Oil tax cut has too many impacts

I believe that Gov. Sean Parnell’s proposal to decrease the income Alaskans receive from Alaskan oil producers by an estimated $2 billion every year through a petroleum tax reduction is misguided. Recent business decisions by three major producers help us to understand how things stand.

Reuters News reported that Exxon (36 percent stake in Prudhoe Bay) had a 53 percent rise in profits to $9.25 billion in the fourth quarter of 2010, extending a share buyback program for $5 billion in the first quarter of 2011. Conoco Phillips (36 percent stake in Prudhoe Bay) had a fourth quarter 2010 profit of $2.09 billion and announced on Feb. 11 there would be a 20 percent dividend increase to shareholders. A Forbes article on Feb. 16 reported “Claire Fitzpatrick, chief financial officer for BP Alaska … said BP committed $20 billion in net investment to large projects around the world last year. She said none of that was in Alaska, though it wasn’t for lack of drilling opportunities.”

The choices outlined above give little reason to believe that the governor’s proposed tax breaks would translate into Alaskan investments. Thankfully, many legislators will not agree to tax breaks unless they are tied to clearly identified revenue for Alaskans that exceeds the cost of the tax breaks.

It’s reasonable to ask why haven’t these companies chosen to make a greater Alaskan investment given the large quarterly profits they have recently enjoyed.

I believe the answer is clear and easily understood. It’s all about the bottom line. Investment will occur in Alaska only when the profit ratio is high enough to warrant it. For a company like Exxon with Gross income of over $360 billion, their 36 percent share of the proposed $2 billion tax incentives is virtually nothing (less than 0.2 percent of gross income, 2.2 percent of net profit). Stock buybacks and dividends are able to increase share prices and the value of companies more than investing in Alaska. In addition, there are sources of petroleum in other areas of the world where the cost of doing business is less. Fortunately (or unfortunately), dwindling world resources and increasing political instability will tip the balance in our favor in the near future.

In my opinion, the only thing that the Alaskan people will get out of the Governor’s proposal is a net loss of $2 billion a year in revenue that will impact both our communities and our families. We fool only ourselves by believing that this is an incentive of great value.

John Norton

Haines