New investments could result in higher state revenues

The Legislature’s action this spring to revamp oil production taxes has created a more favorable investment climate in Alaska, leading to new industry activity, which is expected to result in new production and revenues to the state.

“The early indications are that the North Slope operators are stepping up to the plate,” said Tim Bradner, co-author of the Alaska Economic Report. “By our rough count, new projects announced since mid-April will exceed $5 billion, although some of those are still in evaluation.”

BP and ConocoPhillips have announced they are putting new rigs to work and will step up well work-overs and other production stimulus. Both have also announced evaluations of new drill sites.

In addition, there are also new projects planned by independents. Both Repsol and Brooks Range Petroleum have credited the recent oil production tax reforms as improving the economics of their projects. Repsol made a decision to explore its leases on the assumption that the legislature would pass an oil tax reform bill. The company says development of at least two of its recent discoveries is more likely with the More Alaska Production Act enacted.

The new activity and level of investment fits a model developed by the Department of Revenue where the new tax structure actually results in more oil production and revenues than what would be produced under the previous tax system. Bradner said the new investment and projects come very close to an estimate on how the More Alaska Production Act could ultimately generate $1 billion annually in additional state income over the previous tax regime. More announcements on new projects are expected later this year and in 2014.

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