Talk among Alaska legislators this year has been not just about the state and its crucial oil industry, but also about Norway and its oil industry as well.
With the Alaska industry facing challenges such as declining production, a dozen legislators were among 45 Alaskans who visited Norway last year on a fact-finding trip.
Looking for solutions to Alaska’s woes, the team of Alaskans brought back word about what did and didn’t work in one of Europe’s most successful petroleum states.
They found both some remarkable similarities and some stark differences.
Norway’s capital, Oslo, is about the latitude of Juneau, while its northernmost city is about the same distance north as Barrow, said Nils Andreassen, managing director of the Institute of the North, which spearheaded the trip.
Much in Norway is similar to Alaska, said Ira Perman, chairman of the institute’s board.
“It’s not unlike Southeast, with the beautiful fjords they have over there,” he said.
And like Alaska, Norway also has its own sovereign wealth fund, a version of the Alaska Permanent Fund, to save the non-renewable oil wealth for future generations.
But that’s where some differences begin.
Both Alaska and Norway began oil production at nearly the same time, but their savings accounts show a vast difference.
The Alaska Permanent Fund has recently been around $40 billion; Norway’s equivalent fund was recently at $570 billion, despite starting later.
The dramatic difference comes in part from the Norwegian propensity to save for the future while Alaskans have spent most of their money as it has come in.
Another big difference is how much less Alaska has earned from its oil than has Norway.
Alaskans also learned that Norway has flattened its decline curve, which is normal for oil fields, by incentivizing exploration and development of new fields, said Brad Keithley, oil and gas lawyer with Perkins Coie and a trip participant.
Despite an oil tax rate higher than Alaska, Norway has drawn crucial investment into new fields, something Keithley would like to see more of in Alaska.
“There is a fairly direct relationship between investment and production, when the investment is in productive assets,” Keithley said.
To do that, Norwegians focus more on encouraging development than immediate cash, but also require that they get a fair return for their oil and gas which, like Alaska‘s, is publicly owned.
While oil companies can threaten to leave if their taxes aren’t lowered, they can’t actually leave because they have to go where the oil is, the Alaskans were told.
“The production can’t move even though we put it under a fairly heavy tax rate,” said Lone Semmingsen, a deputy director-general in the Norwegian Ministry of Finance’s Tax Policy Department, told the Legislature.
Despite the high taxes, Norway puts great emphasis on stability and other efforts to make itself a good place to invest.
“First of all, a stable tax system and policy framework is of great importance,” she said.
“We have seen that frequent and unforeseen changes may scare away investors,” Simmongsen said.
The tax rates in Norway are higher than in Alaska, but Semmingsen described them as being structured much differently than in Alaska.
Keithley said he liked a lot of what he saw in Norway for its ability to align the state’s interests with the industry’s interests.
Alaska uses what’s called a “bonus and royalty” system, similar to what Norway used in its early days, where companies bid to lease acreage they want to explore and then get rights to exploit what they find.
In Norway the government does much of the up-front seismic and other exploration work, so companies have a good idea of what’s there before they bid. That diminishes company risk.
In recent years Alaska has made significant changes to its tax system, making it, in some ways, closer to Norway’s system.
Healthy tax credits for exploration are aimed at reducing risk and driving more exploration, while in 2006 the state partially shifted to a profit-based tax system.
Norway is entirely on a profits tax, which shares risk with companies because if they are not making money they don’t pay taxes.
“We like to underline that we have a profit-based taxation system,” said Beate Bentzen, in the Norwegian Ministry of Finance’s Tax Law Department.
Under Alaska’s royalty system, companies have to pay royalties even if they’re losing money. Not so in Norway.
“It is only if there is a net surplus in the company that the company will pay taxes,” Bentzen told the House Economic Development, Trade and Tourism Committee.
“They want to align taxation with profits, which aligns the interests of industry with the state,” said Brian Holst of the Juneau Economic Development Council, who attended the Norway trip.
Norway does much of the exploration up front, and does the environmental reviews even before going out to bid, two factors that significantly reduce company risk and attract investment.
“Their investors don’t have the wild cards we have here,” Perman said.
When Norway issues leases, they don’t look for the high bidder, but instead for the best plan of development. The companies then must accomplish that within 3-5 years or lose the lease.
In Alaska, leases sold in 1965 for the Point Thomson area just west of the Arctic National Wildlife Refuge have yet to be developed, leading to long administrative and legal proceedings between the state and lease holders.
Norway also makes further public investments in its oil and gas industry later in the process, both with the partially state-owned oil company Statoil, and through a state investment fund that operates like a passive investor.
Many of those ideas are attracting attention in the Legislature this session, and are among the recommendations in a resolution now under consideration by the House Economic Development, Trade and Tourism Committee, chaired by Rep. Bob Herron, D-Bethel, and one of the trip participants.
• Contact Reporter Pat Forgey at 523-2250 or firstname.lastname@example.org.