Compass: Art Petersen says SB 21 is wrong answer to oil tax question

By ART PETERSENApril 13, 2013 

ACES could be adjusted to give oil companies in Alaska an equitable share when profits are high. But SB 21 as an incentive to oil production robs the people of Alaska of their fair share of Alaska's resources. Alaska's Constitution provides that "maximum use" of Alaska's "land and the development of its resources" be used in ways that are "consistent with the public interest." Giving those resources away without a guarantee of return violates the spirit of this constitutional provision.

Perhaps the governor and the 11 senators who moved SB 21 forward for consideration really believe this gift to oil companies will stimulate increased production. Even if about 40 percent of this group is either a former employee or a current employee or spouse of an employee of these oil companies, perhaps they really do believe the gift is a stimulus and not a benefit to themselves directly (as hard as that is to believe).

Still, several points counter the effect of a stimulus view. First is the Fortune 500 status of these companies. The bill "gives" them $5.5 billion over 6 years from Alaska's revenue, and an amendment in the House wants to make it $6.5 billion. In 2012 ConocoPhillips (and Phillips 66) earned $12.4 billion in profit, putting it at No. 4 on the Fortune 500 list of the most successful businesses in the U.S. BP reports twice as much profit in 2012, $25 billion. And ExxonMobil is No. 1 on the 2012 Fortune 500 list, earning $41.1 billion in 2012 alone. Together in 2012 they earned $78 billion in profit. So what difference will $6.5 billion over six years make to these giant companies? About 1 percent, hardly enough to get them to do more than they are already doing.

Second, ConocoPhillips says this amount is not enough to persuade its board to invest more in Alaska, though SB 21 is a "positive start." In other words, it'll take more if it can get it, especially if no obligation is attached to it.

The truth is that these companies already have a huge incentive to invest more.

Over the next 50 years, the worldwide demand for oil will only increase. Every predictor is that demand will grow to unheard of levels. So as some have repeatedly pointed out, it's not $6.5 billion that's being proposed as a gift. It could be 10 times that amount of Alaskans' share of Alaska's resources. Demand for oil in the developing world is rising sharply and affecting costs everywhere. All of us experience the painful effect of that demand at the filling station and in fuel oil bills. And in that demand resides the oil company incentive to increase production everywhere, including Alaska.

Until production increases, and while revenues are in flux, Alaskans can tighten their collective belt together, helped by a hefty budget reserve. As the inevitable boom gathers momentum, waiting patiently and carefully keeps Alaska's oil in the bank instead of giving it away at what will be even better than a bargain price. That gift will stimulate nothing except perhaps jokes about elected persons in Juneau who gave away the people's resources.

SB 21 should be voted down, and ACES should be moderately adjusted. Alaska's Constitution calls for "maximum use" that benefits Alaskans, not companies that are already among the richest in the world. Additionally, the likelihood of sky-high future demand over current demand, already high, is incentive enough for oil companies in Alaska to increase oil production. That they are doing and will continue to do. One percent to them means little to nothing. But that 1 percent to Alaska means everything to a starved education system, an $11 billion unfunded liability to TRS and PRS, and to unmet needs in every community in Alaska.

The resources that are proposed to be given away belong not to oil companies and not to the state but to Alaskans.

Art Petersen is a 38-year Juneau resident and professor emeritus of English at the University of Alaska Southeast.

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