Alaska editorial: A good oil tax bill will help Alaska

Posted: Thursday, August 03, 2006

This editorial appeared in the Anchorage Daily News:

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Don't do it because constituents read about oil company profits and want revenge. And don't do it because it would be fun to spend all that extra tax money.

No, legislators need to rewrite Alaska's oil and gas production tax laws because that will solve so many problems. Passage of good legislation in the final days of the special session will help tone down the divisive politics that are hurting the state. Each day brings more accusations and loud campaign talk that add no facts to the debate.

Passing good legislation will give the state a larger, long-term source of revenue more closely tuned to today's higher oil prices. The tax that worked when oil was $16 a barrel doesn't work at $60. The state deserves a bigger share.

And passing good legislation will provide industry with more certainty as it makes investment decisions - companies like to know their tax rate upfront, not after the fact.

But most important, an overhaul of production taxes could, if done right, help attract the billions of dollars in new investment needed to keep North Slope oil production from falling at such a steep rate.

Here's the math: The North Slope produced 2 million barrels a day in 1988. It's been downhill since then. Production dropped below 1 million barrels a day in 2001 and came in at less than 850,000 barrels last year. The state figures the flow will average 800,000 barrels a day in just a couple of years.

There are multiple tax proposals in the capital. The winner should be the one that calculates taxes after companies have paid to pull the oil out of the ground and deliver it to market. That would account for the much higher costs of producing heavy oil on the North Slope, which is where much of the future production will come from. A tax on gross revenues ignores the reality that oil from a 2006 well costs much more to produce than oil from a 1986 well.

The winner should be the one that rewards those companies for spending more of their profits in Alaska. The right legislation should include higher tax rates at higher oil prices, in exchange for the state giving up some revenue when oil prices and profits are low.

The answer is Alaska needs to tax oil revenues after production and shipping expenses, with a lower tax rate for companies that spend more of their profits in Alaska. Pass that, and the Legislature will have done its job well.

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