THE ‘CONCHO RESOURCES EFFECT‘
On Monday, ConocoPhillips announced the purchase of Concho Resources, an oil company based in Midland, Texas, with a presence in the Permian Basin.
The response from Alaskans to that news should be: “Uh-oh.”
An all-stock transaction (no cash was required), what makes the Concho acquisition so important to Alaskans?
It’s a shale production company that moves ConocoPhillips, the largest oil producer in Alaska, into position as a much bigger player in the Permian Basin of Texas and New Mexico, where it costs less than $30 a barrel to supply oil to market.
Alaska’s oil production costs over $38 a barrel to supply.
Concho’s revenue last year was $4.592 billion, and it has over 1,400 employees.
To compare, ConocoPhillips has 1,200 employees in Alaska.
Alaska’s oil fields are competing more than ever with the rest of the United States, where production costs, driven down by innovation, are making Alaska oil plays less attractive.
This also makes Ballot Measure 1 a huge gamble for Alaska. Driving up oil taxes would deepen the state’s economic woes at a time when the economy is already on its knees. It jeopardizes existing and future jobs, new projects and State revenue, economists say.
While some Alaskans think that higher taxes will “stick it to the big oil companies,” the purchase of Concho Resources shows that Alaskans would suffer if oil companies are taxed out of production here.
ConocoPhillips, Hilcorp, and Exxon have more choices than ever around the world, and Alaska has, as a result of innovation and tax structures here and elsewhere, become a smaller oil province with unpredictable tax regime in the resource economy.
If the oil companies won’t be hurt by higher Alaska taxes, who will be? Those who have jobs that are in any manner tied to resources: Small businesses owned by lifelong Alaskans, retailers, pilots, plumbers, landscapers, and restaurant workers.
Also hurt is the State’s bank account. ConocoPhillips paid more than $1 billion in taxes and royalties to the state in 2019. The state could jack up taxes to the detriment of oil production.
In response to soft oil prices, ConocoPhillips announced $400 million in cuts to spending in Alaska in 2020, and by April the company the company told Doyon Drilling that it would put its North Slope drilling rig fleet into hibernation indefinitely. Then it went and made a big stock trade deal for Concho.
All taxes have implications and change the behavior of taxpayers. Ballot Measure 1 may have already scared companies from investing in what is an increasingly expensive place to operate.
According to IHS, an oil analyst company owned by Daniel Yergin, the “Fair Share Act ballot initiative is introduced at a time when the oil industry faces twin crises—the COVID-19 and the oil price crash. While the measure is likely to have a devastating impact to oil and gas investment in the state in the current low oil price environment, the measure is not sustainable even under a long-term base case scenario of $60/bbl.”
Alaska’s current fiscal system is one of the least competitive ones within US and international peer groups in terms of dollars per barrel, for investors, the report continues. “A combination of relatively higher unit costs needed to bring Alaskan North Slope crude oil on stream contribute to lower project profitability compared with Lower 48 and international jurisdictions. The provisions of the Fair Share Act further deteriorate Alaska’s competitive position. The ballot initiative is expected to affect 84% of the current production the state.”
Deeper dive: Readers may download the entire report on the impacts of Ballot Measure 1 at this link:
We were already sinking without it!
The backers and supporters of Ballot Measure 1 only have one bottom line — their’s. If this Ballot measure passes say goodbye to any dividend in the future, not more like, the ads say. 85% of Alaska revenue will be gone and the state will be nothing more than a National Park.
The GOP wants to get rid the the PF dividend and not backers of BM 1.
Why then was it Democrat Governor Walker who stole most of our dividend? Get your facts straight.
No, the GOP Voters made sure during the Primary the ones who were stealing the PFD were voted out. The Representatives and Senators we will send to Juneau in January are there to restore the PFD to the Original intent and Formula.
Lift cost is a direct reflection of efficiency and overhead. Every company on the Slope has a different lift cost, one in particular is less than half of CPhillips’ and BP’s was higher yet.
You’re still right though… BM 1 does little more than disincentivize Alaska’s only golden goose.
The writers and backers of this Ballot Measure do not understand that this will not ensure the PFD like they claim but could possibly remove 85% of the Alaska Budget with a Yes Vote. It could invariably make the State nothing more than a National Park. The only thing for the writers is their bottom line which will tank the Alaskan Economy.
It has long been an axiom of economics that if you tax something you get less of it.
How can that be good for the citizens or the oil companies ?
Simple math is driving ConocoPhillips in Alaska. If the state taxes the heck out of them and it becomes not profitable to produce oil in Alaska, they will pull out just like BP did. I really don’t understand all the hate. Oil companies provide jobs and revenue for the state. The people in Alaska think they can do better, then run all the oil companies out and go up there with a pick and shovel and see if you can do any better yourself. What’s wrong with everybody making a little something on this deal? The porcupine herd doesn’t care and I have yet to meet a native corporation in a zone where there was economic development that didn’t like that because it puts dollars in their pockets and meat on the table.
It was an all stock deal. If CP had paid cash, it would have cost a lot less in the long run. CP is saving their cash for something else.
Meanwhile, shale isn’t without it’s major risks from getting banned in places over environmental concerns. It has caused marked increases in shallow earthquakes, and polluted well water.
An all stock deal protects CP’s liquidity, while positioning it for unforeseen events. This Covid19 stuff has put everyone’s game-plan on reset. Nobody really knows what comes next, anywhere.
Even the current algos are obsolete, and will get rewritten whenever things begin to sort out.
China is playing “Who will blink first”. Trump certainly won’t, and that will only guarantee matters escalating until brinkmanship falls apart.
Pebble is just one acorn in a tree full of nuts.
I just read this morning that Lisa Turncoat Murkowski has flipped yet again and vowed to stop Pebble Mine. She is so predictable. She’s almost steerable and able to be manipulated. The poor lass just doesn’t know which way to go. The only thing she knows for certain is where the part in her hair is every morning.
Got to wonder why Mike Porcaro of the famed Mike Porcaro show is advertising for yes on 1?
Is the 150k worth selling our state for? What does he think he knows that so many others don’t?
Got to wonder?
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