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Oil is critical to Alaska's economy

Posted: June 19, 2014 - 12:06am

Only three legs support the Alaska economy: oil, the federal government and everything else.

That’s why oil tax reform is an Alaska problem, not an oil company problem. Oil companies can invest anywhere in the world, and they do. They take their investment wherever they can achieve the highest rate of return. If that is not Alaska, it may be North Dakota, California, Indonesia or anywhere else in the world. To them it’s a simple choice: what is the lowest risk and highest return.

It’s not so simple for us.

Without oil, Alaska would look very different. According to the University of Alaska Institute of Social and Economic Research (ISER), an Alaska sans petroleum would be about half the size it is today — and totally dominated by the federal government.

That’s not a place I want to raise my family.

An oilless Alaska economy would be thin, seasonal and transient, not robust and well rounded. Much of the infrastructure we take for granted would never have been built — and personal income would be 10 to 20 percent below the U.S. average. In short, we would be small, spare and poor.

But we’re not — thanks to oil.

The state of Alaska has collected $157 billion (in today’s dollars) from oil since 1959, money that funds 90 percent of the state’s general fund.

Oil means we can spend more per resident — roughly double the U.S. average — yet keep the tax burden light on most businesses.

Fully two-thirds of the job growth since statehood is due to petroleum and today half of the jobs in Alaska can be traced to petroleum.

We have money in the bank, thanks to our oil revenue: $50 billion in the Permanent Fund, $12.4 billion in the constitutional budget reserve fund and $4.8 billion in the statutory budget reserve.

On a more personal level, oil revenue contributes about $25,000/year to a family of four through permanent fund dividends, a lower tax burden — $2,500 per capita — and extra spending, according to ISER.

It is virtually impossible to replace our oil dollars. To equal what we raise in oil revenues would require an $8,000/ounce tax on gold, a $4,000/person tax on visitors or a $40/salmon tax on seafood, according to ISER.

Or we can keep Alaska an attractive place to produce more oil and collect another $85 billion on the oil and gas wealth that we know remains in the ground. That includes a liquefied natural gas (LNG) project that requires a vital oil industry to be built.

The reason is that much of the known, proven gas on the North Slope is in the Prudhoe Bay field, which is an oil field. The oil and gas are produced from the same wells and the support infrastructure built for oil has to be maintained — at an ever-increasing cost — to support gas production. But the profit margins for gas are slim compared to oil so supporting the infrastructure just for gas would be difficult without the oil.

Last year the state took a giant step towards securing a long-term future for our state by passing oil tax reform. The new law only went into effect last January but already we see a renewed sense of optimism on the North Slope, fueled by large investment commitments by the industry. As ISER has calculated, an infusion of $4 billion in additional capital will result in 50,000 barrels of new oil per day, which means more state revenue and 60,000 oil patch jobs over 20 years.

This is great news for everyone — especially the state, our economy and our families. Alaskans are the true beneficiaries of more oil, which is why it is so important for Alaska to vote No on 1 on Aug. 19. A vote no will keep oil tax reform in place, which will help ensure a healthy Alaska for decades to come. A vote yes is a vote for bankruptcy.

• James Udelhoven has been doing business in Alaska for over 40 years and is the founder of Udelhoven Oilfield System Services.

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Art Petersen
Art Petersen 06/19/14 - 08:07 am
Of course

oil is important to Alaska. No one disputes Alaska's oil is important to Alaska. The implication, though, is that if oil producers went to other locations to extract oil, they would deprive Alaska of its own oil. What the...? ... So wait a minute. The oil industry isn't going anywhere. If Ballot Measure 1 passes and reinstates ACES, the oil industry would continue to make a huge profit from its current huge infrastructure and the current steady and recently rising price of oil. But the oil industry would like even greater profit. It's their job to maximize profit.

So of course an oil industry services executive would say that he and the oil industry like, want, and need SB21. Their oil industry legislators and governor got them that giveaway, and they didn't have to give or promise a thing for it. So of course they don't want to give it back and will argue hard for it. SB21 is a permanent windfall deal for the oil industry.

But for Alaska, SB21 is a very bad deal--for every community and school, for its transportation infrastructures, and for government services large and small. SB21 diminishes them all. Permanently. Including the Permanent Fund.

Of course ACES was not equitable. Clearly SB21 is not equitable. The solution is to go to the middle: repeal inequitable SB21 and fix inequitable ACES. Voting Yes on Ballot Measure 1 will get the ball rolling toward an equitable deal for both Alaska and the oil industry.

Haily George
Haily George 06/19/14 - 12:23 pm
Two billion would go a long

Two billion would also go a long way towards building new energy infrastructure. We need that revenue. ****** Vote yes on Measure 1 to repeal SB 21 *******

Oil has nearly destroyed this planet so I do not see it as much of a leg to stand on. Lets say, oil has given us an economy of 1 leg. We are teetering because of oil.
What happens to our state’s economy and our kids futures when the rest of the world starts freaking out about climate change? Our state should take a leadership role in fighting climate change and transition our economy off oil.

In less than 100 years the use of oil has nearly destroyed our planet.

Earth is around 4.567 billion years old
and in less than 100 years we have nearly destroyed it

EVERY freaking DAY, our world's consumer driven oil fueled economy pumps billions and billions of tons of toxic gases into our thin layered atmosphere, and into the ground and into our oceans and then humans all sit back and expect life to live in it.

And so Mr. oil producer where in the hell are our kids supposed to raise thier families? Do you have another planet picked out for us, or for them? And how are we supposed to get whales, fish and birds there? Let's see your plan.

Karl Ashenbrenner
Karl Ashenbrenner 06/19/14 - 09:32 am
With the

same old rhetoric that the oil companies will leave and that the money being spent this year in the oil patch is because of SB21. Total BS! Oil company spending is determined years in advance....anything that can be actually attributed currently to SB21 is due to the oil companies working hard to keep their gift from Parnell and his ilk. It is another form of advertising and will for sure be written off as tax credits further reducing their royalty cost. Now we are being inundated with adds touting the hundreds of millions in new investment etc...but if you listen carefully all they say have qualifiers...."it may", "could" where do they actually tell us that they WILL invest or produce....

Elva Bontrager
Elva Bontrager 06/20/14 - 08:21 am
I will be voting YES on SB21

How much profit is enough? Whatever the market will bear?

Oil is currently the main way to go but whether the industry accepts it or not this world is transitioning to other methods of fueling.

Tom Rutecki
Tom Rutecki 06/20/14 - 06:03 pm
Don't fall for it.

One of the primary objectives of the oil companies is to convince us that things have turned around and that SB21 is actually working and the pipeline is filling back up with oil.

Don't fall for it.

Production does not ramp up that fast. It will take 12 to 18 months to move new drilling equipment onto the slope and another 12 to 24 months to bring new production on line. Anyone who says production is up now because of SB21 is probably named Art Hackney.

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