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The big game is Nov. 6: Alaskans have $20 billion riding on the outcome

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Posted: Sunday, October 21, 2012 12:00 am

Community perspective

For more than a year, Alaskans have huddled on the sidelines watching a battle between our pro-Big Oil governor, Sean Parnell, and the pro-Alaska Senate bipartisan coalition about how to divide oil income between the producing companies and other parties, namely the Alaska public and the federal government.

The federal government does not have much say about this game’s outcome, but we Alaskans certainly do through our ability to vote Nov. 6 for representatives in the Legislature. We get to decide which team we want to win: the team that plays for Big Oil or the team that plays for the Alaska public.

The Parnell team scored an early touchdown by conning the Alaska House into passing a $2 billion annual giveaway to the oil companies. To win the game, Parnell also had to get the bill through the Senate, but the Senate formed a bipartisan coalition that dug in and held the line. Direct assaults against this cohesive team were getting nowhere, so the Parnell team resorted to devious ploys intended to fake out both the Senate and the multitudes in the bleachers.

The Parnell team tried to convince everyone that Alaska’s Clear and Equitable Share oil tax was exorbitant, among the highest in the world and so high that it was driving the oil companies out of Alaska. That was a tough claim to make, given the facts showing otherwise.

For one thing, by the standard measure of oil profit sharing — government take — the sharing of profits for Alaska oil is not abnormal at all. At current prices, the total government take is very near the world average, 65 percent. That means that the oil company take is 35 percent, because government take and company take add up to 100 percent.

Not happy that government take data all show that ACES produces the average sharing of profits, the Parnell team sought an end run by changing the rules on the measurement of profit sharing.

Instead of measuring sharing by government take, they brought in a gauge called “marginal government take.” It did not bother them that marginal government take does not measure profit sharing, but rather how that sharing changes with the price of oil. If, for example, the marginal government take is 80 percent, it means that when the Alaska oil net profit drops by one dollar then the oil companies lose only 20 cents, and the other 80 cents of the decline accrues to Alaska and the federal government. Similarly, if the price goes up one dollar, the gain to Alaska and the feds is 80 cents, and to the oil companies 20 cents.

Marginal government take values are all over the map. At prices below $70 per barrel, the marginal government take is always lower than the total government take, going down as low as 25 percent. If the oil price were to rise to above $125 per barrel, then the marginal take would again be lower than the real government take. However, in the range $70 to $125 per barrel, the marginal take is higher, going at one point above 90 percent, about 15 points above the actual government take.

That these numerical values differ so much should not surprise anybody, since they do not measure the same thing. Ignoring that fact, the Parnell team and its primary cheering squad, the Make Alaska Competitive Coalition, take advantage of current oil prices, where the marginal government take is higher than the true government take, to promote the use of marginal take in all discussions. Not only do they promote it, they actually suggest and occasionally even outright claim that marginal take equals actual take. It’s really an apples and oranges game with a special rule: the referees get to call apples “apples,” but they can also call oranges “apples.”

Using the word “marginal” in the discussion of profit sharing is a scam. But, in a way, it is an easy one to pull off because, although completely different, government take and marginal government take sound so much alike that it is hard to remember which is which, even if one does recall the actual meanings of these two terms. Keep in mind that when you see “marginal” applied to oil profit sharing, you know the user is either trying to scam you or does not understand the terminology. The latter might be the case in Richard Wien’s community perspective column of Oct. 4, where he brings in the word “marginal” to support his false claim that our ACES tax is “extraordinarily high.”

Other falsehoods appear in writings of those supporting the $2 billion giveaway — claims that oil company investment is falling under ACES, when actually it is rising, and that oil company employment in Alaska is falling, when the opposite is true.

These ploys have not worked against the Senate’s pro-Alaska team, so the pro-oil forces have a new game plan. They are asking voters on Nov. 6 to replace the stalwart members of the pro-Alaska team, like Fairbanks Sens. Joe Paskvan and Joe Thomas, with a set of players who may be less capable of sorting fact from fiction and more likely to run plays called by the oil industry.

Neil Davis, emeritus professor of geophysics at the University of Alaska Fairbanks, an author of several Alaska-oriented fiction and nonfiction books, including “Energy/Alaska,” a summary of Alaska’s energy resources. For more of his writings on oil taxes, go online to www.esterrepublic.com/Archives/doseofreality45.html.

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