In a My Turn published in Tuesday’s Empire, Rep. Les Gara recited one-sided, stale arguments against House Bill 110. Readers deserve a better explanation of what’s at stake for Alaska.
Oil producing regions across the world are booming. But only one new exploration well is being drilled in Alaska this year, and the existing wells are in maintenance mode. The throughput of the Trans Alaska Pipeline dropped by 7 percent in 2010, and 2011 doesn’t look much better. Why?
A reasonable person may correlate the current tax structure and a drop in oil exploration development, but the cause-and-effect isn’t just speculative: Oil company executives have plainly and repeatedly stated they are not interested in investing in Alaska, because it’s not smart to explore and develop our technically challenging fields during this perfect storm of high taxes and the high price of oil.
Gara would like to force oil companies doing business in Alaska to invest only in Alaska, as a condition of any tax incentive. That is an unprecedented demand in a free market world, and would likely be unconstitutional.
Instead, with the prospect of HB 110 passing this session, Alaskans have heard some very promising statements from the oil industry: Jim Mulva, the Chairman and CEO of ConocoPhillips, flew to Alaska expressly to report that his company would invest up to $5 billion if we get our tax structure fixed. He listed several specific projects he’d pursue in Alaska that would reverse the decline in the pipeline.
This week, Sen. Bill Wielechowski dismissed Mr. Mulva’s intent to increase investment, saying it would fall short of the gap created by adjusting taxes downward. But the senator has not disclosed the full picture, because BP, ExxonMobil and other companies will see new exploration possibilities for Alaska under a more investment-friendly tax regime. The senator’s analysis cherry-picked the facts, choosing not to include the investment in areas not currently being explored. You see, the governor has not just proposed tax adjustments, but also has proposed increasing production to one million barrels a day.
Ken Thompson, whose main job is to attract new investors and capital to Alaska for a lease holding company, recently testified that our tax rates had driven off some of his company’s most promising potential partners to places like North Dakota and the North Sea. Pioneer Natural Resources dropped a known oil field at Anchor Point because it can make a better play on its prospects in Texas and North Dakota.
We have vast resources, yet we are not attracting the capital investment necessary to explore and develop those resources. Without the investment, the oil will not be produced. HB 110 will encourage oil companies to invest in our state. The legislation has three parts. The first two parts provide tax incentives only if investment is made. The rewards come to companies that explore and develop older, non-producing fields, and give tax reductions for new fields, where no production has ever occurred. These two tax incentives are widely supported across Alaska, because new investment means job growth, and production will provide oil royalties to the people of Alaska.
The third part of HB 110 is where Alaskans have had a robust debate. This portion of the tax reform flattens the slope of taxation once oil reaches certain price points. It doesn’t remove the tax; it simply doesn’t step on the tax accelerator pedal, as ACES currently does during times of higher oil prices.
What about our state budget? We’re in good shape. The Department of Revenue has run an economic model that shows, with tax reform, Alaska’s budget will have a $10 billion reserve account at the end of the 2020 fiscal year. That includes a 7 percent annual budget increase.
House Bill 110 has the support of leading Alaskans who have studied and analyzed Alaska’s oil tax regime, and who agree that today’s tax windfalls are creating tomorrow’s empty pipeline. Those who have stepped forward to support tax reform include former governors, the heads of the leading companies from every sector of our state, bank presidents, Native leaders and our senior United States senator from Alaska.
It’s time for the State Senate to listen to what Alaska’s business and civic leaders are saying, and pass HB 110.
• Bryan Butcher is the Commissioner of the Alaska Department of Revenue.
Comments (7)
Add commentHB110
HB110 is probably the worst thing that AK could do! Parnell has already sold us out to the cruise line industry. Now he want to sel us out the big oil companies
Apparently
The author has not read the other reports such as the DOL data showing no signification decrease in oil sectors jobs. Or the report indicating some 130 exploration well last year. Or the reports from industry insiders stating the current tax scheme is not a deterrent to oil companies.
Tax Change
All of us who purchase fuel pay taxes through a system that seems to be just fine (for us at least). You pump, you pay; regarless of where you are doing your pumping be it Juneau, Nome, or where ever. It is a flat rate.
The producers did not like it when they were under the same system. The excuse was that some fields cost more to produce from, therefore there should be a profit based tax. That was good then.
Now that prices are going out of this world the producers are just dying because of all that profit tax they are paying on the crazy big profits they are making. Thus Big Oil has put the squeeze on the Gov and others to reign in what they consider to be a profit leakage so that more goes to them.
Please, that is boring to hear about. We need to go back to the simple system that we all use to purchase our fuel. Flat rate, at the well head, X% off the top. Leave it like that and more on. Sounds too simple and it would not work because there is no way to skim off the top and avoid taxes with a plan as such. With Big Oil, it is always about them. No amount of profit is ever too large.
Oh no you didn't...
Just invoke the name "Exxon". Why should we, as Alaskans, EVER care about Exxon? They did not care about our state or our people. People DIED waiting for Exxon to settle claims for what they did. They don't give a rat's a$$ about Alaska, and we should treat them as they treated us....
Taxation
The Governor was absolutely right to question whether or not Alaska's taxation structure on Alaska's oil is established properly. There are myriad reasons why Alaska policy makers should continuously review whether or not our state's tax structure encourages development of oil and also encourages job creation in this vital enterprise. With any luck, we would even encourage hiring of individual Alaskans in this business.
The problem here is two fold: First, there is insufficient data to act on at this juncture, and: Secondly, the oil companies conducting business in Alaska have done an inadequate job at making their case that Alaska's tax structure is harmful, inadequate or detrmental to continued operations or development.
In the long run, the development of Alaska's oil has more to do with federal politics and geology than the current tax structure established by our State Legislature.
Alaska is continuously stymied by the federal government with regard to development of promising oil fields. The accessible oil Alaska has is increasingly hard to develop. Whatever oil the state has is a long way from market via expensive supply chains.
There is no guarantee Alaska will remain forever an prominent oil state. The oil companies have put the Governor and the Legislature in a miserable position here by not providing adequate information or assurances with regard to development in exchange for reduced taxes.
Instead of fighting with each other, the Legislature and the Governor should work cooperatively to increase throughput of the TAPS by increasing access to oil prospects. The only entities that benefit form these kinds of internecine fights are the outfits operating in Texas and London.
question,
besides the Parnell Administration, the oil industry and their shills in the House, is there a single Alaskan who believes we should change the tax structure and fork over $2B per year to the oil companies?
Butcher already pimping parnell
The biggest incentive to do nothing in Alaska? Warehousing "their" leases. Money in the bank getting mad interest by not pumping it yet.
Alaska can not stand for this blackmail. Take back the leases and award them to companies that start drilling NOW. Pumping oil NOW. Nobody thinks that there are plenty of small guys that would LOVE a crack at Pt Thomson?
Get a bigger stick and wack the hell out of them. Either pump it for us or watch us pump it ourselves. WHY do we need them? Cuz I'm surely not one of the people that says I'm required to wait until (laaaaaaa) private enterprise does it for me. We The People of Alaska only do diservice to ourselves by allowing ourselves to be treated this way.