Declining production from Alaska’s oil fields is a problem better solved by the free market than the tax incentives Gov. Sean Parnell says will boost oil production, the Senate Resources Committee heard this week.
“Until you have a free market operating on the North Slope, you don’t know if you need incentives,” said Robin Brena, an Anchorage attorney who has faced off against the state’s oil producers in court.
The problem, Brena said, is three big oil companies have locked up one of the world’s most prolific oil producing basins so they can exploit it at the expense of their competitors and the state of Alaska.
Brena has represented municipalities that have segments of the trans-Alaska pipeline running through their territory in disputes over property taxes. They recently won a major court victory in which Judge Sharon Gleason said TAPS was worth nearly $10 billion, much more than the companies had claimed.
The Senate Resources Committee is scheduled to begin discussions today of Senate Bill 192, an oil tax bill the Senate has submitted as an alternative to Parnell’s House Bill 110, which passed the House of Representatives last year but stalled in the Senate.
Brena said one of the difficulties with changing Alaska’s oil tax rate in an effort to boost production is the state doesn’t know enough about the industry to know whether the Parnell proposal of what may be $2 billion a year in tax breaks will actually boost production.
Parnell has said his proposal will result in billions in new industry investment in Alaska, investment needed to get more oil out of the ground faster.
Brena warned the companies are likely already planning to boost investment in Alaska’s aging but still huge fields.
“The last thing in the world you want to do is give away $2 billion to an oil company so they can go and do what they are going to do anyway,” he said.
An oil industry attorney, Brad Keithley, appeared before the committee during days of hearings to counter Brena.
He said Alaska was facing a crisis — and maybe a disaster — if it let oil production fall much further.
“It’s the production rate, stupid,” Keithley said, paraphrasing James Carville’s famous quote about the economy.
He said the state needed to do whatever it could to boost the oil production rate, or the state would soon be eating through its reserves, including the Constitutional Budget Reserve and the Alaska Permanent Fund.
Brena said what Alaska needs to do is open up the basin to competition, and to do that it needs better facility access rules, and better knowledge of the industry.
Appearing with Brena was Craig Richards, an attorney who grew up in Skagway and worked on the tax value case as well.
Richards said Alaska has the power to demand information about the reserves and production on the North Slope, and the power to compel the companies to provide it.
He said the state assessor, during a deposition, said it was the Department of Revenue’s policy to work cooperatively with the industry and not demand information the companies are reluctant to provide.
“Is the effect of that the state of Alaska has been, and currently is, in the dark?” asked Sen. Joe Paskvan, D-Fairbanks, co-chairman of the committee.
“An attorney from Skagway shouldn’t know more about it than you do,” Richards, now an attorney in Anchorage, told the legislators.
When the Department of Revenue gets data from oil companies it doesn’t share it with other parts of government, considering everything confidential taxpayer data whether it meets that definition or not, Richards said.
Because the three big companies, ConocoPhillips, BP and Exxon Mobil Corp. control most of the North Slope’s production, and virtually all of its infrastructure, they make it hard for other companies to come in and boost production, he said.
A combination of high oil prices and tax credits has recently begun to bring the exploration that Alaska needs, Brena said.
The biggest part of the infrastructure is TAPS, which is almost entirely owned by the three producers.
That means that by boosting the tariff on TAPS, which they pay to themselves, they minimize the state’s share of the oil and put competing companies at a disadvantage.
“Market dominance by the big three is real and results in underdevelopment of our resources,” Brena said.
Brena said that’s happening again with the tax reduction Parnell is advocating.
The companies can and will do it profitably under existing tax rates as is their obligation, he said.
“Don’t pay the big three producers to do what they’re already contractually obligated to do under their leases,” Brena said.
Keithley warned Gleason’s ruling in the property tax case itself would be bad for the state, because it would boost the tariff.
“If we are concerned about the level of TAPS rates, this decision increases the rate,” Keithley said.
• Contact reporter Pat Forgey at 523-2250 or at firstname.lastname@example.org.