As any regular reader of my columns knows, I do not align myself with the politics of former Gov. Sarah Palin. The less I hear or read about her, the better. So in this regard, I was recently surprised to find myself grateful for reading what she had to say. The topic was oil and gas taxes in Alaska.
As you may recall, Palin, riding a wave of corruption clean-up, came in to office to overhaul Alaska’s oil and gas tax structure. Amidst the suspicious cloud of FBI investigations, she managed to get “Alaska’s Clear and Equitable Share” (ACES) passed by a strong bi-partisan majority. After a decade in which the industry paid little, if any, production tax at some of North America’s largest fields, ACES provided Alaska, the actual owner of the leases, with a fair share of the oil wealth.
Then came Gov. Sean Parnell, who initially was also a supporter of ACES. A Dec. 20, 2009, article in the Petroleum News reported that Parnell had “already discussed ACES with 10 oil companies.’ Of those, he said, “four to five” thought the tax system was “just fine,” while “two or three” thanked the state for the tax credit program, and two companies wanted to see ACES changed. Apparently, two companies wanting more was enough for Parnell.
Palin returned to Alaska May 7 to defend ACES and encourage voters to “push back” to repeal SB21, the oil tax giveaway.
“I’m happy to weigh in on this subject and let people know how wrongheaded this will be if we start caving in to those who we respect, who we partner with, that’s the oil companies,” she said. “But, they’re doing just fine and our Constitution lays out that perfect blueprint for Alaska to be solvent and sovereign and with the use of resources that benefits the owners — the residents.”
Asked why Parnell changed his mind, Palin said, “Bless his heart. Remember that Sean Parnell came from the oil industry. He was an employee of ConocoPhillips lobbying for the cause there.”
Here is where I appreciate Palin’s plain speaking voice. Parnell was in a position to deliver for his former employer and he did. Bless his heart.
But what about the heart of who we are as Alaskans? Are we going to have a fair compensation for our leases or one structured, according to Sen. Bert Stedman, R-Sitka, “as if the State of Alaska is having a going out of business sale on oil”? Are we going to act as an “owner state,” as advocated by former Gov. Walter Hickel and embedded in our Constitution, or are we going to succumb to the enormous influence of the oil companies and act as “owned state.” When contemplating the latter, let’s not forget that Parnell was not the only fox in the henhouse. He had considerable help from Sens. Kevin Meyer and Peter Micciche, both current employees of Conoco-Phillips who votes ensured that SB21 passed out of the Senate by one vote.
Now the oil companies are spending $12 million dollars to ultra-saturate the media to keep SB21 in play. And why wouldn’t they? If you doubt the value of the sweetheart, no-strings-attached deal, just look at the oil company’s veracity to keep it.
Parnell has repeatedly defended the giveaway rate of compensation for our oil as a way to “spur investment and create jobs vital to arresting the oil production decline and achieving the new throughput goal.” The new throughput goal he established was 1 million barrels a day through TAPS within 10 years. Yet, according to the Parnell Administration’s 10-year forecast of general fund revenues, oil revenues are projected to go down significantly. This is because his own analysts know that even a huge tax break cannot change the geology of a declining field.
But what about spurring investment in new fields, what about job growth? It turns out that under ACES, oil company profits, oil capital investment, oil sector employment, oil exploration, and the number of oil companies conducting exploration, all were growing under ACES. This is because Alaska has higher profit margins per dollar of revenue on a barrel of oil compared to the Lower 48 and other places around the world. A recent report from the Legislative Research Agency estimates that ConocoPhillips makes a $28-per-barrel profit in Alaska, almost three times higher than profits in the Lower 48. Executives from ConocoPhillips acknowledged in March 23, 2011, investor conference call that Alaska under ACES had “strong cash margins” and “very good rates of return.” These comments are in stark contrast to testimony they provided to the Legislature when supporting SB21.
While modifications to ACES’ progressivity structure may be warranted, it is critical to note that ACES was never broken. It merely needed refinement. That did not occur. Instead, SB21 went overboard because those beholding to the oil industry had the power to do so. Now, thanks to 50,000 Alaskans who signed the petition, voters have the chance to put people back into the equation. On Aug. 19 in the primary election, Alaskans will have a chance to restore our constitutional right to use our natural resource wealth for the maximum benefit of the people. All they need do is vote “Yes” on Proposition 1 and, as awkward as this sounds, do what Palin says — “push back.” The future of our owner state lies in the balance.