IHS: Consolidation of Small E&P Cos Could Increase

- IHS: Consolidation of Small E&P Cos Could Increase

Monday, August 29, 2011
IHS CERA

The uncertainty of future oil prices, combined with falling share prices on both London's Alternative Investment Market (AIM) Index and the Standard and Poor's (S&P) Index in the U.S., has made close to 100 small exploration and production (E&P) companies in the U.K. and two dozen large U.S. producers, prime targets for consolidation in order to achieve future funding, reports IHS in its IHS Herold Oil and Gas Perspectives Report.

"There are nearly 100 E&P companies listed on London's AIM, and while a number of these are small companies, numerous others have participated in apparently significant discoveries around the world that may turn into important oil and gas fields," said Robert Gillon, director of energy company research at IHS, and author of the weekly IHS Herold Oil and Gas Perspectives. "However, almost none of these AIM-listed E&Ps have reached the production stage, which means they are not yet generating revenue. Without revenue, they are dependent on future funding to continue operations. That funding can be accomplished either through additional share sales or a farm-out of an interest in their exploration licenses."

In addition to the AIM-listed companies, Gillon said there are about two dozen large (market cap $0.5 billion to $3.0 billion) U.S. oil and gas producers that could be ripe for consolidation as well. "Some of these U.S. companies are also reliant on external financing to fund their capital budgets, but all of them have developed reserves that could be sold in the very liquid transaction market."

Gillon said it is probably "not a coincidence" that the AIM-listed stocks peaked at about the same time as the Greek financial crisis, while the U.S. companies started to slide after oil prices topped out in April. On August 4, both indices took a serious hit, with the London group down 9.6 percent, while the S&P index shed 7.8 percent, and both have suffered further losses since then.

The AIM index is now down by 40 percent from its recent peak, which means the average company would need to sell almost 70 percent more new shares to raise the same amount of money as it did a few months ago. Meanwhile, optimism about future oil prices is more subdued, and the potential farm-in partners recognize that. As a result, they will demand more favorable terms on the deal. But commitments to the host government must be honored to hold the license.

"We believe there could be a wave of consolidation in the exploration sector," said Gillon. "Selling out will become the most attractive alternative."

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Williams Cos Affirmed Its Strong Interest In Acquiring Southern Union Company

- Williams Cos Affirmed Its Strong Interest In Acquiring Southern Union Company



Aug 17, 2011

Williams Cos (NYSE:WMB) affirmed its strong interest in acquiring Southern Union Company (NYSE:SUG) for $44 per share in cash. The all-cash proposal represents value certainty of $44 per share to Southern Union shareholders, which is a premium of 4% over the implied value of the agreement with Energy Transfer Equity (NYSE:ETE) of $42.32.

Alan Armstrong, president and chief executive officer said, "Forty-four dollars a share, cash, for every shareholder is a superior offer for Southern Union's shareholders. Southern Union's current agreement with Energy Transfer includes illiquid partnership units whose value will be exposed to equity markets in the months until closing and beyond."

The Williams Cos has a potential upside of 25% based on a current price of $28.15 and an average consensus analyst price target of $35.2.

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Oil Cos Could Adopt BP's New Safety Standards - US Official

- Oil Cos Could Adopt BP's New Safety Standards - US Official

Friday, July 15, 2011
Dow Jones Newswires
WASHINGTON
by Tennille Tracy

The nation's top offshore drilling regulator welcomed a plan by BP Friday to voluntarily beef up safety standards and said ExxonMobil, Shell and other major oil companies are equipped to follow suit.

Speaking at a congressional hearing, the director of the Bureau of Ocean Energy Management, Regulation and Enforcement said BP knows it has to prove it can operate safely following last year's Deepwater Horizon oil spill in the Gulf of Mexico.

"BP has clearly been through a lot," said bureau Director Michael Bromwich. The company is going to have to "win back not only regulators' confidence, but the public's confidence as well."

BP disclosed Friday it was adopting drilling standards that go beyond existing federal requirements. Specifically, BP said it will require drillers to use more robust equipment, mandating subsea blowout preventers to be equipped with at least two blind shear rams.

BP also said it will use third parties to verify maintenance procedures and oversee testing, and enhance certain measures for responding to an oil spill.

Bromwich said he suspected that Exxon Mobil, Shell and other major oil operators could adopt similar measures, adding that the standards were technologically and economically viable for large companies.

Bromwich also said the measures that BP was undertaking could be folded into a set of new drilling regulations on which his agency is working. He said those new rules would be "broad" and "far-reaching," but he acknowledged the oil and natural-gas industry is wary of the agency adopting new requirements too often and too quickly.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Eliminating Tax Deductions on U.S. Energy Cos Could Increase Debt -Study

- Eliminating Tax Deductions on U.S. Energy Cos Could Increase Debt -Study

Wednesday, July 13, 2011
American Energy Alliance

Louisiana State University Endowed Chair of Banking and nationally-renowned economist Dr. Joseph R. Mason released a just-completed study that finds the Administration's proposal to carve out U.S. energy firms from receiving certain tax deductions would have a net negative impact on federal revenues. In his study, "Budget Impasse Hinges on Confusion among Deficit Reduction, Tax Increase and Tax Reform: An Economic Analysis of Dual Capacity and Section 199 Proposals for the U.S. Oil and Gas Industry," Dr. Mason finds repealing tax deductions for American energy manufacturers would result in:

• $30 billion in Federal tax revenue at the expense of some $341 billion in economic output;
• Over 155,000 lost jobs, $68 billion in lost wages, and $83.5 billion in reduced tax revenues; and,
• A net fiscal loss of $53.5 billion in tax revenues.

"The administration's proposal to eliminate tax deductions on U.S. oil and gas companies is grossly counterproductive toward the goal of increasing federal revenues," Dr. Mason said. "Such a move would have a net negative impact on revenue, thereby increasing federal deficits.

"If the goal is deficit reduction, a far more meaningful approach would be reforming federal tax and business policies that encourage economic growth. Expansion of oil and gas exploration and production on the Outer Continental Shelf, for example, would generate an estimated $11 billion annually in Federal tax revenue in the short run, and $55 billion annually in Federal tax revenue in the long run.

"Reform supports business development in both developing and developed countries, alike. The best reformers have several things in common. First, their reforms are part of a broad agenda of boosting global competitiveness and, second, they never stop. Even developing countries previously stung by fiscal imbalances and committed to business reform rarely retreat to increased taxes as a way to raise revenues. The U.S. should also step up to the challenge of reform."

Dr. Mason's conservative economic analysis employs the same government modeling – the U.S. Commerce Department's RIMS II system.

Dr. Mason's report was sponsored by the American Energy Alliance ("AEA"). To learn more and get exclusive information on upcoming projects, sign up for AEA's In The Pipeline.

Thomas Pyle, president of the American Energy Alliance, issued the following statement in response to the study's findings:

"This study confirms that President Obama's insistence on imposing discriminatory tax changes on American oil and gas companies has nothing to do with deficit reduction – it has everything to do with satisfying his anti-energy agenda. The president's insistence on these senseless tax hikes is further proof of his outright hostility to the oil and gas industry - an industry that provides over 9 million jobs and billions in revenue to the federal government."

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Rep. Gardner Bill to Help Oil Cos Drill Off The Coast of Alaska Slate

- Rep. Gardner Bill to Help Oil Cos Drill Off The Coast of Alaska Slate

Monday, June 20, 2011
Greely Tribune, Colorado
by Nate A. Miller, Greeley Tribune, Colo.

U.S. Rep. Cory Gardner is the driving force behind legislation slated for a vote in the House this week that would make it easier for oil companies to drill off the coast of Alaska.

"Energy security and job creation is very important to me," the Republican said. "This bill accomplishes both goals."

The bill, H.R. 2021, would streamline the process for air permits on deep-water drilling operations off the coast of the U.S., with the exception of the Gulf of Mexico, which is controlled by the Department of the Interior. It also would require the Environmental Protection Agency to make a ruling on permit requests within six months.

Fort Collins resident Gary Wockner, who is the Colorado program director of Clean Water Action, said the bill is misguided.

"This bill will increase polluters' profits at the expense of public health and the environment," he said.

While it may seem strange for a Colorado congressman to take up the cause of offshore oil drilling in Alaska, Gardner, who serves on the House Energy and Commerce Committee, said it's a good fit.

"We need an all-of-the-above energy policy in this country that lessens our dependence on Middle Eastern oil," he said. "Whether it's natural gas produced in Weld County or oil produced in our deep-water reserves. We need to be doing everything we can to help reduce the price of gasoline and to help ween ourselves off of Middle East oil."

Gardner said permits to drill off the coast of Alaska have become stuck between the EPA and the Environmental Appeals Board, which the EPA created to address administrative appeals involving the major environmental statutes the EPA administers.

"Congress said these permits had to be approved or denied within a limited time frame. The EPA created a bureaucracy without Congress that has delayed some of these permits by as much as six years," he said. "It's the EPA end-run around Congress that's hurting our energy independence."

Gardner's legislation would remove the duplication created by the EPA and appeals board permitting process.

In testimony last month before the subcommittee on Energy and Power of the House Committee on Energy and Commerce, EPA assistant administrator for air and radiation Regina McCarthy said the appeals board ensures all parties are heard and often actually makes the process more efficient.

"Rather than adding a step, the board usually serves as a cheaper, faster, more expert substitute for judicial review," she said. She used the example of a group of subsistence fisherman concerned that an EPA permit didn't address their concerns about air pollution. "They would not be required to hire a lawyer; they could attend oral arguments via video conference; and they would know that their concerns were being heard by experts."

She also said offshore drilling operations can have very real impact on air quality, and it's important to ensure effective, efficient oversight of the operations.

Gardner said the permitting process gives ample time for public comment without the added bureaucracy of the appeals board. He said the permits can be held up even when there aren't health concerns. He gave the example of a Royal Dutch Shell permit for Alaska drilling which he said the EPA held up for six years, even though EPA head Lisa P. Jackson said health concerns weren't an issue.

Gardner estimates the measure, if it becomes law, would create 50,000 jobs across the country -- including some in Colorado -- and help ease the pressure at the pump for drivers by allowing more than 1 million barrels of oil a day to be pumped from Alaska.

Wockner said Gardner should focus on energy solutions Colorado has to offer.

"Rep. Gardner should be worrying about clean energy jobs in northern Colorado, not polluters' profits in Alaska," he said.

Copyright (c) 2011, Greeley Tribune, Colo.

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Small Oil Cos Survive GOM's Deep Waters

Small Oil Cos Survive GOM's Deep Waters

Thursday, April 21, 2011
Dow Jones Newswires
by Ryan Dezember

When the staggering costs of BP's deep-water Gulf of Mexico oil spill became clear, investors feared that small, independent oil and natural-gas producers would have to leave the area.

These companies, relatively small by energy-industry standards, didn't have pockets as deep as those of the big oil companies--a necessity in the event of another spill.

But, surprisingly, few companies have abandoned their offshore positions a year after the deadly Deepwater Horizon blast, which killed 11 and unleashed the largest marine oil spill in U.S. history.

Not only will they remain, some small producers vow, but they intend to double down on their bets on deep-water drilling in the U.S. Gulf.

"We're staying," said Al Reese Jr., chief financial officer of ATP Oil & Gas, in an interview.

The Houston-based company, which has a market capitalization of less than $1 billion, last year saw its shares plummet due to its presence in the Gulf's deep water.

But on March 18, when the government announced it had approved a deep-water drilling permit for ATP, shares jumped, ending the day 4.6% higher.

Fellow oil company W&T Offshore bought deep-water properties from Shell and Total after the spill. Plains Exploration & Production Co. (PXP) recently decided to keep its deep-water assets, which it had sought to sell after the spill.

"The Gulf is going to get stronger," W&T Chief Executive Tracy Krohn said in a recent meeting with investors.

Throughout the history of the U.S. Gulf of Mexico's energy industry, small companies have played a big role in making the basin one of the world's most productive oil and natural-gas basins. In the 1990s, as production declined in the Gulf's heavily explored shallow waters, scrappy independent companies were among the first to venture out to the outer continental shelf and prove that there were big reserves in depths greater than 1,000 feet.

But the Deepwater Horizon disaster, for which BP expects to pay about $40 billion, raised what were already high stakes.

Only giants with global empires such as BP, ExxonMobil and Chevron could absorb such a hit. Indeed, many independent companies couldn't afford spill bills such as the ones for billions of dollars that BP has tried to make its partners Anadarko and Mitsui Oil Exploration pay for the Deepwater Horizon clean-up. According to Deloitte, only 10 of the roughly 300 companies operating in the Gulf have a market capitalization of more than $30 billion and about 40% are worth less than $5 billion.

Tudor Pickering Holt & Co. analyst David Pursell said that, while there has been no broad exodus of independent producers, their future in the Gulf's deep waters remains unclear. "The questions are kind of still unanswered," Pursell said. "Can these guys get access to [spill] containment equipment? Can they get access to enough insurance?"

Producers said it has been challenging, but they have found affordable insurance, mainly because BP was self-insured and didn't roil the market with massive claims. And the industry has developed a pair of spill-containment cooperatives that have allowed producers to show regulators they can control a runaway well.

One lingering fear: lawmakers setting prohibitively high liability limits. After the Deepwater Horizon disaster, there was talk in Congress about raising oil companies' liability cap under the Oil Pollution Act from $75 million to billions of dollars. That change never happened--but it doesn't mean it never could.

"It's possible to write legislation that effectively keeps all the little independents out of the Gulf," said Bob Zahradnik, director of the Southern Ute tribe's Growth Fund, which owns oil and gas explorer Red Willow Production Co.

Red Willow, formed by the tribe in 1992 to buy back natural-gas leases on its Colorado reservation, dove into the Gulf's deep water in 2006. It now has interests in 21 deep-water leases.

Typically Red Willow, which joins with Houston Energy to locate offshore prospects, bids on production blocks at government auctions and then brings in larger partners to help it to develop the reservoirs.

"There's a niche for people like us," said Zahradnik, formerly of Exxon Mobil, adding that the company looks for 50-million to 100-million barrel oilfields, which Big Oil considers small fry but which are big game for independents. "I mean, 50 million barrels is $5 billion."

In late February, U.S. regulators approved the first deep-water drilling permit since BP's spill, allowing independent oil company Noble Energy to drill what began as a Red Willow prospect in about 6,500 feet of water.

Though its interest has been reduced to 20.25% after selling larger stakes to Noble and BP, Red Willow expects the well, on which work began last week, to produce a "flash of cash" that it can reinvest in longer-lasting, less-risky onshore ventures, said Rob Voorhees, Red Willow's president and chief operating officer.

"You spend a lot of money and get a little in return onshore," Voorhees said. In deep water, however, "we have one well that's going to swing the nature of our business."

Petrobas Inks MOU with Chinese Oil Cos

Petrobas Inks MOU with Chinese Oil Cos

Friday, April 15, 2011
Petrobras

Petrobras has signed a Memorandum of Understanding (MOU) with the Chinese company Sinochem Corporation and a General Technological Cooperation Agreement (GTCA) with Sinopec.

The MOU signed with Sinochem includes a strategic cooperation between the parties in oil and gas exploration and production in Brazil and abroad; technological cooperation for the development of projects aimed at increasing oil recovery; export of oil and other products.

The objective of the GTCA signed with Sinopec is the exchange of experiences and knowledge in technological areas with a focus on Geophysics, Geology, Reservoir Engineering and Assessment aimed at increasing oil recovery of the reservoirs of both Companies.

The agreements are designed to enhance cooperation between the activities of the companies, both in Brazil and abroad, in areas of common interest and are aimed at developing a strategic cooperation in activities of the oil and gas industry.

Cos Lining Up Leases for Marcellus Shale Properties

Cos Lining Up Leases for Marcellus Shale Properties

Monday, April 11, 2011
Knight Ridder/Tribune Business News
by Bill Utterback, Beaver County Times, Pa.

The race to find natural gas in the Marcellus shale shelf below Beaver County has become a paper chase.

Since Jan. 1, nearly 1,100 properties have been leased by two gas-producing firms, according to the Beaver County Recorder of Deeds records.

Only one new well has been drilled in 2011, and only three well-drilling permits have been issued, according to state Department of Environmental Protection records.

Overall, Beaver County has produced nearly 1,800 leases with natural gas firms and two operating wells, one struck in Marion Township in 2009 and the other struck near Lime Kiln Road in South Beaver Township in January.

The ratio of wells to leases could soon increase.

"There's no question the natural gas is there ... and the extractable amount may be greater than the original estimates," Kent Moors, a gas and energy analyst with Duquesne University's Institute for Energy and the Environment, said.

"They'll come to get the gas," Thomas Anderson, a geologist and natural gas specialist with the University of Pittsburgh. "They may not get to all those properties, but they get to a lot of them."

Moors said that "information" and a depressed natural gas market may have temporarily quieted production in Beaver County.

"There are a couple of things going on ... there's been a difference of opinion as to where the sweet spots are," Moor said, adding that as more information about Pennsylvania's potential is gathered, more firms are transferring resources from other parts of the country to Pennsylvania.

The Chesapeake Appalachia firm, headquartered in Tulsa, now holds lease agreements for more than 1,300 Beaver County properties, more than 1,000 of them acquired since Jan. 1, more than 75 since April 1.

In 2011, Chesapeake has entered lease agreements for property in Big Beaver, Brighton Township, Center Township, Chippewa Township, Darlington Township, Greene Township, Hanover Township, Hookstown, Industry and Potter Township, according to the recorder of deeds records.

Range Resources, based in Fort Worth, has nearly 500 lease agreements in Beaver County, 57 of them acquired in 2011. Range Resources has signed property deals in Big Beaver, Brighton Township, Daugherty Township, Franklin Township, Hanover Township, Independence Township, Marion Township, Raccoon Township and New Sewickley Township in 2011.

Together, the two firms have reserved properties in 17 Beaver County communities in less than four months.

Range Resources has acquired leases on 153 properties in Allegheny County since Jan. 1, including 47 in Findlay Township, 41 in North Fayette Township and 25 in Moon Township.

"It could be that (firms) have been busy (drilling) in other areas. They have their hands full right now," Anderson said. "They're doing a ton of drilling in Washington County right now, but that doesn't mean that the natural gas in Beaver County isn't very, very attractive to them."

Oil Cos Tell Legislature Investments Lost Due to Taxes

Oil Cos Tell Legislature Investments Lost Due to Taxes

Monday, April 04, 2011
Alaska Journal of Commerce

by  Tim Bradner

 

Major employers in the state, worried about the future and whether there will be enough oil to operate the Trans-Alaska Pipeline System, are pressing legislators to reduce Alaska's high petroleum taxes to encourage new investment and oil development.

In several days of hearings before the House Finance Committee the week of March 28, companies told of sharp reductions in work that has caused them to lay off workers.

Meanwhile, oil companies -- large firms and small independents -- have painted a bright future for the state's petroleum industry if the Legislature acts to approve Gov. Sean Parnell's bill to adjust the tax, or something like it.

"Let's change the sound bites. Instead of talking about giving up $2 billion, let's talk about stabilizing the decline in production," Ken Thompson, managing partner of an Alaska-based independent exploration company, told legislators.

Thompson's company, Alaska Venture Capital Group, one of the owners of Brooks Range Petroleum Co., is just the kind of independent company legislators want to encourage. Brooks Range Petroleum is drilling the lone exploration well being done this winter on the North Slope.

Thompson said the investment tax credit portion of the state production tax does help small exploration companies like his, but the overall tax rate, which goes higher as oil prices climb, is making it tough to raise capital from investors.

Thompson's group lost one big investor for its exploration program because other places are more attractive than Alaska, he told the House Finance Committee in hearings.

However, if the tax rate were lowered, independents could ramp up exploration. Brooks Range Petroleum could put a second drill rig to work, and perhaps a third, Thompson said.

Bart Armfield, operations vice president at Brooks Range, believes independent explorers, with the right tax environment, would find enough new oil deposits, even if small ones, to flatten the oil decline.

There are plenty of prospects for small companies, Thompson said. "For small independents discoveries of 10 million, 25 million or 50 million barrels are just fine," he said.

Armfield said Brooks Range's owners, a group of small, mostly family-owned independents as well as Alaska investors like Thompson, previously had their core areas in places like Kansas. A few years ago, growth prospects at home were small for these companies, Armfield said.

Alaska was attractive because there were larger prospects, even if these were too small to interest the larger companies. However, higher state taxes have dampened Alaska's assure. Had companies known ACES was coming, they probably wouldn't have invested, Armfield said.

Independents priced out

High oil prices have hurt Alaska's competitiveness in the eyes of many potential independent investors.

"Now oil is at $100 a barrel and there are a lot of opportunities close to home in areas these people know and where they are comfortable," Armfield said. "HB 110 would make positive changes, however."

Great Bear Petroleum, an Austin, Texas-based independent that wants to experiment in drilling and producing from shale rocks on the North Slope, said it sees bright potential.

"We have an aggressive program that supports 250 wells per year for 20 years starting in 2013," the company's chief financial officer, Ryan Moynagh, told the finance committee.

If the idea pans out, about 150,000 barrels day, and perhaps more, could be produced from shale.

However, Great Bear must still test its concept that oil can be economically produced from shale rock on the Slope. The company has two exploration wells planned for next winter, and must still raise the investment capital needed for development. Improving the tax environment would help Great Bear, Moynagh told the finance committee.

"The easy conventional oil has been found. There is remaining large volume potential in unconventional plays, such as heavy oil, shale oil and gas," Moynagh said.

But costs rise on a per-barrel basis and the economic return will decline due to field sizes getting smaller, a challenging, high-cost operating environment, exploration becoming riskier and new exploration initiatives like heavy oil and oil and gas shale being expensive, he said.

"Discovery and development of Alaska's remaining potential would be significantly enhanced by improvements in Alaska's fiscal terms, such as those in House Bill 110," Moynagh said.

Support wanes

Alaska firms engaged in oil support work are more discouraged, however. Margie Brown, president of Cook Inlet Region Inc., told legislators she is worried about a political environment in Alaska that seems to chill private investment.

"We're seeing a lot of resistance to private investment to the point that even we are beginning to look for more investment opportunities outside Alaska. Capital moves to places with less risk, and I don't want to see that happen to Alaska," Brown told the House Finance Committee.

CIRI owns oil and gas producing properties in Southcentral Alaska and has a big stake in North Slope contractor companies.

"We've seen a dramatic decline in our Slope work. The magnitude of the decline is alarming," Brown said. "The status quo is not an option, and we're concerned about this talk of 'giving away' money to the oil companies. We do support the governor's efforts. His legislation is on the right track."

Ethan Schutt, CIRI's vice president for land and energy, said he was infuriated coming through Calgary recently and seeing the bustle of drilling and activity and the coming home to learn that the liquefied natural gas plant near Kenai is being shut down and the Agrium fertilizer plant next door, already closed, may be broken up and shipped to Nigeria.

Aaron Schutt, vice president for operations at Doyon, Ltd., echoed the comments by Thompson and Armfield. (Ethan and Aaron Schutt are brothers.) Schutt said his company, which is exploring Interior Alaska basins, lost an industry partner in exploring the Nenana Basin and has been unable to find a partners in the Yukon Flats basins, both areas with prospective geology but also high risks. Lacking an industry partner Doyon is leading these exploration efforts itself, so far.

"The exploration tax credits helps explorers at the front end, but these companies (the prospective partners) look at the life cycle of the project, which includes the tax," Schutt told legislators.

There have been small companies coming in to explore, but what's really needed are larger companies with the financial strength to put discoveries in production, and these are lacking, Schutt said.

Doyon is heavily invested in North Slope support work, with has three quarters of its corporate capital tied in a fleet of six drill rigs operated by subsidiary Doyon Drilling. About 1,400 people are employed in the Doyon's oil-related service companies, including 435 Doyon shareholders. A full 90 percent of Doyon's oil workers are Alaska residents, Schutt said.

Tara Sweeney, senior vice president of Arctic Slope Regional Corp., urged legislators to reform the state tax law.

"Oil and gas is the bedrock of our economy. It is directly one-third of the economy and it provides 90 percent of state revenues," Sweeney said.

The current tax is double and triple the petroleum tax rates of producing states like Wyoming and North Dakota, she said.

Arctic Slope employs 4,000 in Alaska, mostly in energy-related businesses, she said. ASRC Energy Services, an oil services subsidiary, is one of the state's largest employers. Petro Star, a refining subsidiary, markets fuel products.

ASRC also receives royalties from oil production from subsurface rights it owns in the Alpine field and has invested with other companies in exploration on the North Slope and in Interior Alaska. ASRC is now a partner with Savant Resources in the restarted Badami field, a small field east of Prudhoe Bay.

The corporation has been working to get investors interested in North Slope projects but has been unsuccessful so far, and the state tax is at least partly to blame, Sweeney said.

"The lost opportunities are just devastating. What we have now is not working," she said.

Major North Slope oil operators could not guarantee new investments would come if the tax is lowered but they said it is highly likely.

"My expectation is that if House Bill 110 passes, we will spend more money in production-enhancing activity, all aimed at getting more production into the pipeline," Claire Fitzpatrick, chief financial officer for BP Exploration Alaska, told the House committee. "We would be using our existing fleet of drill rigs to the maximum and perhaps bring on another rig. If we add another rig that's a hundred jobs."

Fitzpatrick said two major west Prudhoe Bay development projects that were stalled when the Legislature raised taxes in 2007, a gas partial-processing plant and a new drill pad, with 50 new wells, would very likely proceed if the tax were adjusted.

"This would add a significant amount of work. It would have a big effect on contractors," Fitzpatrick said.

Wendy King, ConocoPhillips' external affairs vice president, told legislators that Alaska has the highest oil production decline rate of any state in the nation, 36 percent since 2003.

In contrast, Texas has only declined about 1 percent and production is growing in many states. In North Dakota, Utah and Mississippi, production is up 30 percent, King said.