Big Bad Wolf

Wolves are not the only predators causing havoc these days here in Alaska. Believe it or not yes you should, an oil company fits the definition. Predatory: - adj, a prey, 1] of, living by, or characterized by plundering or robbing. Hear ye, hear ye, now comes the Webstonian facts: A few years ago, Pioneer Natural Resources spoon fed the state legislatures with glossy slide-screen shows along with friendship letters from local businesses, in efforts to get the go ahead green light to develop what is called the Oooguruk Unit, as far east as one can trespass on Alaska’s North Slope. It was an oil resource lease out in East Harrison Bay, of the Colville River Delta. For those unfortunate to not yet venture this far off the beaten track, it is part of the North American Serengeti - the greatest nest on earth! Through Alaska’s “Oil Exploration & Exploitation” history, this lease area has seen interest by ARCO, EXXON and Texaco. But even though oil was found, not in quantities that fit the corporate profit margin portfolio, so foolish from an economic standpoint. So many of the leases were abandoned, expired or sold off. Pioneer, a Texas based energy company, was the 1st Independent to brave this stubborn reservoir along with a logistics nightmare as stubborn as the “stuck oil” under the permafrost, problems galore inherent when producing oil off a man-made island. It all goes along with the new-age “Drill Baby Drill” mentality, which means the state went lenient in efforts to entice the ”Independents” into a market that had been controlled “off limits” for over 30-years by “Big Oil”. One of the concessions was a decrease in the “In-Value Royalty”. That in a nutshell is the money the state gets from giving away the resources, to supply and replenish your PFD! For the first time in Alaskan history, this “royalty” was dropped, to the lowest allowed by state statutes, from 16.5% to a low of 5%. If this were to happen to all oil leases on the North Slope, it would mean a drastic reduction in state revenue, wherein your PFD would be but a pittance of what it is today, probably whither away to nothing. Now this “relief” is something not even the major oil companies found success upon, including an attempt by BP on the Milne Point oil reserve. So armed with concessions, Pioneer set out and last year started producing oil, upwards 10,000 barrels per day. It has been a success story, so far. Costly, as it appears the planning was weak, so instead of a 450-million forecast, twice that by now. But poor planning is not this state’s responsibility or for that matter, our problem. And the state should not share the burden of such. Now what is coming up out of the ground for Pioneer at its Oooguruk production site, it is nothing in comparison to what the majors’ produce, but at $80 dollars a barrel, the math suggests that it is paying for itself handsomely. All the “OohRah” when the royalty relief pitch hit the legislatures like a curve ball, it was based on $44 dollar a barrel oil. Today, it is almost twice that! With that said, the likelihood of relief granted today would be but a waste of time and talent, to “OohRah” the governing bodies responsible for awarding or denying “royalty relief”. It wouldn’t happen! And even though the state allowed royalty relief with the caveat that it can renege on the relief when it is no longer needed, the formula for increasing is very complicated and there exists a time element of surprise. From the looks of things, I doubt if ever that figure increases to the extent favorable, wherein Alaskan’s are guaranteed getting their money’s worth. Through unchallengeable language in the State Constitution, the resources belong to the people of this state and shall benefit from extraction, thus comes the “Royalty” guarantee. It is a “Guaranteed”! Now it was sad that the state bent over, as it is not fair. Why? It is ours! And most recently, the few Pioneer “direct” workers engaged in the Alaska Operations were allowed a bonus, based on the Oooguruk Unit doing better then expected. The contractors on the project, some performing the same jobs as the “directs – a workforce 3 times that of the parent company – for their labors they do not enjoy that bonus. And the bonus was company wide, wherein people down Texas garnished a bonus, on our account! So it is time to fight back, to get the “Royalty” moving back up the money tree, for us, instead of sending it to others - many that live outside. It is our duty to take matters forward: If you feel like not getting ripped off, copy the below letter and send it to Department of Natural Resources asking for the Commissioner to revisit the “Royalty Relief” based on present day economics, the price of oil and statistical data that is pretty convincing that relief is no longer allowable, as bonuses negate a real need for relief and such giveaway programs do not serve the state in its “sworn” efforts to collect for resource development.

Thomas E. Irwin/Commissioner
Department of Natural Resources
550 W. 7th Ave., Suite 1400
Anchorage, Alaska 99501
c/o dnr.appeals@alaska.gov

Dear Commissioner Tom;

On or about December 16th, 2005, Pioneer Natural Resources was approved “Royalty Relief” for engaging in Exploration & Production on its Oooguruk Unit located in East Harrison Bay on Alaska’s North Slope. The royalty was decreased to the lowest allowed by state statutes, namely 5%. The Oooguruk project economics along with the royalty relief request scenario was based on oil prices much lower then what appears upon the commodities/energy market today. Furthermore, it is suspect that the 5% “minimum” may be flawed and in practice provide less then required by state statutes, after considering the “Processing Services Agreement” losses and risks computed on the net oil receipts produced by Pioneer, upon which the Oooguruk Unit is assessed for royalty and taxation. In the loss and risk category, sometimes the results are conveniently being generated by a “model” instead of an actual measurement, results that have not been witnessed by a 3rd party oversight. And since nobody in the state is privy to this “confidential” agreement, it is suspect that it may be inaccurate not on Pioneer’s behalf, thus the state loses out. Furthermore, Pioneer most recently awarded all its employees, Alaska and elsewhere, an incentive bonus ranging from 6% and higher computed off of base salaries. With that bonus showing the company doing well, possibly from profits forecast from the Oooguruk Unit development, it is time to revisit the “royalty relief” as such revisiting is allowed, justified and required to reassess whether or not the allowances given yesterday and in effect today find Alaska loosing out to what belongs to and is rightfully the citizens, in this case the developed resources’ value through royalty garnishment.

S. Pam MaGee/Concerned Alaska Citizen Kane