Seaton discusses Alaska’s potential “800-mile licorice stick”

• Rep. Seaton proposes ways to get more oil safely flowing through the Alaska Pipeline, rather than giving way billions in Alaska’s revenue
By Naomi Klouda
Homer Tribune

By ConocoPhillips’ own figures, if it has $12 billion in profits, $6 billion goes to North American exploration and production and the other $6 billion goes to stock buyback and dividend increases.
Giving tax savings would result in more wealth to the oil company and its shareholders. A better solution needs to be sought that would add to the long-term flow of the Trans Alaska Pipeline by minimizing risks for developers.
That’s the message Rep. Paul Seaton takes to Juneau as the 27th Alaska Legislature goes back to work Tuesday. In House Resources next week, a hearing launches what will likely be the more important work of the session: a discussion over the governor’s HB 110, and its goal to get more oil flowing into the pipe to assure future Alaska revenues.

A report compiled by Seaton that analyzes Gov. Sean Parnell’s plan to give $2 billion in tax breaks lays out the problem: Though different formulas vary from oil company to oil company, ConocoPhillips makes corporate profit distribution decisions based on a 50-50 split.
Where will $1 billion in tax decreases go?
Off the top, $350 million of it would go to the IRS, according to Seaton’s findings from Conoco’s Security Exchange Commission filings. “Since the ACES production tax is only on margin (profit before income tax) the full reduction would be taxable by the federal IRS. This means if total tax reduction was $2 billion for all three companies it would effectively be a transfer to the federal government of $700 million, and without congressional earmarks, we have little likelihood of getting any of it back,” Seaton wrote in his analysis.
Of the remaining amount, $650 million, again the 50-50 split, is at work to give $325 million for dividends. That leaves $325 million for all other investments in North America.
The final outcome is only a $25 million return in Alaska as reinvestment on each $1 billion of tax reduction, Seaton said.
“Taxes made no difference in the number of wells drilled by the majors, and neither did oil prices. All of the oil companies are doing a strategic buildout of their assets,” he said.
Instead, what holds oil companies back from investing more, is that they face serious risks in their dependence on a single system for transporting crude: the Trans Alaska Pipeline. There’s no other way to get their product to market. Besides that, lower volumes mean cooler oil and greater incidents of water, wax and frost worries.
“That kind of risk limits investment because that’s the kind of risk they cannot control,” he said. Already 63 percent of their North American profits come from oil fields on the North Slope. “Why would they invest 80 percent when you risk what happened last winter?”
A summer TAPs shutdown in 2011 wasn’t as problematic as it would be in winter. A leak required the closure for more than a day, which cost the oil companies in lost revenue and makes them potentially liable for shutdowns. But a winter shutdown of a field pipeline had to be restarted – even before the leak was fully fixed – or face the risk that crude could freeze in the pipe.
If freezing were to happen, the pipeline “would be longest piece of licorice in the world,” as coined in a homeland security analysis by Norman Schwarzkopf. Its situational risk also has been called “the longest candle in the world,” meaning frozen crude as hard tar.
“We’ve long known about the potential. We don’t know how to thaw out the oil. The pipeline can’t be restarted because once it’s solid – it’s a huge concern,” Seaton said.
Addressing this matter would be a better way to incentivize more oil development from the producers. Seaton has made rounds in between last session and this one giving his analysis on a PowerPoint presentation called “Aces or Not,” to businessmen and policy makers in Anchorage. In it, he spells out an idea to be discussed this session. It involves two solutions for eliminating the threat of freezing. One involves allowing methanol (the chemical in Heet products that keep car gas lines from freezing) to be injected into the crude, as is done in the Siberian pipeline. This would create gasoline in the process, which, when sold, is more valuable per gallon than crude. This means a higher return for the oil companies, he said.
To read “Aces or Not”, go to http://housemajority.org/seaton/index.php
The second idea is to create a synthetic fuel through the Fischer–Tropsch process, which converts the crude to other forms of fuel such as ultra low sulfur diesel and also eliminates possibilities of freezing.
Seaton tosses the idea of alternative transportation such as a railroad into the list of possibilities in need of discussion as well. “They made a railroad to Fairbanks. They’ve built railroads all over the world,” he reasons.
Oil companies don’t involve themselves in the discussion of what the Alaska Legislature should do to induce them to drill new exploratory wells. This keeps legislators guessing, searching for their own solutions to propose.
“They don’t tell legislators what taxes they want changed. They won’t do it. They make legislators make the offers, holding out in case we might make them a more generous offer – its a game of negotiation and a game of hiding information,” Seaton said.
No bill has yet been written or introduced that explores these alternatives.
“First, we need to develop a proposal and see if the industry will take advantage of it, otherwise there’s no reason. Until we talk about it though, we won’t know.”
As ACES is structured now, all producers who reinvest in Alaska already gain tax advantages.
In other matters:
On the topic of the Coastal Zone Management Program, Seaton said if the petition circulating now does meet its Tuesday deadline, he doubts that it will make its way through House and Senate passage. Even if it does, Gov. Parnell is unlikely to approve it.
“He promised to veto a compromise version, so why would he let an uncompromised one go unvetoed?” he said.
But, if the petition meets its goal with nearly 30,000 valid signatures, and the Legislature does not take it up, the matter would be put before voters to decide. Neither the Legislature nor the governor can go against a ballot decision.
“I personally favor a Coastal Management Plan. I would like to see it back – we do need strong local input,” he said. Seaton also has an eye on his personal legislation:
• HB 57: Bicycle Program. This would allow municipalities and nonprofit organizations to sponsor a program to encourage the safe use of bicycles as a mode of transportation. It would provide funding.
• HB 58: Mining Production and License Taxes/Royalties. This would create a mining license tax, and tax production royalties on minerals and rents for property involved in mining.
• HB 59: Commercial Fishing Loan Act: this would make loans available to commercial fishermen under the Commercial Fishing Loan Act for product quality improvements and energy efficiency upgrades. It gives incentive to purchase from local manufacturers in a 50 percent credit.
• HB 60: Geoduck Aquatic Farming/Seed Transfer passed in the House. This heads to the Senate for consideration. It would allow aquatic farming of geoducks and to geoduck seed transfers between certified hatcheries and aquatic farms.
• HB 71: Legislative Session Limit/ Procedures. This repeals the 90-day limit for regular legislative sessions enacted by ballot initiative in 2006.
• HB 85: Mixing Zones/Sewage Systems. This bill needs more input from conservation groups than it has received so far. It is an act requiring the Department of Environmental Conservation to collect and make available to the public certain information relating to water pollution; prohibiting certain mixing zones in freshwater spawning waters; and requiring a public comment period for certain sewage system or treatment works modifications. It is currently stuck in the House Fisheries Committee.
• HB 89: Extraction Of Bedload Material. This has passed the House and is now before the Senate. It relates to selling gravel from flood stream beds in order to help with flood mitigation. It establishes a lower fee for purchasing the gravel and a solution for flooding since weather related disasters have cost the State of Alaska $106,474,936 over the past 20 years according to the Department of Military and Veterans Affairs.
• HB 224: Sale Of Nicotine Products To Minors. There currently is no law preventing the sale or gift of a product containing nicotine to a minor under certain conditions. Faced with lagging sales given the unpopularity and banning of smoking in many public places, tobacco companies are investing in new and innovative ways to deliver their product.

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Posted by Newsroom on Jan 11th, 2012 and filed under Headline News. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.