My Turn: Governor's oil tax revenue plan cuts Alaska short

Posted: Tuesday, April 18, 2006

Alaska's Legislature hired one of the world's top oil consultants to advise its members. Unfortunately, they don't appear to have heard a word he said.

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If you read between the lines of Daniel Johnston's report to the Legislature, he said the governor's proposal would bind Alaska to a sales agreement that is 35 percent below what many other oil producers would be willing to pay for Alaska's oil. According to Johnston's report, the average host country kept 67 percent of the proceeds when oil was bringing in $20 per barrel. Now that oil is selling at $60 per barrel, oil-producing countries throughout the world keep approximately 92 percent of the sale proceeds.

But don't take my word for it. Check out the entire report by clicking on the link to "Legislature's Paid Consultant Said" at And do the math.

According to Alaska's leading oil economist, Richard Fineberg, Alaska's combined income from the oil, (royalty oil, severance tax, income tax and property tax) add up to a 33 percent taking from a $53 barrel of oil, and the feds take an additional 13 percent, for a total of 46 percent, making Alaska the lowest taxing major oil producer in the world. Effectively, we pay $32.40 per barrel to BP, ExxonMobil and ConocoPhillips for the same service most owner-states pay only $4.80 to obtain. Another way to say it: We pay seven times as much as the rest of the world to get our oil produced. And according to the Wood MacKenzie report to the Legislature, the oil company's claim of higher costs in Alaska is deceptive hype. If the governor's proposal passes, we will be locked into a deal to pay about five times as much for the next 30 years.

If our Legislature did what it should and doubled our current 33 percent take to 66 percent, and the feds continued to keep 13 percent, we would still remain one of the lowest taxing major producers in the world - with a significantly different effect. The increased state revenue would be sufficient to restore municipal revenue sharing, eliminate 100 percent of all local sales and property taxes, restore power equalization, and pay every man, woman and child in Alaska a $3,000 annual dividend. Do the math.

If the governor's proposal is adopted, Alaska will be locked into an agreement for the next 30 years to sell both its gas and its oil at 35 percent below the world average profit retention by oil producing host countries. This would be a mistake that, under the governor's proposed "contract," future legislatures could not undo.

Alaska's future well-being depends on the general public's grasp of the points made in Johnston's report to the Legislature. It is a publicly owned document. On page 47, you will find a statement in the middle of a chart paging the world average profit retention at 92 percent. As you view the chart, keep in mind that the chart is upside down from an owner state prospective. It was developed to show oil company executives what countries offer the highest return on investments through the lowest taxes. You can reprint and publish it for distribution in any way you wish.

The governor's arguments won't wash with the public if enough people are armed with a reference point by which to measure the governor's plan. High taxes? Compared to what? Compared to whom? Without such a reference point, the public is unable to determine whether to support or oppose the plan.

With wide enough recognition of these facts, a tidal wave of opposition to the governor's plan might soon hit Juneau. So do it. Do the math.

• Ray Metcalfe has been a real estate broker for 35 years, was twice elected to the state House and chaired the hearings in the state House for the original plan for the permanent fund management system.

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