ACES backers blind to facts about need to reform tax

August 20, 2011 

It gives me shivers to watch oil industry haters swoon at any rumor, any headline, any tiny wisp of hope that their dreadfully myopic and silly view of Alaska's Clear and Equitable Share oil tax is not all wet.

A great example was a recent Petroleum News headline: "North Slope booms." ACES backers went into a yammering fit. See, see, they yakked to anyone dumb enough to listen, the tax works, it really does. Hardly.

Smaller independent companies, it turns out, are planning as many as 28 exploration wells in the next year, and, yes, by golly, that is really swell. But ACES worshipers apparently did not read the rest of the story. It said the companies planned to drill because of fat state exploration subsidies, and -- this is really important, kids -- "because Alaska's governor is committed to fix provisions in the state's production tax that could make development of any oil discoveries noncompetitive for investment capital with projects in other oil provinces."

Funny how ACES' supporters missed all that. So at least one part of the tax, the part where Alaska hands out wads of cash for exploration, is working, at least with smaller operators -- but the part that makes producing oil in Alaska a loser for companies large and small is still screwing up the works.

While exploration is necessary, production puts money into the treasury and stimulates economic growth. Gov. Sean Parnell told the Fairbanks Daily News-Miner the other day that increased exploration is needed to put 1 million barrels a day into the trans-Alaska oil pipeline by 2020, but that alone it is not enough.

"We need about $4 billion in annual, sustained investment from all companies as compared to their current level of about $2.5 billion -- to get 1 million barrels per day," he said. "If we don't see renewed investment in the legacy fields to keep production on a slow decline, any new discoveries are going to be entering a pipeline with substantially reduced throughput and, therefore, higher tariffs. We need more than new exploration to keep the pipeline full (enough) and functioning well."

The crushing, stair-step oil tax, part of a marginal tax rate that can top 90 percent at today's higher oil prices, clearly stymies increased North Slope oil industry investment and production. It is a Democrat's dream -- great for government but lousy for the economy. Add to that this grim fact: Smaller independents are not going to find anywhere near enough oil to make a difference in Alaska's fiscal picture, and unless ACES is fixed, why would they produce what they find?

We simply need the big guys to invest and produce more. Rather than encouraging that, ACES forces them to move their investment dollars to places that offer better returns.

The most stunning aspect of the ongoing ACES debate is the crass dishonesty of those fighting to retain the tax as is. They pretend, for their own ends, that there is no need to reform the confiscatory mess left behind by Sarah Palin in 2007; that it is working fine. To fix ACES would only give away the farm, they say. Their selectivity on taxes and subsidies is breathtaking.

They gush about the state's film industry subsidy -- tens of millions of dollars in transferable tax credits. When Alaska, at the behest of some of the same folks who adore ACES as it is, started handing out dough by the bucket to lure movie production here, what happened? The industry stampeded into Alaska for the free money. Who was surprised?

They gush about the very drilling incentives that sent them into a frenzy last week. The state offered them, and the next thing you know there are headlines such as, "North Slope booms." Yet ACES backers pretend they are in the dark when it comes to reforming the tax to spur production. Can they really be so dense? If ACES were fixed to allow a sensible and competitive return on investment, why would North Slope producers opt not to make money?

You have to wonder how much damage ACES proponents, blinded by their hatred, are willing to inflict on Alaska to punish the industry. When I think of them, I cannot help but think of a Gahan Wilson cartoon depicting a ragtag soldier standing in hellish war rubble and announcing, "I think I won."

That is, I think, their vision for Alaska.

It is sad.


Paul Jenkins is editor of the AnchorageDailyPlanet.com.

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