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My Turn: All of Alaska is fueled by oil

Posted: January 27, 2014 - 1:00am

Alaska will sit at a critical crossroads when it is time to vote in this year’s primary election on the question of whether to repeal recently passed oil tax reform aimed at increasing North Slope oil production and investment for new oil.

I grew up in Ketchikan and have spent almost my whole life working in resource-related industries. I started working in fishery supply and aviation to put myself through college and much of my adult life has been spent in the state’s maritime and tourism industries in Southeast Alaska.

All resource industries require stable fiscal climates, robust infrastructure and quality transportation systems to thrive. When resource industries in Southeast Alaska are booming, local economies thrive — providing jobs and helping keep local taxes low.

There is a radio ad playing now across the state that says, in effect, that we all are in the oil industry. In Alaska, a truer statement was never made, no matter how far removed Alaskans are from the oil fields on the North Slope. We are all impacted by the industry’s success.

When the Legislature passed oil tax reform to rectify the problems with the old oil tax system, it took a strong step forward in securing the state’s long-term economic future.

The old tax system contained a provision that was punitive as it ratcheted tax rates so high it made Alaska unattractive to the oil industry to increase investment here. As a result, investment went elsewhere, while North Slope oil production continued an average 6-8 percent annual decline.

Why does it matter to Southeast Alaska that oil in our pipeline is only about one-fourth of its capacity?

Because even though it may not feel like it in Southeast, Alaska’s economy is fueled by oil production. Oil revenues to the state are based on production, and the State of Alaska gets 90 cents of every unrestricted general fund dollar it spends from oil revenues. The industry is responsible, directly or indirectly, for about one-third of all jobs and about one-half of Alaska’s entire economy according to a university study. It is the state’s biggest private economic partner.

Alaskans need a healthy, vibrant oil industry for long-term, sustainable state budgets, economic growth and to maintain the quality of life Alaskans enjoy.

Oil production decline is a serious matter for every Alaskan, and to generate more production, the state needs to attract more investment, but that was not occurring under the old tax regime. Investment increased elsewhere. In fact, among the other oil producing states in the U.S., as of 2012, all had shown increases or were flat with the previous year. Alaska was the only state to decline. Punitive taxes drove away new investment. None of that is good for Alaskans or our economy.

The good news is the new oil tax system is working. We are already seeing increased investment on the North Slope as companies position themselves to work under an improved business climate created by tax reform.

Southeast Alaska residents, in my view, would be wrong to vote to repeal the new tax reform and return the state to the old tax, which has a proven track record of failure - failure to attract increased investments, and failure to increase oil production that come along with more investment. Already, the Southeast Alaska Conference, the largest economic development membership group in Southeast, has endorsed a “No” vote on the repeal measure because of the harm passage would inflict on our state economy.

We are at the crossroads. We must take the right path for the long-term. Join me in learning more at www.foraksfuture.com and voting “no” on August 19.

• Bob Berto is a statewide co-chair of Vote No on 1 and a lifelong Southeast Alaskan who resides in Ketchikan.

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John McDowell
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John McDowell 02/02/14 - 09:35 pm
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"Oil tax reduction unlikely

"Oil tax reduction unlikely to work, expert tells Legislature
Billions in tax cuts unlikely to spur production, critic of Parnell plan says"....
Posted: Sunday, March 27, 2011
By PAT FORGEY

After weeks of Parnell Administration and oil industry claims that lower oil taxes will bring Alaska more oil production, more jobs and more revenue, the Legislature last week heard a devastating rebuttal from an industry insider.
Michael Penn/Juneau Empire / Michael Penn/Juneau Empire
Michael Penn/Juneau Empire / Michael Penn/Juneau Empire

Rick Harper, a former ARCO Gas president and now an independent consultant, told the Legislature that the billions in tax reductions Gov. Sean Parnell is seeking are unlikely to spur the new production the state wants.

“The tax reductions in House Bill 110 are so large it would be almost impossible for Alaska to recapture the foregone revenue,” he said.

Harper, who has in he past worked for the Murkowski and Palin administrations in Alaska and numerous others elsewhere in the country, was brought to Alaska to testify on Parnell’s oil tax proposal by the House Democratic Caucus. Rep. Beth Kerttula, D-Juneau, leads the House Democrats.

Harper told legislators that Alaska’s ACES oil tax is already competitive with other jurisdictions and if the industry wants it lowered they should provide hard data on how those reductions are needed to bring new production.

“I don’t believe industry has made its case,” he said.

Ironically that may put Harper in agreement with the Parnell administration.

Gov. Parnell said when he proposed reducing Alaska’s oil taxes that he believed lower taxes would result in huge new oil production and refill the trans-Alaska oil pipeline, but that the oil industry would have to make that case.

Representatives of BP plc, ConocoPhillips Co. and Exxon Mobil Corp. the state’s big three producers, and others in the industry said they wanted lower taxes but made no pledges of new production, or even new developments attempting to get additional production.

Dan Sullivan, Parnell’s Commissioner of the Natural Resources, said the producers need to say they’ll do more if they want to get the tax reductions through the Legislature.

“If the energy companies can be a little more forward leaning on that, I think it would be great,” he said.

Harper told legislators that when companies take out leases they then have an obligation to develop them if it is reasonably profitable to do so.

What Alaska doesn’t need to do, Harper said, is compare its tax rates to other states and countries.

The industry makes decisions primarily on resource prospects, development costs and other factors, with tax rates playing only small roles in overall project economics,” he said.

“What’s not considered is the tax regime in other jurisdictions,” he said.

A skeptical Rep. Mike Hawker, R-Anchorage, wanted to know why oil companies weren’t developing their Alaska holdings faster if it wasn’t because of higher taxes here.

“Why then is our production dropping?” Hawker, an outspoken industry supporter, asked Harper.

Most of Alaska’s production comes from a huge field that has already produced most of its oil, Harper said.

“Because Prudhoe Bay Field, one of the largest fields in the entire world, is in decline. It’s a mature field, there’s no changing that,” he said.

Parnell’s proposal, he said, provided most of its benefits to existing producers for oil that is going to be developed anyway instead of targeting it to what might provide substantial new production.

Harper also challenged the contention that the state’s progressive oil tax, which raises the rate at high oil prices, is a key factor in investment decisions.

The most important factor, he said, was the expected investment outcome, followed closely by the worst-case outcome.

Alaska already used tax credits to directly affect the economics of exploration and development of the new fields Alaska wants, he said.

And Alaska’s progressive tax protects the companies at low prices and only comes into play in the best-case scenario of very high oil prices, he said.

Kerttula said that hearing from Harper showed that Alaska was already doing the right things to encourage more production while benefiting the state.

“Our generous credit system provides ample protection against low prices, so it’s appropriate that we benefit more in times of high prices and profitability,” she said.

• Contact reporter Pat Forgey at 586-4816 or Patrick.forgey@juneauempire.com.
(these two stories have a lot in common) http://juneauempire.com/stories/032711/sta_806200173.shtml and http://www.alaskadispatch.com/article/20140131/economist-goldsmith-predi...

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