THE NORTHSTAR PROJECT: ECONOMIC IMPACTS

Transcription

1 THE NORTHSTAR PROJECT: ECONOMIC IMPACTS PREPARED FOR BP Exploration (Alaska) Inc. PREPARED BY Bradford H. Tuck Professor of Economics April 1996 SCHOOL OF PUBLIC AFFAIRS AND INSTITUTE OF SOCIAL AND ECONOMIC RESEARCH UNIVERSITY OF ALASKA ANCHORAGE 3211 PROVIDENCE DRIVE ANCHORAGE, ALASKA 9958

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3 Table of Contents Figure 1 Figure 2 Figure 3 Figure4 Figure 5 Figure 6 Figure 7 Figure 8 Total Project Expenditures Oil Production Alaska Capital Spending Alaska Operating Expenditures Employment by Type Population Impacts State Gove1ment Revenue and Costs Fiscal Dividend ~kl 2 ~k2 6 ~k3 9 Appendix A The Northstar Project: Economic Impacts

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5 The following analysis explores the economic impact of developing the Northstar field. The analysis is based on certain assumptions related to total capital development and production spending, recoverable oil, and other parameters, etc. Since the project is undergoing constant planning activity and review, these numbers may differ from others that have been reported. The Northstar field is located in the Alaskan Beaufort Sea, approximately six miles from Prudhoe Bay. It is projected that about 13 million barrels of oil can be recovered, over a fourteen year production period beginning in Total capital expenditures are estimated at about 379 million dollars, with an additional production related expenditure of about 197 million dollars. All dollar figures are in 1996 dollars. The methodology used in this analysis is based on a model developed by Dr. Scott Goldsmith in a report entitled Marginal Oil Field Development: The Economic Impact (ISER, June 5, 1995), and subsequently applied in the analysis of development of heavy oil reserves ( Tuck, Heavy Oil Development: The Economic Impact; ISER, December, 1995). Where appropriate, parameters related to oil prices, tariffs, and other oil related variables have been updated, based on the Fall 1995 Revenue Sources Book: Forecast and Historical Data (Alaska Department ofrevenue). The major impacts of a project such as the Northstar development relate to the injection of significant amounts of income into the Alaska income stream. The initial injections come from wage and salary income of workers on the project, and related spending on equipment, supplies, transportation, and business services in Alaska. These injections result in additional rounds of spending (the "multiplier" effect) which result in further increases in income. Associated with the increased income flows is the expansion of employment. Also accompanying the increase in incomes and employment is an increase in population and an increase in demands for state and local government services. Finally, the production of additional oil results in additional payments to both state and local government entities. Spending of these revenues (in part to meet the demands of increased population for government services) results in a further expansion of employment, income, and population. The most important dimensions of the project and its impact on the Alaska economy can be seen in the accompanying tables, beginning with Table 1. In this table the basic expenditure and production assumptions are first shown. As indicated above, total capital spending is projected to be about 3 79 million dollars, and expenditures on production are an additional 197 million dollars. Of the total capital spending, about 221 million dollars are spent in Alaska. About 179 million dollars of the production related expenditures are spent in Alaska. Total production is estimated to be 13 million barrels over a fourteen year producing life, beginning in Initial production is at a rate of about 5, barrels per day. Total value of production, at wellhead, is about 1.6 billion dollars. Total labor requirements include 997 man-years oflabor in the development phase and 93 manyears oflabor during production. Figures 1 and 2 provide a sense of the timing and magnitude of capital and operating expenditures and oil production and value. Figures 3 l

6 NORTHSTAR PROJECT TABLE 1 SUMMARY DATA 1 NORTHSTAR PROJECT OVERVIEW TO~ 2 (MONETARYDATA IN '96LLARS 3 TOTAL CAPITAL EXPENDITURES , TOTAL OPERATING EXPENDITURES PRODUCTIO~IL BBlf(_fil_ n n n WELLHEAD VALUE PER BBL VALUE OF PRODUCTION _ ALLOCATED CAP EXPENDITURES TOTA 1 TOTAL CAPITAL EXP IN ALASKA LABOR EQUIPMENT SUPPLIES SERVICES N 15 TRANSPORT MAN-YEARS OF EMP; CAP EXP PAYROLL CAPEXP_i_Mjill ALLOCATED PRODUCTION EXPEND TOTA 21 TOTAL PRODUCTION EXP IN ALASKA LABOR n n EQUIPMENT ,. SUPPLIES SERVICES TRANSPORT MAN-YEARS OF EMP PROD EXP PAYROLL; PROD EXP

7 FIGURES 1 AND 2 NORTHSTAR PROJECT TOTAL PROJECT EXPENDITURES CAPITAL AND OPERATING 12 1 Cf) w ~ 8 :::i f- 6 z w a_ 4 x w 2 ~ ~ t 3 i ~ =i L _;z j_ -<}- _J_ <>- "-:, - ~. ::;,;: -II- -II _. --i- --~ YEAR CAPITAL EXP -<>OPERATING EXP MILLIONS OF '96$ CAP= $379; OPERATING= $197 OIL PRODUCTION QUANTITY AND VALUE 2 25 z 15 B :::i 1 a ~ a_ 5 ~~ ~ ~ "'«' "' ~ -j z ~ :::i 15 a ~ a_ LL 1 w 5 ~ 1995 ~ _/ -'- 2 I PRODUCTION PRODUCTION IN MILLION BBL VALUE IN MILLION '96 $ _L 25 YEAR -'- 21 ~ VALUE OF PRODUCTION I 215 3

8 FIGURES 3 AND 4 NORTHSTAR PROJECT!ALASKA CAPITAL SPENDING I~--~ (58.6%) LABOR tmj EQUIP SUPPLIES CTll SERVICES TRANSPORT 16.6 (7.5%) (11.4%) (12.5%) (1.%) I MILLIONS OF '96 $I!ALASKA OPERATING EXPENDITURES I (67.6%) Iii LABOR rm EQUIP SUPPLIES o SERVICES 1111 TRANSPORT (6.9%) (6.9%) 18.5 (1.3%) I MILLIONS OF '96$ I 4

9 and 4 show the allocation of Alaska spending on development and production, by type of spending. Table 2 provides the details of employment, payrolls, and population impacts. Of the total of 1927 man-years oflabor, 1492 would be provided by Alaska residents. Multiplier effects lead to an additional 336 man-years oflabor demand, for a total demand for labor of Alaska residents would provide 4528 man-years of this total. The annual total employment impact starts at 377 jobs in 1996, grows to 844 by 1999, and gradually tapers off after that, particularly during the period after field development is completed. On average, this amounts to 31 jobs per year over the life of the project, of which 283 would be held by Alaska residents. The population impact tends to mirror employment effects, reaching a maximum increase in 1999 (an increase of 1432 individuals). The average increase is 527 over the life of the project. Figure 5 describes annual employment effects by type of employment, while Figure 6 provides a sense of the population impacts. The fiscal consequences of the project have two dimensions, and are spelled out in Table 3. First, the state government will incur additional costs. It is estimated that the state government will spend about ten million dollars on field management over the life of the project. Expenditures on the provision of government goods and services in response to increased population are estimated to be just over 34 million dollars. The second fiscal impact of the project is an increased flow of revenues to state government. Projected revenues to the state amount to about 3 84 million dollars. This is composed of royalty income and severance, corporate and property tax revenues. Because the Northstar field is partially on federal land the state receives a weighted average royalty of percent. This includes an assumed royalty of2 percent on state lands. The difference between state revenues and state expenditures related to this project is the measure of the fiscal dividend, which is estimated to be 34 million dollars. Figure 7 shows the annual revenues and costs to state government. There is a potential further fiscal impact if oil prices over the project life equal prices projected by the Alaska Department of Revenue. Under the proposed Northstar agreement between BP and the state of Alaska, a supplemental royalty provision would result in an additional 3 7 million dollars of revenue to the state, and would increase the fiscal dividend to 3 77 million dollars. Figure 8 plots the fiscal dividends, with and without the supplemental royalty. Detailed notes to tables 1-3, and supporting tables, are included in Appendix A. 5

10 NORTHSTAR PROJECT TABLE2 SUMMARY DATA 31 OIL RELATED EMPLOYMENT PAYROLLS NDPOPU TION 32 YEAR TOT~L DIRECT JOBS IN ALASKA _LO&G, cg_ HELD BY ALASKA RESIDENTS = PAYROLb.i_MILLION ~l_ , PAYROLL TO ALASKA RESIDENTS NON-RES PAYROLL SPENT IN AK VENDOR JOBS IN ALASKA, TOTAL DEVELOPMENT RELATED PRODUCTION RELATED INDIRECT & INDUCED JOBS IN~ TOT DEVELOPMENT RELATED PRODUCTION RELATED _ ' 45 TOTAL OIL RELATED JOBS <6 TOTAL JOBS TO ALASKA RESIDENTS n <7 46 VENDOR PAYROL~ILLION!L DEVELOPMENT RELATED PRODUCTION RELATED INDIRECT AND INDUCED PAYROLL_l_MtL$ DEVELOPMENT RELATED PRODUCTION RELATED TOTAL PAYROLL _MLLION!L TOTAL PAYROLL TO AK RESIDENTS OIL RELATED POP & GOV EXP TOTA 58 POPULATION STATE GOV EXPENDITURE_jM!_L.!l_ FURTHER EMP AND POP EFFECTS TOTA 62 STATE GOV+ INDIR & INDUCED JOBS OTHER JOBS STATE GOV+ INDIR & INDUCED POP OTHER POP ADDED STATE GOV EXP.JM!l.!) ,78 67

11 FIGURE 5 NORTHSTAR PROJECT [EMPLOYMENT, BY TYPE I...:i I- z I >- 1 I.~ w :2 8 _J a. :2 w 6 LL en ~ 4 LI) m DIRECT (R34) Elll VENDOR (R39) IND&IND (R42) ltiill GOV+IND (R62) OTHER (R63) >- ' z <t: 2 : YEAR I LEGENDNUMBERS REFER TO ROW NUMBERS IN TABLE 2.1

12 FIGURE6 NORTHSTAR PROJECT [POPULATION IMPACTS I 2 w (/) <( w :: z z 1- :s ::> fl fl YEAR / 1111 OIL RELATED (RSB) m ST. GOV+IND (R62) OTHER (R65) I \LEGEND NUMBERS REFER TO ROW NUMBERS JN TABLE 21

13 \C NORTHSTAR PROJECT TABLE3 SUMMARY DATA.. TOTAL COSTS ANO REVENUES TO TOTA 69 STATE GOVERNMENT ~IL~ 7 71 COSTS n FIELD MANAGEMENT COSTS OIL & GAS POPULATION COSTS OTHER POPULATION COSTS TOTAL COSTS TO STATE GOVERNMENT REVENUES 78 ROYALTY f:rnt AVE, 18.44~ SEVERANCE TAX CORPORATE INCOME TAX REV PROPERTY TAX REV FROM HIGHER THRUPUT TOTAL STATE REVENUE FISCAL DIVIDEND PRESENT VALUE OF DIVIDENO~.OI l_ S B6 87 STATE SUPPLEMENTAL ROYAL TY TOTAL REVENUE TO STATE 89 INCLUDING SUPPLEMENTAL ROYA.!:::D ADJUSTED FISCAL DIVIDEND PRES VALUE OF ADJ. DIVIDEND~.O~ =

14 FIGURE 7 NORTHSTAR PROJECT I STATEmGOVERNMENT REVENUE AND COSTS I 8 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~... = I f- ~ 6 (..) Cl z <( w :::> z w w 4 > 2 ::: o I -= :::::-, I MILLIONS OF '96$ TOTAL REV.= $384; TOTAL COSTS= $44 25 YEAR [... REVENUES... + COSTS I

15 FIGURES NORTHSTAR PROJECT FISCAL DIVIDEND MILLIONS OF '96$... 6 z 4 w I > 2 _J <( (.) (J) u.. i::::'l----d:~.::~ YEAR 21 [ --- FISCAL DIV (R84) - - DIV WITH SUP. ROYAL TY (R9) I 215 DIV TOTAL =$34 MILLION; WITH SUP. ROYALTY, $377 MIL. LEGEND NUMBERS REFER TO ROW NUMBERS IN TABLE 3

16 APPENDIX A THE NORTHSTAR PROJECT: ECONOMIC IMPACTS

17 Appendix A Sources and Notes for Tables 1-3 Line 3 Line 4 Line 5 Line 6 Line 7 Line 1 -Line 15 Line 17 Line 18 Line 21 -Line 26 Line 28 Line 29 Line 34 Line 35 Line 36 Line 37 Line 38 Line 39 -Line 44 Line 46 Line 48 -Line 53 Line 54 Line 55 Line 58 Line 59 Line 62 -Line 66 Line 72 Line 73 Line 74 Line 75 Line 78 Line 79 Based on data provided by BP. Based on data provided by BP. Based on data provided by BP. See Appendix A, Table 1. Computed as wellhead price X production. Appendix A, Table 3. Line 11(1/1.3); Goldsmith, Table 1. Line 17*1,/1,,; Goldsmith, Table 1. Appendix A, Table 3. Line 22*1,,/(1,*l.3); Goldsmith, Table 1. Line 28*1,/1,,; Goldsmith, Table 1. Line 17 +Line 28. 8% of production employment and 75% of development employment to residents. Goldsmith, Table 1. Line 18 +Line 29..7S*Line 18+.8*Line 29. Goldsmith, Table 1..2*Non-resident payroll. Goldsmith, Table 1. Alaska Input-Output Model. Line 35 +Line 39 +Line 42. Alaska Input-Output Model. Line 36 +Line 48 + Line 51. Line Line 48 + Line 51. Appendix A, Table 4. Based on Goldsmith, Table 7. Per capita cost= $484. Based on Goldsmith, Tables 8 and 9. Based on Goldsmith, Table 12, estimated at $.74 per barrel. Line 59. Line 66. Line 72 + Line73 + Line74. Weighted average royalty from state and federal leases (16.44%). Provided by BP. A-1

18 Line 8 Line 81 Line 82 Line 84 Line 87 Line 89 Line 9 Computed at $.2 per barrel; estimated by BP. Based on data provided by BP and Goldsmith, Table 3 (State gets 6. percent of total). Appendix A, Table 2. Line 83 - Line 75. Data from BP. Line 83 +Line 87. Line89 - Line 75. A-2

19 NORTHSTAR PROJECT APPENDIX A, TABLE 1 NORTHSTAR STUDY BASE PRICE CASE PRICES AND CHARGES PER BARREL ;i.. c:.. (1) (2) (3) (4) (5) (6) (7) (8) '96$ AVERAGE NOMINAL '96= 1. STATE LOWER48 MARINE TAPS ANS AVE INFLATION INFLATION PS#1 YEAR PRICE COSTS TARIFFWELLHEA RATE FACTOR PRICE PRICE (9) (1) (11) LOCAL $18 REAL '96$ PIPELINE QUALITY NORTH- TARIFFS BANK STAR ADJUST.WELLHEA (2) REVENUE SOURCES BOOK, FALL 1995, ALASKA DEPARTMENT OF REVENUE, TABLE 14 (3) DEPARTMENT OF REVENUE PERSONAL COMMUNICATION (4) REVENUE SOURCE BOOK, TABLE 14 (5) REVENUE SOURCE BOOK, TABLE 21 (6) REVENUE SOURCE BOOK, TABLE 21 (9) ESTIMATED ($27.6 MIL FOR PIPELINE, 13 MIL BBL OIL) (1) PROVIDED BY BP (11) = (8)-(9)+(1)

20 NORTHSTAR PROJECT APPENDIX A, TABLE 1 NORTHSTAR STUDY BASE PRICE CASE PRICES AND CHARGES PER BARREL (1) (2) (3) (4) (5) (6) (7) (8) (9) (1) (11) '96$ LOCAL $18 REAL '96$ AVERAGE NOMINAL '96 = 1. STATE PIPELINE QUALITY NORTH- LOWER48 MARINE TAPS ANS AVE INFLATION INFLATION PS#1 TARIFFS BANK STAR YEAR PRICE COSTS TARIFFWELLHEA RATE FACTOR PRICE ADJUST.WELLHEA PRICE ?'" w (2) REVENUE SOURCES BOOK, FALL 1995, ALASKA DEPARTMENT OF REVENUE, TABLE 14 (3) DEPARTMENT OF REVENUE PERSONAL COMMUNICATION (4) REVENUE SOURCE BOOK, TABLE 14 (5) REVENUE SOURCE BOOK, TABLE 21 (6) REVENUE SOURCE BOOK, TABLE 21 (9) ESTIMATED ($27.6 MIL FOR PIPELINE, 145 MIL BBL OIL) (1) PROVIDED BY BP (11) = (8)-(9)+(1)

21 NORTHSTAR PROJECT APPENDIX A, TABLE 2 NORTHSTAR ANALYSIS: REVENUES FROM HIGHER WELLHEAD ====== ======== ============= ====== ======== ========== ========== ========== =================== ========= ========== ========= ========= ========= ========= ========== ========= 13 MILLION BBL OVER 14 YEARS BASE CASE TARIFF YEAR DAILY MARGINAL PRODUCTION 5,4 49,8 49,8 48,7 41,2 34,7 28,7 23,8 2,DCX:I 16,7 13,9 11,5 7,6 4,3 PIPELINE TARIFF (A) DAILY TAPS THRUPUT (8) 1489J CX)() CHARGES (MILLION$) $1,85 $1,343 $1,179 $1,87 $1,78 $1,36 $1,13 $987 $969 $933 $687 $86 $934 $784 AUGMENTED DAILY THRUPUT 1.494,4 1,458,8 1,415,8 1, ,321,2 1,224,7 1,181,7 1, 13,8 1,81, 1,4,7 929,9 865,5 815,6 768,3 ADDITIONAL CHARGES (C) $2.4 $22.18 $22.18 $21.69 $18.35 $15.45 $12.78 $1.6 $8.91 $7.44 $6.19 $5.12 $3.36 $1.91 AUGMENTED THRUPUT TARIFF $3.31 $2.56 $2.33 $2.23 $2.27 $2.35 $2.38 $2.42 $2.48 $2.56 $2.66 $2.74 $2.81 $28 REDUCTION IN TARIFF- $.1 $.5 $.4 $.4 $.3 $.3 $.3 $.3 $.2 $.2 $.2 $.2 $.1 $.1 INCREASE IN WELLHEAD INCREASE IN WELLHEAD VALUES $4.14 $25.28 $2.82 $18.59 $16.35 $14.76 $12.44 $1.62 $9.36 $8.33 $7.43 $6.46 $4.46 $2.5 (MILLION$) BLENDED TAX I ROYAL TY RA TE (D) 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% 18% INDIRECT INCREASE IN REVENUE (MILLION $) $.745 $4.551 $3.748 $3.346 $2.942 $2.656 $2.239 $1.911 $1.685 $1.499 $1.337 $1.162 $.82 $ YEAR FIELD LIFE $29.7 MIL ====== ======================= ======::= ========== ========== ========== ========== ======== ========= ========= ========== ========= ========= ========== ========= ========== ========= (A) DEPARTMENT OF REVENUE REVENUE SOURCES BOOK, FALL 1995 (IN "96$) (8) ANS PETROLEUM PRODUCTION, DOR REVENUE SOURCES BOOK, FALL 1995 (C) TARIFF INCLUDES FIXED PROFIT PER BARREL@ AND VARIABLE OPERA TING COST@ AND TAX TOTAL BASED ON CONVERSATIONS WITH AOOR PERSONNEL $.54 $.32 $.36 $1.22 (D) ASSUME 12% ROYALTY AND 6% SEVERANCE TAX (FOR ALL SLOPE OIL) (C)-() FROM GOLDSMITH, MARGINAL OIL FIELD DEVELOPMENT ~ ~

22 NORTHSTAR PROJECT APPENDIX A, TABLE 3 ALLOCATION OF DEVELOPMENT AND PRODUCTION EXPENDITURES CURRENT $(MIL) I YEAR TOTAL OPERA TING EXPENDITURES B CAPITAL EXPENDITURES SEVERANCE TAX CONSTANT '96$(MIL) OPERATING EXPENDITURES CAPITAL EXPENDITURES SEVERANCE TAX ADVALOREM TAX INFLATION RATE= 3.% DEV PROD 192.SJ DEV FROM BP DATA, PROD FROM GOLDSMITH ALASKA PROPORTION = ALLOCATED DEV EXPENDITUR TOTAL TOTAL CAP EXPEND ALASKA EXPEND la8r EQUIPMENT SUPPLIES SERVICES ::-- TRANSPORT VI ALLOCATED PROD EXPENDITU TOTAL TOTAL PRODUCTION EXP ALASKA EXPEND LABOR EQUIPMENT SUPPLIES SERVICES TRANSPORT SOURCE: CURRENT DOLLAR CAPITAL AND PRODUCTION EXPENDITURES, SEVERANCE TAX AND AO VALOREM TAX DATA FROM BP. INFLATION RATE USED BY BP= 3.% ALASKA PROPORTIONS OF CAPITAL EXPENDITURES. NORTHSTAR. FROM BP DATA LABOR.5858 EQUIPMENT.1142 SUPPLIES.1 SERVICES.125 TRANSPORTATION.75 1 ALASKA PROPORTIONS OF PRODUCTION EXPENDITURES, FROM GOLDSMITH, MARGINALOJL FIELD DEVELOPMENT LABOR EQUIPMENT SUPPLIES SERVICES TRANSPORTATION ===========--====== ========== ===========--== ================================= ======= ======== ========= ======== ========= =============== ========= ========= =========

23 NORTHSTAR PROJECT APPENDIX A, TABLE 4 NORTHSTAR PROJECT: OIL RELATED POPULATION ===== ========= ======= ======= ======= ========== ======= ======= NOTE: THE POPULATION IMPACT IS COMPUTED FOR EACH YEAR. THIS TABLE ILLUSTRATES THE COMPUTATIONS FOR THE TOTAL IMPACT. YEAR TOTAL TOTAL DIRECT INDIRECT VENDOR INDUCED RESIDENT JOBS HOUSEHOLD SIZE (A) ADULTS I HH (B) SCHOOL AGED KIDS I HH (C) JOBS PER HH (D) HOUSEHOLDS 2, ,231 ADULTS 4,529 1, ,118 SCHOOL AGED KIDS 1, POP 7,14 2, ,386 ===== ========= ======= ======= ======= ========== ======= ASSUME ALL INDIRECT AND INDUCED JOBS HELD BY RESIDENTS (A) (B) (C) (D) 199 CENSUS PUBLIC USE SAMPLE POPULATION 18 TO 64 IN HOUSEHOLDS, 199 CENSUS PUBLIC USE SAMPLE POPULATION 5 TO 17 IN HOUSEHOLDS, 199 CENSUS PUBLIC USE SAMPLE JOBS PER HOUSEHOLD IS RATIO OF JOBS PER HH TO EMPLOYEES PER HH MULTIPLIED BY THE INDUSTRY SPECIFIC EMPLOYEES PER HOUSEHOLD FROM 199 CENSUS PUBLIC USE SAMPLE OIL AND GAS.9639 CONSTRUCTION.9639 ALL OTHER (A)-(D) FROM GOLDSMITH, MARGINAL OIL FIELD DEVELOPMENT A-6