BP Alaska president pleads for lower state taxes

Reuters News
Posted: Apr 14, 2011 8:45 PM
BP Alaska president pleads for lower state taxes

By Yereth Rosen

ANCHORAGE, Alaska (Reuters) - Alaska must lower its state oil production taxes to attract the investment needed to boost dwindling flow in the Trans Alaska Pipeline System, the president of BP's Alaska unit told a pro-industry group Thursday.

"I will stake my career and my reputation that this will make a big difference to Alaska and it will be good for all Alaskans," BP Exploration (Alaska) President John Minge said.

Alaska's North Slope holds enough untapped oil to continue production for decades, he said. "I absolutely see 50 years more," he said.

But without a major change to the state taxes, Alaska's oil patch faces a grim future, said Minge, whose company operates Prudhoe Bay and other large North Slope oil fields. It is one of the three major oil producers in Alaska and holds a 47 percent ownership share of the Trans Alaska Pipeline System.

Flow through TAPS, currently averaging a little less than 640,000 barrels per day, is the lowest sustained level since the system began operating in 1977, he noted. Oil flow peaked in 1988 at over 2 million barrels per day.

"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 the investment climate -- that decline's going to continue. The only way to offset the decline, to put more barrels into the pipeline, is new investment," he said.

If the state changes its tax system, Minge said, BP will commit to investing up to $2 billion in major projects in western Prudhoe Bay -- a project called I-Pad, which is a single pad that will accommodate about 50 producing oil wells targeting thicker oil, and a gas-handling project that would make production more efficient.

That promise echoed a similar one made by Jim Mulva, chief executive of ConocoPhillips, one of BP's major partners at Prudhoe Bay, earlier this month. Exxon Mobil Corp is the other major Prudhoe partner.

Minge's speech was part of a campaign to convince state leaders to remake a tax system put in place in 2007 with the support of then-Governor Sarah Palin. The system imposes sliding-scale tax rates that rise as oil prices do, and resulted in a flood of new oil money into the state's treasury, which now holds huge budget surpluses.

Industry officials argue that the rates are far too high during periods of high prices, removing investment incentives and companies' rewards for taking development risks. Alaska's tax and royalty regime is "the least competitive anywhere that BP works," Minge said.

State legislators and others who are skeptical about changing the tax system argue that the oil companies have not made sufficient commitments to justify reduced state revenues. Some lawmakers have concluded that the tax changes would result in a revenue loss of up to $2 billion a year.

The legislature is scheduled to adjourn its 2011 session on Sunday night, but Minge said he was hopeful that a special session would be called to address oil taxes if the governor's bill fails to pass in the next few days.

(Editing by Bill Rigby, Gary Hill)