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Oil work maximizes benefits: But state’s high oil taxes push profits elsewhere

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Posted: Wednesday, October 31, 2012 11:49 pm | Updated: 11:52 am, Mon Jan 21, 2013.

FAIRBANKS — As the business trade association for the oil and gas industry in Alaska, the Alaska Oil and Gas Association provides factual information about the state’s largest private sector industry. Alaskans have been bombarded by 30-second sound bites and bumper stickers during the past several months, but oil and gas policy is rarely explained accurately in short political statements, so I’d like to highlight a few facts. 

• Alaska relies on a healthy oil and gas industry. For 32 years and counting, Alaskans have enjoyed being one of the least taxed states in the nation. In fact, it’s revenue from oil that generates 85-90 percent of our unrestricted general fund and pays for almost every state service: teachers, schools, health care, ball fields, roads, etc. Even though oil production is falling, the state’s forecast still relies on this single revenue stream for at least the next decade. 

• Alaska’s production is declining. Under high prices, other oil-producing states are booming with oil production, jobs and investment. Meanwhile, Alaska’s production is down, jobs are mainly in maintenance and new production investment is flat. Now, Alaska has lost its title as the nation’s No. 2 producer to North Dakota, and soon likely will be eclipsed by California. Our current production average is about 100,000 fewer barrels than five years ago when the current fiscal system, Alaska’s Clear and Equitable Share, was passed. We have the resources, but punitive policies are steering us in the wrong direction.

• Alaska still has a lot of oil to produce. Unfortunately, oil from the Arctic offshore is at least 12-15 years away, and policy makers should focus on producing the five billion barrels of recoverable oil literally right under our feet in Prudhoe Bay and Kuparuk. No exploration is required to get started. As an executive from Chevron said in the Wall Street Journal last April, about the aging but now booming Permian Basin of West Texas: “People in the industry said the basin was used up, tapped out, yesterday’s news ... but we listened to veterans here who reminded us that the best place to find oil is where it has already been found.” 

• Tax policy affects business decisions. If you were to define Alaska’s oil and gas tax policy today on the North Slope, it is “entice then take.” ACES offers incentives and credits to entice new explorers to the state. But for existing producers on the North Slope, and for any new explorer whose exploration may actually turn into development, the state’s policy is to take a larger percentage in taxes as the price increases. Corporate capital is limited, and only the most profitable projects get funded. Alaska not only has the highest costs, but also the highest taxes in the entire nation. That’s a problem. Alaskans will get maximum benefit in the long term by increasing oil production and creating jobs for the future versus short-term gains through high tax rates today. Let’s grow our economy so all Alaskans, not just the government bureaucrats, benefit from more oil production. 

• Oil companies are simply responding to the state’s tax policy. The incentives and credits are attracting a few new companies to Alaska, but exploration does not guarantee production. For almost 30 years, the state had a policy that recognized the challenging economics of aging fields, and from 1977 to 2006, despite there being no requirement for a guarantee, 30 fields and satellites were developed on the North Slope, which has extended the life of the basin beyond its projection. Since 2006, only two new fields have come online. Don’t just look to the oil industry — there were no guarantees offered by the cruise industry, but when the state changed its policy, they responded with more investment. 

Oil companies do not make decisions based on emotion. They respond to policies. And competition is more fierce than ever. Alaska can keep the same policy of “entice then take,” and it will deliver the same result of less oil in the pipe. Or Alaska can create a fair and competitive policy that helps spur investment, jobs and increased production. If we work together, we can make it happen.

Kara Moriarty, of Anchorage, is executive director of the Alaska Oil and Gas Association. She is the former president and CEO of the Greater Fairbanks Chamber of Commerce.

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