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ANCHORAGE, Alaska, Jan 25 (Reuters) - Alaska's oil tax hike has pushed the state's three major energy producers to chop at least $400 million from their 2008 spending plans and jettison a massive heavy oil expansion project, BP BP.L officials said on Friday.
The move marks the first big cut to investment in oil production since Governor Sarah Palin signed the tax hike into law in December against warnings from the oil majors it would slow spending and accelerate a steep decline in oil output.
BP Alaska chief Doug Suttles said in a speech at an industry conference Friday the company had set its 2008 capital budget at $800 million -- $100 million less than it would have spent under the previous tax regime, but still 17 percent more than 2007.
Suttles added that Alaska's other big oil producers, Exxon Mobil XOM.N and ConocoPhillips COP.N, had also reduced their capital spending for 2008 by another $300 million combined.
“The oil and gas industry has recently been portrayed as the enemy here in the state,” Suttles said. “I do not believe that is a fair characterization of the last 40 years nor do I believe it will lead to the success of the industry and the state over the next 40.”
Suttles said the company, along with its partners Exxon Mobil and ConocoPhillips, deferred an expansion of its viscous oil project on the western edge of the giant Prudhoe Bay oil field.
A BP spokesman said the expansion project would have amounted to a $1 billion investment over several years. “We’re just going to put that on hold indefinitely,” BP spokesman Steve Rinehart said.
The viscous oil project currently produces about 40,000 to 50,000 barrels of crude oil per day, less than 7 percent of the state’s total production.
Governor Palin signed the tax rewrite into law in mid-December, raising the basic state oil production tax by 2.5 percentage points to 25 percent, increasing the escalator for higher crude oil market prices and eliminating many deductions and credits permitted under the previous legislation.
Many Alaskans believe the old tax regime was clouded by a corruption scandal involving the state’s largest oil services company and former legislators, but the move has incensed the state’s “Big Three” oil producers.
The latest spending cuts come a month after Conoco announced it was canceling a $300 million investment to improve the quality of diesel fuel used on the North Slope, blaming the new tax legislation for making the investment too costly.
A significant reduction in Alaska oil investment could speed up production declines from the state. Alaska crude oil output peaked in 1988 at over 2 million barrels a day, but has dropped to about 740,000 bpd since then as the state’s aging fields are depleted and infrastructure wears out.
BP’s 2008 budget includes the second half of a $260 million project to replace all of the Prudhoe Bay field’s crude oil transit pipelines. Two oil spills caused by corrosion on the lines in 2006 prompted a partial shutdown of the field and intense regulatory scrutiny. BP recently paid a $20 million fine to settle the case.
Another $200 million of BP’s 2008 budget will go into an “aggressive” infill drilling development program at Prudhoe Bay designed to slow the field’s rapid decline rate, BP spokesman Rinehart said.
Development work on BP’s Liberty project in federal waters in the Beaufort Sea will consume another $150 million of the capital program. (Editing by Christian Wiessner) ((richard.valdmanis@reuters.com; +1 646 223 6056; Reuters Messaging: richard.valdmanis.reuters.com@reuters.net))
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