ConocoPhillips has a candidate for lieutenant governor in Alaska
It was almost as if the legislative witness from ConocoPhillips was there to help the campaign of fellow ConocoPhillips employee Kevin Meyer.
Meyer, the state senator and Republican nominee for lieutenant governor, earns $100,000 to $200,000 a year as an “investment recovery coordinator” for ConocoPhillips, where he has worked for many years. He is “responsible for surplus sales and donations” when he is not serving as a legislator.
At a legislative hearing Monday, Meyer, who wasn’t required to declare a conflict of interest, gave this campaign spiel, disguised as a question, to Scott Jepsen, a vice president of ConocoPhillips Alaska:
“So in the previous slide, slide 15, you talk about the hundreds of thousands of new barrels of oil per day, plus approximately $13 billion in capital is the estimate that will be spent, can we assume then since we have the highest unemployment rate in the nation, and some would say that has something to do with our crime rate as well, can we assume then that the jobs will grow correspondingly with the amount of capital being spent?”
Instead of warning Meyer about the danger of making assumptions, Jepsen, the Alaska vice president for external affairs and transportation for ConocoPhillips, more or less said, “You bet Kevin.”
Meyer was referring to a map from Jepsen that listed every significant prospect on the North Slope that ConocoPhillips and its competitors have mentioned, adding up to what Jepsen said could be 400,000 barrels per day in the future.
While the major projects have not been sanctioned and some could be more than a decade away if they happen at all, the tag line on the ConocoPhillips slide mentioned hundreds of thousands of new barrels and $13 billion in spending from companies large and small.
Some of these projects belong in what a 2016 state report referred to as a “pot of gold” exercise, one in which everything is assumed to work out perfectly and take place on time. But there are risks of delay, cancellation and economic failure that make the pot of gold elusive.
All we need to remember are the many perfectly planned Alaska gas pipelines that have never been built.
Jepsen, a reliable campaign contributor to Meyer and other Republicans, gave a presentation that I would summarize in this fashion: ConocoPhillips has great plans to produce more oil in Alaska and so do lots of other companies, but raise taxes by $1 and it will destroy everything. This is the automatic oil company response to every suggestion that a fiscal plan requires more from the industry.
ConocoPhillips is working on projects that could lead to an increase in oil production in the years to come and trying to make them more profitable. Jepsen said the added production could be 100,000 barrels a day a decade from now.
The occasion was a hearing of the House and Senate resources committees, with the ConocoPhillips portion as scripted as a play. The Legislature has never allocated money to hire expert staffers who qualify as experts on oil company economics. That lack of expertise was apparent during the proceedings.
ConocoPhillips may be the source of the campaign rhetoric adopted by Meyer’s running mate, former Sen. Mike Dunleavy, who says oil will solve everything in the future so there is no need to do anything about taxes, reduce dividends or ask anyone in Alaska to give up a thing, except waste, fraud and abuse.
Dunleavy claims there will be 100,000 more barrels of oil in the pipeline in two years and 300,000 to 400,000 more barrels by 2025.
It strikes me as an empty talking point, similar to that of Gov. Sean Parnell, another former ConocoPhillips employee, who had a plan to get production to 1 million barrels per day by 2022. There is a difference between what is theoretically possible and what is most likely to happen.
The state Department of Natural Resources says there is a 10 percent chance that oil flow in the trans-Alaska pipeline will rise by about 160,000 barrels a day by 2027 to 686,000 barrels a day. The state says there is a 10 percent chance it will be less than 400,000 barrels per day a decade from now.
It is reckless to simply proclaim that we can pretty much count on $13 billion in spending that has yet to be approved by a wide range of strong and weak companies and that oil production will rise to 825,000 to 925,000 barrels per day, as Dunleavy is saying. And that we have no need to worry about future finances.
One of the giant overlooked questions is that much of the new oil, if the projects are developed, will be subject to little or no tax for seven years after production starts and that much of the royalty income is likely to fall under a federal rule that requires it to be spent to benefit North Slope communities. The claims that a financial bonanza for the state is waiting are suspect.
I’ll wrap this up with the thing that bothers me the most. It is a question of credibility and I think it shows why the Legislature and governor need to be just the slightest bit more skeptical.
While researching this topic, I discovered that one of the slides used Monday appeared last month in a ConocoPhillips presentation to investors, but a modified version was offered to legislators.
The slides were almost identical, with the exception of a single line. ConocoPhillips told investors that the expected cost of getting oil out of the ground from the big Willow prospect in the NPRA has been reduced to less than $40 a barrel, a major achievement.
That is the kind of thing that smart investors want to know. It is also the kind of thing that Alaska legislators need to know.
The line should not have been deleted from the legislative presentation, even though it might have led to uncomfortable questions about industry claims regarding Alaska oil taxes.
Also missing from the presentation were the slides that show that the cost of developing the GMT-1 project, now expected to begin production late this year, has dropped by 16 percent since 2016. Instead of $43 a barrel, it will cost ConocoPhillips $27 a barrel to develop, the company told investors. Another company project, GMT-2, has reduced the cost of supply from $40 in 2016 to an estimated $34 a barrel.