Why is North Dakota No. 1? Fair oil taxes

commentMay 19, 2012 

It is hard to know whether to laugh at or cry for Alaska, where calculated, myopic oil tax policies and crass political greed are combining to reduce the state to the nation's third-largest oil producer, behind Texas and North Dakota. Third-largest. Behind North Dakota, for crying out loud -- and dropping.

An Associated Press story last week was stuffed with numbers and daily averages and superlatives and records -- all showing North Dakota riding an oil-fueled economic rocket; Alaska stumbling over a cliff.

The story included this: " 'In 1999, we had zero rigs working and people left this industry for dead in North Dakota. Technology, geology, price and the business climate changed that,' said Ron Ness, president of the North Dakota Petroleum Council. ..."

The left immediately trotted out a flunky who supports Alaska's obscene oil tax to explain why companies are flocking to North Dakota's monster Bakken formation, boasting at least 4.3 billion barrels of recoverable oil. It is new technology, he declared.

Ah, but wait. It must be more than that. All that newfangled stuff is available to companies working Alaska's North Slope fields, where billions of barrels of recoverable oil remain. We certainly have the geology. Prices remain up. Fracking is no big deal, and horizontal drilling is old hat. What's missing? Why are companies trekking to places such as North Dakota? It certainly is not just technology. The biggest reason? One the left only whispers about around lattés: A good business climate that includes sensible, fair oil taxes. North Dakota has them. Alaska? Not so much. It has Alaska's Clear and Equitable Share.

North Dakota's oil taxes add up to about 11 percent or even less, not counting royalty payments to private land owners. ACES is a complicated swirl that must give accountants nosebleeds. It includes a base 25 percent production tax with built-in progressivity and shoots to the moon from there.

When oil prices are high, ACES contributes to a business-busting marginal tax rate that can soar above 90 percent -- not counting the 12 percent royalty, give or take, the industry must pay Alaska. Really, what's not to like about doing business here?

Oil companies, like everybody else, invest to produce maximum returns. With ACES, Alaska no longer is on top of the pile. Because of it, investment to funnel new oil into the trans-Alaska oil pipeline is down. Production is down -- and dropping. Our economy is teetering, balanced on high oil prices.

You already know all that. What remains a mystery is why some in a Legislature so heavily oil-dependent intentionally remain oblivious. They, most of them anyway, are not conspicuous blithering idiots. Certainly, they know throughput in the trans-Alaska oil pipeline is declining, that 90 cents of every dollar government spends dribbles through that pipeline, that high oil prices cannot continue, that more than half the economy depends on the very oil the left loves to hate.

The question I'm always rolling around in my mind as I'm thinking, "Golly, we really should have sold the house five years ago," is this: What do these geniuses see that the rest of us are missing? To so irresponsibly risk Alaska's future by forcing oil investment to other states, they surely must have a plan, one beyond just robbing North Slope companies to fatten up their union chums for votes or stuffing the state treasury for bigger government. It cannot be so obtuse, so unrefined.

Do they hope to diversify the economy overnight? Are they hoping to scare up another industry to carry the state's economy? That cannot be it. Can they believe grabbing as much now as they can will make up for having nothing later -- spending like there is no tomorrow because there might not be? Is that it? Maybe they already have their new houses bought and paid for in Palm Springs.

The truth is, their plan is to rip and run. In virtually any other context, opposition to fixing ACES makes not one iota of sense. They get it when it comes to incentives for the movie industry. They get it when it comes to incentives for new exploration. If things do not change, and soon, the eventual outcome is obvious -- and certain. They get that too.

Forget their blather to the contrary. North Dakota ultimately proves them wrong. Sensible taxes attract investment. Period.

You know, third place may look good in a few years.


Paul Jenkins is editor of the AnchorageDailyPlanet.com.

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