Regulatory and fiscal stability are key
to vibrant resource industry
It’s a new day on the North Slope despite the challenges that come with operating in the Arctic – high costs, harsh weather, supply chain issues, legal hurdles and struggles to find adequate financing.
For the first time in a long time North Slope production is projected to remain stable in the near term and increase in the late 2020s. This is excellent news for Alaska. Resource industries, particularly oil and gas, form the backbone of our economy. They are labor intensive, pay some of the best wages in the state and require continued capital investment to maintain or expand production levels. Production is key to jobs and revenue for Alaska.
We cannot control many of the challenges Arctic operations bring, but we can maintain stable tax policies that attract the capital needed to keep our resource industries healthy so they can produce jobs and revenues for Alaskans.
What’s at stake
$3.1B
State & Local Revenue
FY19
77,600
Alaskan Jobs Supported
Direct/Indirect
$549M
Grow the Permanent Fund
FY22 Dedicated Revenues to Corpus
$4.4B
Spending with Local Businesses
Annual
Source: “The Role of the Oil and Gas Industry in Alaska’s Economy,” January 2020, McKinley Research
Letter from the co-chairs
Fair and Competitive Oil Taxes Are Working
There is a resurgence in oil production and jobs in Alaska that is directly related to our current oil tax policy. SB 21, a fair and competitive tax policy, replaced the antiquated ACES tax structure that drove down petroleum investment for more than a decade. Thanks to SB 21, Alaskans have the greatest opportunity of our generation on the North Slope today.
Some present and former legislators argue that SB 21 was a mistake, but the facts speak for themselves.
The Willow and Pikka projects, years in the making, are in active development. These and other robust investments in Alaska’s future would not have occurred under the previous punitive tax regime. Between the Willow and Pikka projects alone, the oil and gas industry is spending over $10 billion in Alaska in the next few years, with each project generating 2,500 construction jobs and hundreds of operating jobs.
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More good news from Santos, whose Pikka project continues to set new records. First oil is now possible by the end of 2025, six months earlier than what was projected just six months ago.
"The Pikka project is progressing well with the project now 67% complete. High productivity across all scopes of work over the 2023 winter season is pleasing," Santos Managing Director and Chief Executive Officer Kevin Gallagher told investors. On the downside, however, Santos now forecasts a 20% increase in the capital cost at Pikka, the company said in its third-quarter financial report to investors.
"This represents a $520 million increase over a $2.6 billion capital cost estimated when the project was sanctioned by Santos and its 49% partner Repsol two years ago," reports Tim Bradner in his Alaska Economic Report. “Much of the cost increase has already occurred and resulted partly from Santos’ ability to accelerate pipeline construction last winter. Costs are still higher than forecast due to severe weather experienced last winter season, which affected construction, as well as higher-than-expected fuel costs.”
Bradner said ongoing tight labor and supply-chain challenges and complicated logistics in moving Pikka’s production modules up the Dalton Highway in smaller, “truckable” modules also impact costs.
“Santos opted for a strategy of building small production module units and moving them by truck up the 414-mile highway, which is mostly gravel and connects the North Slope oil fields with the Interior Alaska highway system,” Bradner writes. “This was in lieu of an industry practice of building large production modules in the Lower 48 or overseas and moving them by sea to the North Slope during the summer when the Arctic Ocean is free of ice. The advantage of the trucking plan is that units can be scheduled and moved more frequently by highway during the year instead of the once-a-year delivery by sea during the summer."
A recent commentary piece in the Fairbanks Daily News Miner by 4 well known Alaskans explains why they still support SB 21 10 years later.
Read here. keepalaskacompetitive.com/ten-years-later-we-still-support-alaskas-oil-tax-system/
Let’s set the record straight about what SB 21 did — and didn’t do. Click here to listen.
The mission of KEEP Alaska Competitive is to promote and preserve competitive, fair and stable taxes on Alaska’s resource industries to enhance investment, jobs and production to secure Alaska’s long term economic future.