With Alaska’s Prudhoe Bay and other large fields running out of oil, Gov. Sean Parnell is proposing an oil tax reduction he says will boost production and pump the remaining oil more quickly.
A couple of examples of other oil and gas fields in Alaska are raising questions among legislators about whether it is oil taxes, or oil prices, that drive oil company investment and production decisions.
In the Cook Inlet Basin, which made Alaska a petroleum state even before Prudhoe Bay was discovered, oil production has declined 90 percent. And natural gas, which provided Anchorage with some of the cheapest energy prices in the nation for decades, was running out. Despite huge amounts of gas thought to be in the region, no one was spending the money to drill for it until recently.
“We didn’t get any investment, even though we had almost a zero tax rate,” said Rep. Paul Seaton, R-Homer, who has questioned Parnell’s oil tax reductions.
Then, when natural gas prices rose in Anchorage and the state began giving financial incentives for drilling, new production began coming on line.
The Cook Inlet basin is now going through a natural gas “renaissance,” acknowledged Dan Sullivan, commissioner of the Department of Natural Resources.
But he sees Cook Inlet as an argument in favor of Parnell’s proposal.
“I think it’s a good example of what some tax reductions can do in terms of spurring some activity when we’re looking at the bigger picture of what’s going to be going to be in front of the Legislature,” he said.
The drilling in Cook Inlet, and the big finds already announced, are part of a legislative effort in recent years to use tax credits to have the state pick up much of the cost of new exploratory drilling.
A similar effort on the North Slope has resulted in what Sullivan called “quite a busy North Slope exploration season” this winter.
Sen. Hollis French, D-Anchorage, cites the huge Kuparuk oil field on the North Slope, where he once worked, as another place where low taxes didn’t lead to more production.
From 1996 to 2006, the field was under a tax system called Economic Limit Factor that reduced production taxes for less productive fields. At Kuparuk, the second largest field in North America, the tax rate dropped from 12 percent to zero, he said.
“It was a 10-year, real-time experiment in dropping production taxes,” French said.
French said that what happened at Kuparuk then was not the big surge in production that Parnell has been promising if his tax reduction is passed.
“There was not a big jump up in production out of Kuparuk,” French said.
Instead, production continued to decline at 7 percent a year, which is standard for oil fields everywhere.
“It was behaving as oil fields do,” he said.
Department of Revenue Commissioner Bryan Butcher, Parnell’s point man on oil tax reductions, says a failure of the old ELF system to spur new production doesn’t mean that a reduction in ACES would not produce more oil.
At that time under ELF, oil companies may not have been investing in Alaska, but they weren’t investing anywhere else, either.
“That was a low-price environment, and there were things that were much different,” Butcher said.
Speaking to reporters after his State of the State speech, Parnell diminished the possibility of new exploration to provide the amount of new oil into the trans-Alaska pipeline he said Alaska needs.
Instead, he said, a tax reduction is needed to get the state’s oil producers to produce more oil from the state’s “legacy” fields.
“We’re talking about known quantities of oil at Prudhoe and Kuparuk were we can get, potentially get, a new slug of 100,000, and keep working at get another 100,000,” he said.
Another Parnell critic, Rep. Les Gara, D-Anchorage, said his tax cut is just a giveaway which repeats a failed experiment such as under ELF, when taxes on 15 of 19 North Slope fields were at or near zero, yet production was declining at a rate of 4 to 8 percent a year.
“That didn’t attract new investment,” he said. “We had 40 percent less oil and gas investment in jobs in Alaska” than currently under ACES, Gara said.
Sullivan said that in Cook Inlet, where new investment is producing new gas, it is not just high prices that are doing that.
“It’s a function of economic return, which is a function of taxes,” Sullivan said.
• Contact reporter Pat Forgey at 523-2250 or at patrick.forgey@juneauempire.com.
Comments (21)
Add comment“It’s a function of economic
“It’s a function of economic return, which is a function of taxes,” Sullivan said". Taxes are third or lower in line for consideration of entering a resource market. Sullivan conveniently left that little truth out of the equation. The two most important determinants are the SIZE of the resource, and the DEMAND for the product over time, and after expenses. Those two, supply and demand, decide if these companies go ahead with a project. Taxes are just one of the secondary expenses considered. It is not a determinant. If it was, the companies wouldn`t be working in Norway, England or Russia. Or for two bucks a barrel profit in Iraq. But they are, and they are prospering as well as the Norwegians. The companies in Alaska are crying "wolf" like they did for "ELF", and "PPT". They snookered us with those two tax scams they came up with, costing Alaskans billions in possible state infrastructure to deliver affordable heat across the state. If we fall for this same scam a third time, it is just indicative to me that those entrusted to fight for Alaska are not doing their jobs..still. Too many of these old CBC folks are still in Juneau with no qualms about bowing to their industry masters, hoping for nice board jobs after they leave professional "politics"... ostensibly "serving" their fellow Alaskans. Just the way it plainly appears to this old Alaskan. http://www.juneauempire.com/stories/102807/let_20071028011.shtml
ACES is working Governor.
ACES is working Governor. Would you tell me just once more, in detail, why you don`t agree? I would like to understand in detail every argument you pose that says otherwise.
..."ELF" should have been a
..."ELF" should have been a lesson learned. "fool me twice shame on me". Isn`t that how the saying goes folks? They are crying wolf again, hoping we`ll let the tax cows out of the barn....again,.... like we did with ELF.
The Norwegian system
This past week the House Resources committee had a meeting with explanations of the way the Norwegian government changed its relationship with the oil industry. What was described as their "juvenile"plan at first, was the same as Alaska's - get money from leases and then tax the industry. They slowly moved into becoming a partner with the industry and investing with them, taking the risks of increasing production and development, or losing, if the industry lost. It was a transition from government versus industry, to sharing all information, planning for long term development, and sharing in any profits as a partner.
The committee meeting was on Gavel to Gavel and gave me a much better understanding of our policies and those of the Norwegians. In my personal opinion, the Norwegian system is designed for long time, future development of their resources. It is far from perfect, but there may be things that would work to benefit all Alaskans in the future generations.
TWEETY - I Did! I Did Taw a Puddy Tat!
Sean Parnell
from Wikipedia @ http://en.wikipedia.org/wiki/Sean_Parnell#Lobbying_career
...
Lobbying career Parnell left the Alaska Senate to become director of government relations in Alaska for the oil company Conoco Phillips.
In 2005, he joined the lobbying firm of Patton Boggs, where he advised clients on state and federal regulations in developing major oil and gas projects. Patton Boggs represented Exxon Mobil in the Exxon Valdez oil spill litigation. In April 2005, Washingtonian and the Dallas Morning News reported that Patton Boggs was the first in revenue among lobbyists.
Parnell left Patton Boggs less than two years later on December 3, 2006 to advise Governor Sarah Palin on issues related to commercializing Alaska North Slope gas.
***
Is it just me or...?
http://www.youtube.com/watch?v=PzUIwoT66y0
Hey JJ, It`s too bad
Hey JJ, It`s too bad Parnell`s not more "knowledgeable or experienced" about the state constitution. He has violated it enough for an impeachment if you listen to one of the signers of the state constitution who is still with us thankfully. It`s like they are all bloody DEAF to the song and dance they are mesmerized by. You work for Alaska. It`s called a "quid-pro-quo". If you don`t do at least that for Alaska you are working for the benefit of the other guys. Why did you run for office then? Oh yeah..it was when you were "for" ACES was when we elected you, which was before the current "against" ACES stance, which you developed "suddenly" after you were not long in office. If a Governor has little regard for the constitution`s intent,.. he will have even less regard for the people. How in god`s name can we, on faith alone, with no contract,or even a "plan" let this Governor lead us to give up two billion dollars a year of our fair fiscal value of our resources.. for nothing other than speeding the demise of the basins sooner, with less benefit to the state? To say nothing of accessing our gas.. that`s a whole other` story..
We will never get good policy from a lobbyist.
Sean Parnell is making massive cuts to Alaskas education budget and he wants to reduce oil taxes
Cutting education funds does not help Alaskans
but cutting oil taxes helps the oil industry
Sean Parnell works against the interests of Alaskans,
Alaskans need a Governor not an oil lobbyist acting as a Governor.
Impeach Parnell
Our resources are limited.
Our resources are limited. And our policies should contain conservation efforts for the benefit of future Alaskans!
But have you seen the new "mission statement" from Dept. of Natural Resources?
It strikes out the word "conserve" and it also removes the reference to "future Alaskans."
Folks Parnell and some of our Reps. want to open our state up for industry to get all they can while they can. This has to be stopped.
Read more here: http://www.adn.com/2012/01/27/2286936/proposed-new-natural-resources.htm...
dougres and others
At any one time in Alaska, we have a wide range of people.
Some have come, and still come, simply to make as much money as they can and leave - such as outside fishermen, summer tourist workers and non-resident oil field workers.
There concerns are for the here and now, the short time gains and benefits they can and go "home."
Then we have those who are residents but here for a short period of their lives. At the other extreme are those whose ancestors have lived here for thousands of years, those whose families although non-Native have lived here for generations and are concerned about future generations of Alaskans for whom this is "home."
Those who are residents and vote, vote and try to elect what they want from or for Alaska.
Comment
I had a longer comment, but it was held up to be evaluated.
Instead of focusing on his
Instead of focusing on his own retirement plan, the governor should focusing on the state employees' retirement plan. Parnell knows that if he can push this idea through the legislative bodies he will be well taken care of by the oil companies as soon as he steps out of office.
Norway has a socialist
Norway has a socialist government and Statoil is their state owned oil company.
IMO, it is not a model we should hold up as an example of how best to 'extract the most wealth out of an oil company'. It doesn't jive with America's form of free markets and it's wrong for our country.
"The national oil companies typically do not operate strictly on the basis of market principles. Because of their close ties to the national government, in many cases their objectives might include wealth re-distribution, jobs creation, general
economic development, economic and energy security, and vertical integration. Although these objectives might be desirable from the point of view of the nation’s
government, they are unlikely to be equivalent to the maximization of shareholder value, the stated objective of the private international oil companies."
I'd rather promote America's form of representative democracy and free markets as compared to the welfare state objectives of socialism.
Maybe the fans of nationalizing oil companies would settle for this -
Six House Democrats, led by Rep. Dennis Kucinich (D’OH), have filed a bill aimed at controlling gasoline prices. Styled the “Gas Price Spike Act”, H.R. 3784 would establish a “Reasonable Profits Board” which would have the power to confiscate 100% of oil company profits above a level that they deem to be “reasonable”.
How frightening does that sound?
Best governor Big Oil can buy
Parnell, a shill for oil companies. Even Dumb Young can tell that he's a zero. What a sell-out.
Give it away, get nothing in return, jobs go to Texan carpetbaggers. The Saudis would never do that.
Calypso
Statoil has spun off from the Norwegian government as an independent business.
If you hate "socialism" so much, then tell your fire department, the highway department, the police department, the mail system, social security, the educational system and all the rest that you are going "go it alone," and if anything happens, you don't need their help.
By the way, in case you missed all this, in Norway they do have an elected representational democracy.
I did notice you had a quotation, but I don't know the source of that quotation. Was it from "Alice in Wonderland"???
Jeremiah
Nice comment. Now let's hear your solution. What would you do if you had the power to do so to change things.
Its easy to comment and criticize, but there is a thing called "Constructive criticism," so how would you construct a better way? That means one is not just complaining but has a better solution.
Then others can read your constructive criticism and provide their own constructive criticism.
As in tennis, the ball is now in your court. What is your response?
Jeremiah
I appreciate your apparent frustration. The key point is as you say at the end, "Where do we begin?"
People can complain, protest and demonstrate but in the end there has to be some proposal for a solution to a situation.
What is your proposal?
We need to be good listeners and then good thinkers. So please tell us how you would solve the problems and we can listen and evaluate your proposals. That's what comments, discussions and debates are all about. Its not about just complaining, its trying to find solutions.
wally writes - "By the way,
wally writes - "By the way, in case you missed all this, in Norway they do have an elected representational democracy."
Well, I would just say that in Venezuela they also have elections. Socialism allows elections.
To the left, socialism sounds so warm and fuzzy but I fear they don't have a clue where it leads. Eventually all the money's gone - even the so-called 1% are broke. Take a look at Greece - it's ugly and what's uglier is the way people react when you tell them the money is gone.
From wikipedia - "The Government of Norway is the largest shareholder in Statoil with 67% of the shares. The ownership interest is managed by the Norwegian Ministry of Petroleum and Energy." Sounds pretty state-owned to me.
It's no surprise that a small country like Norway (5M) can keep their people fat and happy and content on state run oil wealth. However, America isn't Norway...
Watch out, jj. Don't get too
Watch out, jj. Don't get too "radical" (like conservative!) with your solutions or wally, the socialist, will call you ignorant and simplistic. That's the way he "listens and evaluates".
Or he might just ignore you too. I've been on the receiving end.
useful idiot
Socialism, my how scary. Sorry Calypso, but Alaskans own the resources. Yes, that's socialism. If you don't like it, change the constitution. While you're at it, you can sign over your PFD's to me, comrade so your conservative soul isn't wracked with guilt participating in a socialism system.