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Community Perspective

Alaskans have been brainwashed by oil companies 

I read the recent opinion column by Rasmuson Foundation board members with hopes it might say something about oil profits. It didn’t. If it refreshes your memory, I am the former legislator who spent a decade pounding the drum about oil companies using Bill Allen’s VECO to bribe our legislators to give our oil away for a fraction of its value. After years of ridicule for saying it, in 2006, the FBI proved I was right; the oil companies were using VECO to bribe our legislators to keep Alaska’s share of profits from Alaska’s oil far below international norms.

The FBI’s raids caused the oil companies to lose control of our Legislature, Alaska’s tax structure changed, and over the next six years Alaska increased spending and saved up $17 billion. In 2012, the oil companies regained full control of our Legislature, our gains were reversed, and we have now spent the $17 billion.

The Rasmuson opinion piece has it backward. We won’t preserve our way of life by matching spending to existing revenues; a slower adaption to existing revenues still spells poverty.

I began studying oil profits and international industry norms more than 30 years ago. I recently reviewed ConocoPhillips 2018 second-quarter profits and learned that they netted over $25 per barrel from their Alaska production. That doesn’t tell you much until I also tell you that it is highly unlikely that there is another oil company anywhere in the world netting $25 per barrel. In fact, it would be rare for an oil company to net even half that amount. During that same quarter ConocoPhillips also did very well on its Lower 48 production; it netted $11 per barrel in the Lower 48. I say it did well in the Lower 48 because $11 is well above the international average that producers get to keep.

ConocoPhillips, in a 2008 joint bid with Russia’s largest independent oil producer, LUKoil, bid for an Iraqi contract, agreeing to produce Iraq’s oil for less than cost plus $4 per barrel. While LUKoil later bought ConocoPhillips’ interest, Alaska’s other two big producers to this day produce similar cost-plus contracts for Iraq. Exxon is reimbursed all costs and Iraq pays Exxon an additional $1.90 per barrel. BP is refunded for all costs plus $2 per barrel.

Exxon and BP were producing Iraq’s contracts in 2014 while spending $16 million advertising to Alaskans that the $32 over cost per barrel they were making on Alaska’s oil in 2014 wasn’t enough to warrant future investment.

We can preserve our way of life by raising revenues to match our needs, and the revenues need to come from demanding a world market value for our resources. If Alaska extracted an additional $2.5 billion from this year’s production, the remaining profits for oil companies would still be among the highest returns available anywhere in the world.

In closing, I should mention that in 1981, I was one of two primary authors of the original investment strategy for the Alaska Permanent Fund. As you probably have heard, Norway copied our fund and now has over $1 trillion in its account — around 20 times more than we have. Here is what you probably don’t know: Norway saved 20 times as much by producing only four times as much oil. Norway’s production came from deep water, costing over twice as much per barrel to produce and, therefore, also had slimmer profit margins. Had Alaska received and saved the same share of production profits as Norway, Alaska could easily have deposited an additional $200 billion in our permanent fund. Alaska’s lack of international oil market knowledge has cost Alaska about $200 billion.

These things are easy to document, but so many Alaskans have been brainwashed by oil companies and well-paid “oil economists” that organizations like the Rasmuson Foundation won’t even take the time to look. If that doesn’t change, Alaska will be the next Appalachia.

Ray Metcalfe lives in Anchorage. He served in the Alaska House of Representatives from 1979 to 1983. He was a Democratic candidate for U.S. Senate in 2016.

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