BlueCrest Energy halts project on the Kenai, says state credits are the cause
For the second time this summer, an oil company is pressing pause on a project in Alaska because the state hasn't repaid oil tax credits owed to them.
BlueCrest Energy Inc. says it's halting work on a project on the Kenai Peninsula, near Anchor point after the lawmakers and Governor Bill Walker agreed not to pay off cash credits to the company.
Speaking from Texas, BlueCrest Energy's CEO and President, Benjamin Johnson, broke the news in a phone interview with KTVA Tuesday afternoon.
"Without the money that the state owes us from the tax credit payments, we frankly just can't continue spending that money that we don't have in the short-term," said Johnson, adding that the decision had been made just minutes prior at a board of directors meeting in Fort Worth.
This comes on the heels of Caelus Energy's decision in June to postpone work on what it claims is a landmark find on the North Slope.
Last summer, BlueCrest Energy drilled its first well in its Cosmopolitan Project. It took years and hundreds of millions of dollars to get to that point. Johnson says BlueCrest started the project based on a partnership proposed by the state in 2014. The Alaska Department of Revenue approached BlueCrest with a brochure that read:
"For the entire lifecycle of your project, the State of Alaska is there for you. We do not just talk big, we follow through big - with cash!"
That piqued the company's interest.
It started cosmopolitan -- a $525 million project. BlueCrest says it spent $400 million and was expecting the other $125 million to come from the state. But so far, it's only been reimbursed $27 million.
"That left a big shortfall," said Johnson. "And that money's required to continue paying the drilling people and buying equipment and keeping this large rig going."
According to the state tax director, Alaska now owes around $700 million in cash credit payments to companies like BlueCrest Energy. But in the face of a multi-billion dollar budget shortfall, the state has made only minimum payments for the last three years.
"You have an obligation, you have to pay them. But we can't pay them very much when we still are struggling to fund schools and the university, those things come first," said Rep. Les Gara (D-Anchorage) who once lobbied for creation of the cash credits. But now he and most other agree the state simply can't afford them.
"Over time, the credit system, a lot of flaws came out in it and any legislator should change things that have flaws," Gara said. "But it only worked when we had a strong revenue system and high oil prices."
High oil prices aren't in the forecast anytime soon. Until then, companies like BlueCrest are left with a promise, and a brochure it can't take to the bank.
"Certainly what this has shown is that Alaska can't be trusted," said Johnson. "We're not even arguing about the reasons for non-payment, I mean, clearly we can understand the fiscal problems that the state has now, but nevertheless, when a government makes a commitment, whether it's in the law or not -- when it's told to people to induce them to come and invest hundreds of millions of dollars in the state -- you have to trust the government. And Alaska had a good reputation before. That's no longer."
Johnson believes there's at least 70 million barrels of recoverable oil at Cosmopolitan, maybe more. That's around $3.5 billion by today's prices. He stressed that the project is only going to shut down temporarily, and hopes to find investors to help advance the project soon.
Last week, Gov. Walker signed a bill eliminating cash credits completely.
Alaska is the only oil economy in the world to ever create this type of a program.