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The oil tax penalty

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Posted: Thursday, February 18, 2010 2:23 am | Updated: 1:24 pm, Wed Dec 26, 2012.

Community Perspective

My company is one of the first casualties of Alaska’s Clear and Equitable Share oil tax. That’s why I agreed to participate in “Faces of ACES,” a communications campaign sponsored by the Alaska Support Industry Alliance.

Because of ACES, a bunch of terrific Alaskans no longer work for me. These were the folks I hoped to put to work on a major project that was cancelled because the tax denies deductions for the work.

That was just the first of a string of new developments unfunded or underfunded because of ACES. Add them up, and there were many faces of ACES at the end of 2009: 2,229 unemployed Alaska oil field workers.

Ever since ACES passed, I have had fewer opportunities for my workers on the North Slope. I went from 80 workers to just the 10 guys in my shop at Prudhoe Bay. My business is down 75 percent since 2007, while Alaska government has continued to grow.

I’ve been a proud part of Alaska’s oil business since 1975, when I arrived in Fairbanks to work on the pipeline. I helped found CONAM Construction Co. in 1984. With a lot of hard work, and help from great employees, I watched my company prosper, performing oil field construction and maintenance even in the days of $11 per barrel oil.

Today, with oil more than $70 per barrel, I’ve just closed the books on one of the worst years ever — and 2010 looks even bleaker. We’re at a point now where we’re really seeing the negative effects of ACES. It’s serious. It’s real. It’s impacting real people.

According to the Alaska Department of Labor, the number of in-state unemployment claimants in Alaska’s oil and gas support sector soared 144 percent in the past two years. In January, the department said more bad news lies ahead: “Employment will continue to fall in 2010” because of “less maintenance, less exploration activity and pressure on contractors to work more efficiently.”

Consider these statistics:

• BP said its investments in development projects that deliver new barrels of oil, long-term jobs and state revenues are down 30 percent since 2007. The company’s drilled footage has declined 50 percent under ACES and is now at the lowest level since 1999, when oil hovered below $17 per barrel.

• The number of exploratory and development wells has plummeted to the lowest levels in a decade. This winter, only one exploratory well will be drilled on the North Slope. For the first time in more than 40 years, Alaska’s most active explorer — ConocoPhillips — is not exploring. Remember, newfound oil takes years to get into the pipeline.

• Pipeline throughput has fallen 80,000 barrels per day since ACES was adopted and continues to decline 4-6 percent per year.

The bulk of the North Slope’s job and investment “growth” the past few years, which the state Department of Revenue cited in a recent report on the alleged success of ACES, is attributable primarily to BP’s massive response to the 2006 Prudhoe Bay oil spill and its resulting repair and replacement activities.

That work is winding down — and BP is cutting its capital budget by 15 percent this year, saying it makes better returns in other parts of the world.

While maintenance has preserved existing production and generated temporary jobs, it has added not a single molecule of new oil to the pipeline.

Alaska is in deep trouble. Even if oil taxes are reduced, it will take a year or more for any new investment to make a difference for small businesses like mine. That might be too late for many of us.

We need to have a responsible fiscal plan in place before we squeeze the last tax dollar out of any Alaska industry. Taxing just for the heck of it is irresponsible.

We need to stop this political posturing and fix ACES before it trumps our future.

Bob Stinson is the co-founder and president of CONAM Construction Co., an oil field service company that performs facilities construction and maintenance. He is a former president of the Alaska Support Industry Alliance.

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