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Alaska Editorial: Production is the only number that matters

Posted: August 4, 2014 - 11:01pm

The following editorial first appeared in the Alaska Journal of Commerce:

Those driving the effort to repeal the oil tax reform on the Aug. 19 primary ballot like to talk numbers, but the only one that matters is the one they can’t talk about: production.

They will point to state revenues under ACES, or jobs or corporate profits during a time of record-high oil prices. What they won’t talk about is the 6-percent annual production decline under ACES that was zeroed out this past fiscal year after just six months of oil tax reform being in effect.

What they won’t talk about is the steep decline in drilling in the first year after ACES and an eventual bottoming out in the average number of working rigs from about 10 before ACES to just 6 in 2011.

They won’t talk about an all-time high of 17 rigs working during February this year, or that an average of 11 were working throughout this winter season when Slope activity traditionally plummets because of the ability to move heavy equipment around the frozen tundra.

The most rigs working during any single week last winter was just 10, and the weekly average was 8.

Of course, the repeal supporters will claim that all this new Slope activity was planned under ACES and is somehow proof Sarah Palin’s plan worked.

What nonsense. ACES was in effect from 2008 to 2013 and if producers were in any way incentivized to stem the annual decline we would have seen them do it long before the first six months of this year.

It may take years of planning to develop a new field in the NPR-A, but it certainly doesn’t take six years to mobilize a rig for a well workover or to drill a new one in a producing field such as Kuparuk.

Oil that isn’t produced doesn’t benefit anyone in Alaska. Reverting to a policy that keeps oil in the ground certainly doesn’t satisfy the Alaska Constitution’s requirement that resources be developed for the maximum benefit of its people.

The only time the repeal supporters want to talk about production is when they point to the Revenue Department forecast for 10 years from now. What they never mention is that the forecast is based in no small part on the production decline that took place under ACES and barely accounts for the current tax policy at all.

They are shamelessly trying to convince voters that the projected decline is based on oil tax reform instead of what it is actually based on: their preferred, and failed, policy called ACES. They know this is dishonest, but they are doing it anyway.

When the proponents of repealing tax reform aren’t spinning numbers or ignoring the inconvenient ones such as production or drilling, they just make them up.

A July 28 press release from Vic Fisher claimed that “125,000 jobs were created” under ACES.

Twisting facts and personal attacks have been central to the repeal effort as they attempt to gin up anger as a motive to vote “yes,” but this claim is so far out it may as well have come from Pluto.

According to the Alaska Department of Labor, the state had 316,900 jobs at the end of 2007, the last year before ACES took effect. At the end of 2013, the final year of ACES, the state had 335,800 jobs.

That’s a difference of fewer than 19,000 jobs gained and certainly nowhere close to Fisher’s claim of 125,000 jobs created under ACES. Among those gains, more than twice as many jobs were created in health care (6,200) than were created in the oil and gas sector (2,600).

Even conceding the point that jobs and Slope spending increased under ACES, the key question that repeal supporters cannot answer is this: Why didn’t production keep pace?

The repeal supporters want voters to believe that the Slope decline is inevitable and that we should tax what’s left of “our oil” to the maximum level possible. It is a sad but unsurprising position from the believers in Big Government that they interpret the state Constitution’s “maximum benefit” clause only in terms of tax revenue and PFDs instead of measuring it by production growth and paychecks.

We have seen a conclusive demonstration in the last year that the decline is not inevitable. In fact, far from it. The first step toward growing production is stopping the decline.

That has now been achieved, and there is no shortage of new projects and legacy field expansions underway that have finally put the state in a position to see annual increases in production instead of the decline that accelerated under ACES.

The people who want you to vote “yes” on 1 are running a cynical campaign based on emotion and falsehoods because that’s all they have.

The cold, hard, indisputable evidence that matters — increased production and drilling — is what they don’t want you to consider because it makes the case clear to vote “no” on 1.

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Judy Crondahl
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Judy Crondahl 08/05/14 - 07:50 am
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1
Earnings Matter More

Production may be the only thing that matters to the oil companies but earnings to the State of Alaska is what matters to the rest of us. It's our oil. If it's not produced today, it's there for future earnings. If we sell it today and don't maximize our profits, it's gone forever.

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