A Busy Upcoming Oil Exploration Season Proves the Success of ACES

The Anchorage Daily News shares some good news for oil and gas development in Alaska, due in large part to Governor Palin’s oil tax legislation, ACES (emphasis added):

As Southcentral Alaska prepares for an increase in oil and gas exploration and development in the Cook Inlet basin, operators on the North Slope and nearshore Beaufort Sea are preparing for what promises to be one of the busiest exploration seasons since 1969, when 33 exploration wells were drilled after the discovery of the Prudhoe Bay oil field.

If all goes as planned, as many as 28 exploration wells could be drilled between October 2011 and mid-2012. It's a longer-than-normal North Slope exploration season because one company's wells can be drilled from old gravel sites along the Dalton Highway and therefore are not subject to off-road tundra travel restrictions.

Much of the stepped-up activity appears to be partly due to the exploration incentives offered by the state of Alaska, and partly because Alaska's governor is committed to fixing provisions in the state's production tax that could make development of any oil discoveries noncompetitive for investment capital with projects in other oil provinces.

The exploratory incentives are a key part of the oil tax legislation championed by Governor Palin, as the legislation included tax credits for companies to both encourage new development and to reinvest in the existing infrastructure of older development. As Governor Palin noted upon signing ACES into law in December of 2007, “[w]ith the signing of this bill, we can turn the page and look forward to a new era of stability and investment opportunities developing Alaska’s resources, creating new jobs and a strong economy for years to come”.

This is exactly what has happened since the passage of ACES. It has given Alaska a strong economy. During her tenure, Governor Palin had the 2^nd best job growth record in the country. Every year of her administration yielded a record high number of oil industry jobs in Alaska. This news of a very busy exploration season indicates that indeed ACES has ushered in a “new era of stability and investment opportunities for developing Alaska’s resources”.

The companies that are involved in drilling these new exploratory wells are mainly independent Alaskan companies and foreign companies. Governor Palin’s ACES oil tax structure replaced Governor Murkowski’s corruption tainted PPT oil tax structure which favored Murkowski’s cronies in the oil industry. Governor Palin’s legislation on the other hand provides opportunity for all companies to be engaged in resource development. This kind of policy is what led to, as of January, a doubling in the number of companies filing taxes returns with Alaska since the passage of ACES, indicating that more companies see Alaska as a great place to invest in oil development. In addition to the incentives for development that ACES provides, it also was negotiated and passed in a transparent manner without undue influence from lobbyists or only certain oil companies.

One of the foreign companies is the Spanish company Repsol, who announced in March that they would be devoting more than three-quarters of a billion dollars for development on the North Slope (emphasis added):

“This deal is a perfect fit in our efforts to balance our exploration portfolio with a lower risk, onshore oil opportunities in a stable environment,” Repsol CEO Antonio Brufau said in a statement.

ACES has provided a stable environment for Repsol to engage in exploratory drilling that includes 5 rigs and up to 15 wells. This speaks well of the state level policies that Governor Palin implemented. Additionally, though, the fact that a Spanish company is seeking to engage in oil development in America may be a result of what Governor Palin warned about at the India Today Conclave speech in April where she discussed the effects of a “green” economy (emphasis added):

So as government locks up land & we lose good jobs in the 'Conventional Resource' arena, you may hear that "green jobs" will be the saviour! But look around the world & try telling that to the thousands of English & Scottish workers who've lost jobs as a result of government investments in "green energy" projects. A recent UK study shows that for every "green job" created, nearly four jobs were lost elsewhere in the economy due to lack of affordable energy! Same story in Spain - investment in "green jobs" brought massive debt, skyrocketing energy costs & 20% unemployment.

Spain has proven oil reserves of about 150 million barrels. While this is nothing compared to the vast resources available in Alaska, it is certainly worth noting. Between 2005 and 2009, Spain’s oil production volume has decreased by nearly eight percent. Has a focus on “green” energy (leading to reduced oil production) also caused Spanish oil companies to seek development opportunities elsewhere because these areas are a “stable environment” as Repsol said of Alaska? Should not Spain’s example serve as an economic warning to America as Governor Palin indicated? Will an aversion to traditional fossil fuels development lead American oil companies to explore more profitable options elsewhere?

It has become increasingly evident that Governor Palin’s ACES legislation has done just what she intended it to do—spur economic growth, create jobs, and provide stability and continued oil development. It has not only provided opportunities for development by the likes of ExxonMobil or Shell, but it has also provided independent companies and foreign companies to invest in exploration. As our current administration seeks to create a “green” economy, the successes of Governor Palin’s administration should cause America to look north to the future in order to truly win the future.

Crossposted here and here.

Governor Palin, the Success of ACES, and the Defeat of Corruption--Part II

One of Governor Palin's key pieces of legislation--Alaska's Clear and Equitable Share (ACES), legislation outlining a tax structure for oil companies-- has come under attack from Alaskan politicians, oil companies, and the press as a means of undermining Governor Palin's gubernatorial legacy. Over a series of posts, we will highlight the foundation and principles on which ACES was developed, the success in oil development the legislation brought, and the players involved in attacking Governor Palin's cornerstone pieces of legislation. The first post in this series, which discussed the anti-corruption, pro-growth principles that molded the legislation and the transparent process in which it was passed, can be found here. This second post in the series will highlight the success of ACES since its passage more than three years ago.

With the signing of this bill, we can turn the page and look forward to a new era of stability and investment opportunities developing Alaska’s resources, creating new jobs and a strong economy for years to come.

-Governor Palin upon signing ACES into law

More than three years following the passage of this bill, Governor Palin's assertions regarding ACES have come to fruition. ACES has created a stable environment for investment and development of oil and has provided a boost to Alaskan jobs and the economy, while concurrently boosting state revenue. In short, ACES has been a success.

In the year following the passage of ACES, the number of oil wells in Alaska increased, indicating that ACES created a favorable environment for development. From the year prior to the passage of ACES to 2009, capital investment on the North Slope increased 33% to $2.2 billion, indicating that oil companies are making investments in future development. More recently, a poll of petroleum executives indicated that a greater percentage of executives thought that ACES "promoted investment" than 2/3 of the 24 other states who were included in the survey. Earlier this month, a Spanish oil company, Repsol, announced that it would be devoting more than three-quarters of a billion dollars to North Slope exploration (emphasis mine):

"This deal is a perfect fit in our efforts to balance our exploration portfolio with a lower risk, onshore oil opportunities in a stable environment," Repsol CEO Antonio Brufau said in a statement.

ACES has been beneficial to oil companies of all shapes and sizes. In fact, since the passage of ACES, the number of oil companies filing tax returns with the state of Alaska has doubled indicating that more and more companies are seeking to develop in the state. Actually, Alaska has the second most favorable business tax climate in the country, moving up two spots since the passage of ACES. In fact, since 2006, the state of Alaska has given $3 billion in investment incentivizing tax breaks to oil companies. ACES taxes net profits rather than gross revenues (like Governor Murkowski's oil tax structure) and offers tax credits to oil companies, which yielded high profits for large oil companies like ConocoPhillips and high praise from smaller oil companies. In fact in the year following the passage of ACES, ConocoPhillips Alaskan oil production accounted for 29% of its worldwide income despite only accounting for only 12% of its output. The flexibility of ACES' taxation mechanism in conjunction with changes in oil prices has proven to be beneficial to ConocoPhillips as well. When oil prices dropped in 2009, their Alaskan profit's percentage was higher than in 2008 when oil prices were high, ranging from 35-55% of their total profits in the first three quarters of 2009. Additionally, Former Republican Alaskan legislator, Ray Metcalfe, highlighted that ACES provides a much lower risk for development and 10 times the profit per barrel for oil companies in Alaska compared to oil rich Iraq. Current Alaska state senator Bill Wielechowski spoke to Bob and Mark in February about how ACES has benefited both oil companies and the state of Alaska (H/T Kelsey):



In addition to the benefits ACES provides oil companies, ACES has proven beneficial to the people of Alaska--both in the way of jobs and state revenue. After all, the compass that guided Governor Palin in this effort was the Alaska constitution, which stated that resource development must be done for the maximum benefit of the people. Oil jobs have increased since the passage of ACES with 2009 bringing a record high number of oil jobs. Additionally, even in spite of the economic recession in recent years, Alaska's job market, with 1/3 of jobs related to the oil industry, has remained strong. Alaska's unemployment numbers have remained lower than the national average since 2009. Alaska's economy ACES has also generated more revenue for the state since its passage than the previous two oil structures would have under current oil prices and production. Such revenue helped allowe Governor Palin to put $5 billion in state savings and forward fund education while she was governor. Additionally,a portion of oil revenues provide Alaskans, as resource owners, with a permanent fund dividend, which is essentially akin to stockholders receiving their share of a company's profits.

When Governor Palin signed ACES into law, she asserted that this legislation would provide stability, spur investment and development, strengthen the economy, and create jobs. By all accounts, Governor Palin's assertions ring true, and her detractors must eat crow once again.

Crossposted here, here, and here.