasons have to do with above ground issues such as business climate, investment climate, tax policy.”

Kah said the state’s current tax structure is “just taking away too much of the upside and the high progressivity is hurting project economics, even in a high price environment.”

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