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Oil tax cut is built on myths: Facts reveal no need for tax breaks

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Posted: Thursday, March 31, 2011 4:07 am | Updated: 1:53 pm, Wed Dec 26, 2012.

Community Perspective

An advertising campaign is underway to persuade the Legislature and the public to go along with the governor’s plan to reduce taxes on some of the richest corporations in the world. The campaign is founded upon several myths that do not stand up to close examination. Let’s take a look at some of them.

Myth: Oil company investment is down on the North Slope since “Alaska’s Clear and Equitable Share” passed.

Fact: Oil industry capital investment on the North Slope is up

35 percent since ACES passed. This data comes from the oil industry itself. This year, capital spending on the Slope will be $2.76 billion.

Myth: Oil companies are leaving Alaska.

Fact: Repsol, an oil company with 40,000 employees and operations in 29 countries, announced plans a month ago to invest at least $768 million in oil exploration and development on the North Slope. This is new money coming to the state. One thing that attracted Repsol to Alaska was our stable political climate.

Myth: Wells are not being drilled on the Slope.

Fact: 164 development wells were drilled on the North Slope in 2010, an increase of 24 percent from 2009. That’s right, drilling was up last year, not down as some would have you believe.

Myth: The pipeline is going to be shut down soon.

Fact: This is highly unlikely. Outer continental shelf development could add 1 million barrels of production into the pipeline. And just this month BP launched a $100 million “heavy oil” pilot project at Milne Point. BP is under time pressure to get its heavy oil reserves out of the ground, as it needs to blend that oil with lighter crude to render it shippable in the pipeline. Heavy oil could, according to BP, amount to 250,000 barrels per day in a few years.

Myth: The oil industry is unanimously opposed to ACES.

Fact: Most industry businesspeople think ACES is OK. The Fraser Institute Global Petroleum Survey asked 364 companies with exploration and development budgets totaling $161 billion about whether ACES was working or not. These are industry insiders, and fully 70 percent of them said ACES either encouraged investment or was no deterrent to investment.

Myth: Progressivity takes too much when oil prices are high.

Fact: Progressivity is the feature in ACES which raises the tax rate once profits climb. What you don’t hear about are the credits the state grants for investment in Alaska. The credits reduce an oil company’s taxes dollar for dollar. And according to the Department of Revenue, the credits granted in 2010 were nearly equal to the amount collected under progressivity. In other words, what the state takes in under progressivity goes back as credits to the companies that are investing in Alaska.

These facts are inconvenient for those who believe that giving

$2 billion per year to the oil industry, which the governor’s bill would do, will somehow lead to a full pipeline. Keep in mind that oil production has been declining on the North Slope since 1988. It has declined about

6 percent on average every year since then. Oil taxes were lower during much of that time. Why did production rates decline during a period of low oil taxes? The answer is simple. Because that’s what the vast majority of oil reservoirs do. They decline.

Alaska does need new oil in the pipeline. The problem is that the governor’s bill does not bring any assurances of more production. Don’t take my word for it. This headline ran in the Anchorage Daily News recently: “Parnell’s oil tax gets BP’s praise but no promises: Spokesman stops short of saying jobs or investment would result.” The unfortunate truth is that we could pass the governor’s bill and not see another dollar of investment.

A bill that actually stimulates new exploration and production without giving away the farm will get support in the Legislature. For example, we are considering a bill that focuses on granting credits for drilling in unexplored areas of the state. But the debate must be based on facts and not the myths and half-truths that some are peddling.

Sen. Hollis French, D-Anchorage, represents west-central areas of Anchorage, including Spenard, Westchester Lagoon and the area north of the Ted Stevens International Airport.

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