My Turn: Answers to questions about the oil tax cut

No company would give away billions of dollars to a business partner and say it’s OK if it gets little in return. But that’s what the state did under the massive Alaska oil revenue rollback it passed. That should be reversed and re-written to protect Alaska’s interests in our oil.


Here are some facts left out of industry ads, and off placards held by the paid “protesters” whom political insider Art Hackney has hired to stand between you and the mostly volunteer referendum signature gatherers.

Alaskans will lose between $700 million to $2 billion. each year, in revenue under the new law, SB 21, depending on oil prices. Why? The bill eliminates the “Windfall Profits” share Alaska received when oil reaches very high prices. That share only kicked in after companies made more than $30 per barrel in profit on oil produced in Alaska.

Alaskans won’t get that revenue back. This give was way too big, and loosely written in industry’s favor.

First, the $700 million to $2 billion a year you’ll lose can be kept by companies, or spent in other countries. There’s no requirement it be spent in Alaska. I and others proposed effective, but not excessive tax breaks to companies if they invested in new Alaska production, wells, exploration, or technology needed to produce our 1.8 billion barrels in heavy oil reserves.

One Legislative consultant, Janak Mayer, testified that by 2021 we’d have to add 100,000 barrels/day in new oil just to break even with the revenue that would be produced under current law. And that estimate was understated. Why? Because the bill he modeled produced more state revenue than the one that passed. The one that passed cuts the tax rate on all oil by roughly 40 percent, and then on top of that, cuts the rate on any “new” oil or oil produced starting in 2011 by more than half. The effective Production Tax on “new” oil gets slashed from roughly 37 percent of profits to roughly 14 percent. That’s among the lowest rates in the world for a sovereign’s oil, and Mr. Mayer didn’t model this even lower “new oil” rate, which came in at the last committee.

Here are a few more facts being spun.

Much if not all of the “new” investment touted by bill proponents, and oil companies who are in full PR mode to keep billions in tax breaks, was being made already. We know that from something called facts, which PR folks don’t like.

For example, the governor recently suggested the new Mustang field will come on line because of SB 21. That assumes you don’t read. Brooks Range Petroleum announced in the July 3, 2011, Petroleum News, and elsewhere, that this field would be produced under Alaska’s prior tax law, and that it would be on line by 2014. That oil, which was going to be produced under prior law, will be taxed less than half the Production Tax the company assumed when it announced this development.

And Conoco announced in 2012, under our prior tax law, that it was building the pipelines needed to produce oil in the Southwest Corner of Kuparuk. That oil, too, will be taxed at less than half the rate Conoco assumed, as will the oil Conoco announced more than two years ago it plans to produce in NPR-A’s CD-5 unit.

The same is true for oil that will likely be produced by Repsol, which announced in 2011 that Alaska was a great place to do business, and that it would invest over $750 million here, and more if it found oil. The oil the Governor touted as being found by Repsol this April resulted from its earlier investments, not SB 21.

Any company would want billions in tax breaks they can spend anywhere in the world they want, or just keep. So it’s worth it for them to barrage you with PR. But in the end, unless things change, there will be a drain on our savings, and ability to fund energy projects, schools, construction, and the state you want.

Rep. Les Gara is a Democrat who represents District 18 in Anchorage.


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