CHART 1 AVERAGE COST OF A WELL DRILLED IN 1977 This chart shows that the cost of drilling an average well in Alaska is fifteen times greater than drilling a well in the Lower 48. It should be remembered that these are average costs and that many wells in Alaska cost many millions of dollars more, particularly exploration wells in remote locations. The cost of drilling a well in Alaska has always been many times the cost of an average well drilled in the Lower 48. Listed below are the average cost comparisons for the years 1967 through 1977. United States Alaska Alaska Multiple 1977 $ 227,181 $ 3,603,075 15.86 1976 191,615 3,004,827 15.68 1975 177,792 2,708,275 15.23 1974 138,718 2,301,667 16.59 1973 117,152 1,349,687 11.52 1972 106,424 1,777,308 16.70 1971 94,708 1,396,176 14.74 1970 94,885 1,762,603 18.58 1969 88,554 2,087,470 23.57 1968 81,463 1,512,404 18.56 1967 72,902 1,399,079 19.19 Source: Joint Association Survey
CHART 2 COSTS PER HOUR OF PRODUCTION WORKER This chart shows that the cost per hour of a production worker on the North Slope is more than four times greater than a comparable worker in the Lower 48. The North Slope production worker costs more because: (a) His average hourly rate is much greater and he has a built-in overtime component to his costs because of the hours he works when he is on the North Slope; (b) In addition, the worker must be housed and fed and provided with special clothing while on the North Slope. These costs amount to over $150 per day; (c) The worker must be transported to and from Anchorage twenty-five times a year. The cost comparisons on the chart are based on a survey conducted by Standard Oil of Ohio and the chart represents an approximate $9.00 per hour cost for a Lower 48 worker and $41.00 to $42.00 per hour for a North Slope worker. i
CHART 3 AVERAGE COST OF TRANSPORTATION TO MARKET This chart represents the transportation costs from the wellhead to the refinery for Alaska North Slope crude oil to various markets and a comparison to similar costs experienced by Lower 48 crude oil producers. Alaska North Slope crude oil has two cost components, the first is the TAPS tariff, which is approximately $6.25, and a marine component, which varies based on the final market. The marine costs to the West Coast are approximately $1.00 per barrel, to the Gulf Coast about $3.50 per barrel, and to the East Coast about $4.00 per barrel. At the present time approximately 900,000 barrels per day of Alaskan oil are being shipped to West Coast locations such as Seattle, Washington, San Francisco, Los Angeles and Long Beach. Approximately 200,000 to 250,000 barrels are being shipped to refining centers on the Gulf Coast to such locations as Houston and St. James. In addition, 100,000 to 175,000 barrels per day are being shipped to the Carribean and to East Coast refineries in the Virgin Islands, Puerto Rico, in Pennsylvania and other East Coast locations. The products produced by Carribean refineries are typically used to supply petroleum products such as heating oil to East Coast consumers. Also, some crude oil refined in the Gulf Coast provides products which are shipped via pipeline to East Coast consumers. Since the West Coast refining centers will probably not be able to absorb much more than 900,000 barrels per day, all additional production from Alaska will have to be shipped to markets east of the Rocky Mountains. Therefore, incentives for Alaskan oil production directly benefit all consumers throughout the United States by providing domestic oil to domestic refineries and supplanting foreign oil or foreign products. Such increased production will allow this country to attempt to meet the President's objective by reducing foreing oil imports.
CHART 4 SOHIO NET INCOME VERSUS CAPITAL EXPENDITURES This chart shows how the major company involved in the Alaskan Prudhoe Bay project and Trans Alaska Pipeline extended the financial resources of their corporation to complete the project during the 1970's. The capital expenditures shown on this graph through 1978 exceeded their net income by almost four times. During this period, Sohio's net income brought them a return on their investment averaging only 5.4 percent, with 1978 being a high point at 9.9 percent, and even with their recent earnings that return has only grown to 12.8 percent, hardly sufficient to pay them back for the low returns they received in the 1979*s and return to them the billions of dollars in capital they borrowed to complete their portion of the Alaskan project. The most significant point of this chart, however, is the extensive capital requirements yet to be invested by this company alone to bring Prudhoe Bay production to 1,500,000 barrels per day and sustain that production for as long as possible. Estimates of the future requirements of capital range from $15 billion to $19 billion and by this chart you can see that Sohio estimates that it will be responsible for providing up to $7 billion of those requirements. These capital expenditures will go for such things as continued developmental drilling of $.75 billion and secondary recovery through water flood of $1.1 billion and other such expenditures
CHART 5 COMPARISON OF AREAS OF MAJOR OIL POTENTIAL IN THE U.S. AND BASE PRICES AT WHICH THE WINDFALL RPOFITS TAX WOULD BEGIN TO APPLY This chart shows the punitive treatment of Alaskan Prudhoe Bay oil relative to similar oil in the Lower 48 in the windfall profits tax bill as passed by the House of Representatives. This punitive treatment is particularly bizzare when looked at in reference to the oil potential of these same regions. These estimates of potential oil to be found are averages of the U.S.G.S. range of estimates for the areas noted. It is obvious that Alaska holds the greatest potential of any area in this country than can help us through the present energy crises. We should not be penalizing those who develop Alaskan oil but rather providing them with incentive to continue in that development and providing them with treatment that allows them to recoup a risk premium for having taken the risks of exploring for oil in the hostile, high cost, high risk area of Alaska.
CHART 6 SAMPLE INVESTMENTS PER DAILY BARREL OF OUTPUT This chart shows the investment costs per daily barrel of output of sample oil fields in the Lower 48 United States, offshore, and in Alaska and compares those costs with the costs of a daily barrel of output as outlined in the President's synthetic fuels program to be supported by the windfall profits tax. The chart shows that Prudhoe Bay, while being one of the most expensive energy projects to date in this country is, first, less than half as expensive as the President's synfuels program; and, second, there are other oil fields in the United States that can be developed in frontier areas which will provide a daily barrel of output for less investment than the President's synfuels program. The point of the chart then is that it does not make any sense to take money away from oil producers who are knowledgeable in frontier area oil development and use that money for a source of oil which is much more expensive than finding oil in the traditional manner from frontier development in such places as Alaska and the Outercontinental Shelf of the United States. The calcualtion used to determine the values represented in the chart is as follows: the sum of all of the investments to be made in the project is divided by the maximum daily output of the project to come out with an investment per daily barrel of output.