Doesn't add up

Somehow the numbers in a recent opinion piece just don’t add up.

 

No matter how you spin it, there is a huge difference between North Dakota’s 11.5 percent production tax and Alaska’s, which begins at 25 percent and soars to as much as 70 percent during high oil prices.

The Legislature has spent a lot of time over the past two years listening to consultants and the industry talk about the impact of ACES (Alaska’s Clear and Equitable Share), Alaska production tax. They have all been interesting but I like to turn to former Division of Revenue economist Roger Marks who may know more about oil taxes than everyone else.

In a recent piece in the Oil & Gas Finance Journal, Marks writes that the tax rate under ACES is the “fourth highest out of 24 (comparable) regions.” A comparable regime means a place “with a comparable risk/reward balance in terms of features such as reserves, costs and geological risk.”

“For 17 of those regimes, Alaska’s effective tax rate ranged from 12 to 37 percentage points higher. At a $118/bbl market price, and a $91/bbl net value, each percentage point difference is worth 91 cents/bbl after tax.”

“Because of taxes … producers can demonstrably make considerable more money nearly anywhere else in the other comparable jurisdictions than in Alaska.”

We have only to look at the investment side to see how on the mark Mr. Marks is. Since ACES became law in 2007, production has plummeted 100,000 barrels/day or 36 million barrels/year, despite continued high oil prices. That’s 180 million barrels valued at more than $180 million left in the ground

Just last month, North Slope production fell another 1 percent while in Cook Inlet, where tax code is designed to spur investment, production rose 7.4 percent.

Capital spending on the North Slope has been flat since ACES passed, and when adjusted for inflation, has actually decreased each year. Contrast that with Cook Inlet where companies are pouring hundreds of millions of new dollars into an old oil province.

The governor laid out four guiding principles for oil tax reform that all Alaskans should be able to agree upon: tax reform must be fair to Alaskans, it must encourage new production, it must be simple and it must be competitive for the long term.

Gov. Sean Parnell said he used those principles to craft his bill now being debated in both houses of the legislature. And while it might not be perfect, it’s a good start. It better protects Alaska at lower oil prices and substantially reduces the risk to the state treasury by restructuring the credit system. It simplifies the tax system by eliminating the monthly “progressivity tax,” restructuring tax credits and maintaining the flat, base, tax rate of 25 percent. The legislation encourages new production by focusing incentives on actual oil production.

Alaska, it’s time to fix ACES and unleash opportunity.

Bill Corbus

Juneau

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