Friday, April 8, 2011

ConocoPhillips (COP) Pleas on High Taxes, Warns on Low Flow

As with most things the government enters into when it attempts to extract capital from productive companies, there are always unintended consequences, and that's the case when Alaska imposed higher taxes on ConocoPhillips (NYSE:COP) under "Alaska's Clear and Equitable System", or ACES, which was put in place under then-Governor Sarah Palin at the time.

According to ConocoPhillips CEO Jim Mulva, because of its 'escalator' mechanism, that increases rates as oil prices rise, Alaska has the highest oil-production taxes among all OECD nations.

"As a result, Alaska is not attracting as much investment as it should during periods of high oil prices. And that's unfortunate. In fact, it's downright sad," Mulva added. "No other state's production has declined more than Alaska's."

Also noted by Mulva was the consequences of lower oil flow through the Trans Alaska Pipeline System because of lower production from too-high taxes.

Oil flow through the aging line is now under a third of the peak levels of 2 million barrels a day in 1988 and falling at a rate of about 6 percent a year, meaning the remaining oil flow could soon diminish to a point where the system can no longer function, according to Mulva.

"TAPS faces new challenges with less oil flowing through the pipeline," Mulva said. "When it starts getting down to 300,000 and 400,000 (barrels per day), there are serious technical issues of its ability to flow. We're reaching that in the next several years."

ConocoPhillips closed Thursday at $80.40, falling $0.03, or 0.04 percent.

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