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Alaska Oil & Gas
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A one-stop source of news and comment on Alaska oil, gas and fiscal policy issues.
A one-stop source of news and comment on Alaska oil, gas and fiscal policy issues.

90 followers
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It is always noteworthy when the majors publicly discuss their hurdle rates. "In order to justify new projects, BP needs to show it can make 15 percent returns with the global benchmark for oil from the North Sea priced at $50 a barrel." #akoil #akleg

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#AKGov Walker sees #AKLNG as the #AKecon's "life after", but at $1/Mcf wellhead the benefit is highly marginal. As we look around at other examples, this where Saudi is heading. #ShouldBeAnElectionIssue #akleg #akelect

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Sigh. Another in the growing parade of East Coast trade associations that are attempting to tell Alaskans how to run state fiscal policy. At least this one doesn't suggest that we accelerate oil tax credits, but seriously, this is getting tiresome. #akleg

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Starting Monday The Michael Dukes Show will coming to you a different way. But other than that, not much changes.

Michael will continue to hold forth from 6-9am each weekday morning with a broad range of guests and I will continue to join Michael each Tuesday at 7:20am to discuss the latest in Alaska oil, gas and fiscal policy. Instead of KBYR, just start looking for him starting Monday on his page below at Facebook Live (you can play it through the car's bluetooth app if you listen while driving to work) and a bit later in the week, both Livestream and the TuneIn app. ~ Brad Keithley https://goo.gl/YGqU3v

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This wk's Michael Dukes p'cast: What the #AKoil industry and it allies are overlooking when they talk about Alaska tax policy & the effect of the US Senate #TaxReform bill on Alaskans. #akleg

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While oil cos need "consistency," Alaska needs a strong economy. The focus by oil's #akleg allies on #PFDcuts (which have the "largest adverse impact" on the #AKecon & are "by far" worst for #AKfams) to provide that "consistency" undercuts oil's case.

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Interesting chart for those that follow these things. Note the direction on shale v. larger targets. This adds some additional depth to Mark Papa's remarks last month about the limitations of shale economics. http://ow.ly/bAZO30h5qds #akoil #akleg

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For those interested we have loaded yesterday's AGDC presentation on the AKLNG project into slideshare.

Some will have heard the Governor and others talk about the potential that the project could generate $2 billion per year in benefits to the state. The breakdown of that is on slide 11. As readers will note, that number is, in fact, $1.6 billion using the assumed wellhead price of $1/Mcf, and of that only $250 million accrues directly to state government in the form of royalty and taxes. The remainder accrues either largely to local government in the form of a PILT (payment in lieu of taxes, $450-$500 million), or is injected into the private sector as payments for O&M services ($950 million). There is no estimate of what portion of the O&M payments will remain in the Alaska economy after initial receipt.

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An excellent summary of the challenges and opportunities facing the Alaska oil industry: "Bilbao said that currently there are about 2.5 trillion barrels of known worldwide oil resources that could be produced using existing technologies. But the projected worldwide oil demand between 2010 and 2050 only amounts to about half of that volume. So, to be sold in the future oil market, oil will need to be competitive on price.

“You’d better be sure that the price of your oil, delivered to market, is less than everybody else’s,” Bilbao said. “That’s why we continue to focus on how do we make Alaska’s oil as competitive as possible.”

"In terms of Alaska’s competitiveness in the global oil market, the state took a major step forward with the passage of the Senate Bill 21 production tax legislation in 2014, Bilbao said. Following the tax change a steady oil production decline of 6 to 8 percent per year has flattened out over the last two or three years, and production has even grown somewhat, Bilbao said.

"While continuing vibrant levels of investment in Alaska oil can hold the production decline rate to perhaps 1 percent, reverting to uncompetitive tax policies would cause a reversion to a decline rate of around 6 percent. At the same time, there is a threshold of some 300,000 barrels per day in trans-Alaska oil pipeline throughput - go below that threshold and the oil becomes significantly more expensive to ship. Hence, holding the decline rate at 1 percent could result in 6.5 billion barrels of competitive oil being exported through the pipeline, compared with just 1.5 billion barrels at a 6 percent decline rate. That extra 5 billion barrels represents $66 billion for the state in terms of taxes and royalties, Bilbao said."
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