Ten Years of Fiscal Stability with SB21

As a specific example of that investment, in a 2024 Q3 ConocoPhillips Alaska earnings review release, ConocoPhillips Alaska President Erec Isaacson stated, “Year to date, we’ve invested more than $2 billion in Alaska projects, which surpasses our total 2023 capital expenditures.” He added, “Continued progress on projects like Willow and Nuna… demonstrates the effectiveness of the stable fiscal regime.”

In October, ConocoPhillips Alaska announced the acquisition of Chevron’s interests in Kuparuk and Prudhoe Bay, which will add an estimated 5,000 net barrels of oil equivalent per day to ConocoPhillips Alaska’s portfolio. Isaacson said at the time of the announcement, “This transaction once again demonstrates our investment in the state” and it represents the company’s “sustained commitment to Alaska for more than fifty years.”

Hilcorp, another major player on the North Slope, started its operations in Alaska in 2012, also through an acquisition of Chevron assets, albeit in Cook Inlet. It immediately invested approximately $200 million revitalizing its acquired wells. But it was in 2019 that Hilcorp then ramped up its investment in Alaska through the acquisition of BP’s Alaska assets, a massive shakeup that some thought spelled trouble for the oil industry. Bill Popp, who at the time was the President and CEO of the Alaska Economic Development Corporation, said in an op-ed, “This is far from the death knell for Alaska’s oil and gas industry. It’s a transition… Hilcorp didn’t buy this asset to take it down to zero. Hilcorp’s investment is indicative of confidence in its ability to produce additional revenue.”

True to that prediction, Hilcorp has followed the pattern of behavior it established in Cook Inlet, investing in aging infrastructure to increase production. As just one example, by the end of 2020 the company had doubled production at Milne Point to approximately 40,000 barrels of oil per day.

Since 2014, Hilcorp has also partnered with Doyon, Limited for oil and gas exploration in the Yukon Flats; it has continued to bid on new leases in Cook Inlet and was, in fact, the only bidder in the state and federal Cook Inlet areawide lease sales in January 2023; and it has recently entered an agreement with two Japanese companies to study the feasibility storing carbon dioxide emissions from Japan in Alaska’s underground reservoirs.

Under the SB21 tax regime, Oil Search saw the value of investing in Alaska’s North Slope, acquiring in March 2018 a 25.5 percent interest in the Pikka Unit (and adjacent exploration acreage) and a 37.5 percent interest in the Horseshoe Block at a cost of $400 million. Peter Botten, then-managing director for Oil Search, stated, “The Alaskan interests acquired provide a unique opportunity for Oil Search to participate in a world class, high returning, proven oil province that can add material value to the company.”

Oil Search’s commitment to Pikka carried on through the 2021 acquisition by Santos, and a fresh set of corporate eyes also saw the value of Pikka—but not immediately. Santos’ Alaska President, Bruce Dingeman, stated at the Resource Development Council’s 2023 annual conference, “If you asked our CEO or some of our senior leadership team, when the acquisition occurred, the intent was likely to sell Alaska [assets] or to exit because it really didn’t clearly fit with the company’s portfolio.” However, with further review, their opinion shifted: “What fell into the company’s hands was a shovel-ready project.” Thus Santos, along with partner Repsol, issued a final investment decision—a $2.6 billion investment—for the Pikka project in 2022. Santos spudded its first well at Pikka in 2023 and anticipates first oil in 2026 (if not sooner), adding to other projects that are boosting production on the North Slope.

Production versus Prices

Production on the North Slope has met practical predictions from 2014. As Alaska Department of Revenue Commissioner Adam Crum reported at the Alaska Oil and Gas Association’s annual conference in August, North Slope production peaked in 1988 at 2 million barrels per day and has generally been in decline since. The most recent reversal of that trend was in 2022 when production increased to 483,000 barrels per day, which was only the fifth increase since 1988.

Production in 2013 averaged 530,000 barrels per day, and the ten-year forecast published after SB21 passed estimated that production from then-currently operating fields would decline to fewer than 300,000 barrels per day, with new oil bringing the total forecast up to approximately 500,000 barrels per day.

“What actually occurred in production in 2023 was 479,830 barrels per day,” Crum said, and that included oil from projects like Greater Mooses Tooth 1 and Greater Mooses Tooth 2, which began production in 2018 and 2021, respectively.

There were some predictions in 2014 that production would hit 1 million barrels per day by 2024; “That was not a promise but an aspirational goal,” Crum explained, “that included production from the Outer Continental Shelf, ANWR, and heavy oil, made while oil prices were booming over $100 per barrel. Let’s be honest, there are no bad ideas for oil projects if oil is consistently over $100 per barrel; we had a two-year window of very high oil prices that looked very real at the time.”

Instead, oil prices started to crash by the end of 2014 and have yet to recover. Low prices, Crum said, “really affect production tax; that number is based on where the price sits.”

Thus, while production volume met and in some ways exceeded expectations, low oil prices resulted in lower revenue than was forecast under the SB21 tax regime. As Crum put it, “Low prices have reduced state revenue, company profits, and industry investment.”

Even at lower prices, the amount of money the State of Alaska collects is nothing to sneeze at. According to ConocoPhillips Alaska, since 2007 it has paid approximately $45 billion in taxes and royalties, of which approximately $35 billion went directly to the state treasury, and in the third quarter of fiscal year 2024 alone ConocoPhillips incurred $251 million in taxes to the state.

According to Crum, against the general downward trend, the current forecast does expect increased North Slope production. “We see, for the first time in a while, an increase in future production, and it comes from in field development, new projects coming online like Pikka and Willow. We forecast a ten-year increase in production up to 640,000 barrels per day by 2034,” Crum stated. “This is good news.”

Did SB21 Do That?

The general atmosphere on the North Slope is one of high expectations for increased production; but how much credit is due to SB21? “There is no uncontested formula for determining if the tax changes in SB21 have been successful,” Persily says.

He continues, “I expect that some investments would not have happened… tax rates are among the many factors companies consider in making investment decisions.”

As Crum said, “The impact of oil price on revenue obscures any impacts or changes in tax regime. It was such a drastic decline in overall price—remember we hit negative for awhile—that it’s hard to actually evaluate the tax regime aspect.”

In the face of global commodity prices and other external factors, how much does Alaska’s position on taxes matter?

“Federal lease sales and regulations probably matter more for Alaska’s future production than moderate changes in state taxes,” Persily says. “Having said that, any massive changes in state taxes would be a factor.”

The state constantly changing its tax structure, as it did multiple times between 2006 and 2013, creates an environment of unpredictability that works against it. Instead, Alaska’s tax regime since 2014 has been one of the few predictable things in the oil industry. In the last decade, oil operators have contended with changes in federal policy, the war between Russia and Ukraine; the COVID-19 pandemic, the rise of renewable energy production, a trend toward decarbonization, and massive fluctuations of oil prices. Alaska holding steady in tax policy was at least one island of stability in a decade of massive change, and the result appears to be more oil to prop up Alaska’s coffers.