Dermot Cole, whose anti-oil position has been his journalistic super power for decades, took another stab at oil when he wrote “SB 21 was oversold as a miracle cure for Alaska oil production.”
Cole has waged a tireless but threadbare tirade against the oil tax policy known as Senate Bill 21, which gave stability to our oil tax system in Alaska.
Historically, the accuracy of some of Cole allegations have proven to have been incorrect. For example, he recently, falsely implied that we should measure SB 21’s success starting in 2013. And yet, SB 21 wasn’t even the law in 2013.
In 2013, SB 21 was still being debated. The law didn’t actually take effect until Jan. 1, 2014. Noteworthy is that Jan. 1 is in the middle of the North Slope winter work season. The tax changes would be felt later than that date.
Even then, the industry had to survive the uncertainty of a referendum. The referendum was voted on by the people of Alaska in August, 2014.
Ultimately, SB 21 was upheld, 99,855 to 89,608. Realistically, any measure of success from SB 21 should not even begin before the referendum was challenged and then safely approved by the voters.
While it is true that there has been a slight decrease in barrels through the Trans-Alaska Pipeline System from 2014 to 2018, there were increases in 2016 (517,868 barrels per day) and 2017 (527,323 barrels per day).
Before SB 21, the tax policy known as ACES — Alaska’s Clear and Equitable Share — resulted in no anticipated increases. There was no hope on the horizon for more production, only steady annual declines.
In fact, a look at the Fall 2012 Production Forecast shows where the State thought it would be in 2019. to understand how much of a difference SB 21 has made.
In the fall of 2012 (under ACES), the state predicted that by 2019, Alaskan North Slope oil production would decrease to 421,600 barrels per day.
Think about that: Only 421,600 barrels a day.
Contrast with what is actually being produced today: In 2018, the average was 509,315 barrels. According to Alyeska, as of Feb. 28, 2019 TAPS is averaging 525,826 BPD.
That’s a beefy increase over the barrels forecasted under the failing policy of ACES.
That’s good news, although some may allege otherwise.
Alaska is getting more oil than forecast. That oil is keeping TAPS throughput fairly constant. Much of the “more oil” is coming from investments made possible under SB 21 that decrease the decline rate in our mature fields.
Take Prudhoe Bay, where most of the oil comes from. Without investment, the field could decline around 12-15 percent per year.
With basic investment, the field would decline about 6-7 percent per year – and that’s what Alaska was experiencing before SB 21 took effect.
With SB 21 and its focus on new production, BP and its partners increased investment in Prudhoe, drilling new wells and funding other in-field work. They have, remarkably, held production flat (just shy of flat in 2018) from this mature field. In other words: instead of 12 or 6 percent declines, the field has held flat.
Once a field reaches its maximum rate of production – in the case of Prudhoe, around 1988 – a field starts a natural decline. From that point on, it will take more investment in more wells, more in-field work, and more tune-ups to get a barrel of oil out.
Production declines, even as the costs-per-barrel keep going up.
Industry said that a competitive regime under SB21 would increase investment that would in turn boost production – and it has. Production can increase without a commensurate increase in TAPS volumes as other older oil fields naturally decline over time (i.e. more steeply without significant new investment).
But to allege that SB 21 has failed Alaska is simply trafficking in falsehoods.