This letter is in response to the debate our Legislature and the citizens of Alaska are having concerning the tax burden or bounty on oil production depending upon which side of the fence the opinion comes from. I have empathy for those involved on the front line of this battle, as each side must weigh fully the risks versus the rewards in order to make the best decision for their financial well being. That being said, it is way past time to remove the emotions of this debate and begin to focus solely on the economics, because in the end the decisions we make now are going to determine where we go in our future financially.
The harsh reality of this debate is magnified by the daily decline in the volume of oil produced within the state. Without new production to replace the losses we have experienced we put the pipeline that carries the oil at risk, as well as the oilfield jobs that work to fill the pipe, the State of Alaska’s major source of revenue and all of the jobs that within the state that are supported by this major industry. We have drawn a line in the sand with the ACES tax structure that puts our interest, all of our interests, at risk.
The bottom line on where we go, or where we actually end up out of this debate will come down to some very simple economics. What does it cost to produce and transport a barrel of oil in Alaska, plus what is the government’s take, and how much is left for the oil company to give back to their shareholders? In the end that is the only equation that the oil companies are going to use to determine when and where they invest their resources for their future. If we as a state and an oil producing region are uncompetitive in that picture, we will lose.
And the picture only gets worse as the production on the North Slope declines, because the same investment from one year to the next means a higher cost to produce and transport a barrel of oil. Couple that with higher taxes, and you can bet the investments we want for our state will go to some other oil producing region around the world. These are global corporations that will go where the biggest potential rewards are, versus the risks they take.
There has got to be some middle ground between where we once were, and are currently with ACES. A tax that is fair to the State of Alaska in the revenue generated, and that is competitive with other oil producing regions around the world. A tax that spurs on investments to increase the production of oil within our state, and helps refill the Trans Alaska Pipeline with the oil and the revenue we need now and in our future.