Compass: Don't buy the company line on oil tax cuts

By REP. LES GARAMay 15, 2013 

Just days after his massive $1 to $2 billion annual oil revenue rollback passed, the governor, oil companies and their allies began to crank up their PR machines. They're spinning Senate Bill 21 as the reason for development that started years ago under ACES, the law SB 21 just replaced. That's like touting SB 21 as the reason for "new" things like radio and space travel.

Here's the reality about SB 21 and these projects.

The big giveaway in SB 21 was the elimination of Alaska's windfall profits share. ACES allowed a modestly increasing tax rate as companies earned windfall profits at very high oil prices. SB 21 eliminates that and lets companies spend their handsome tax rollback Outside Alaska, anywhere Exxon, BP and Conoco want. In testimony they refused to commit to spending it here. That's a $1 to $2 billion giveaway of your revenue (at $110-$130/bbl oil prices).

I and others attempted improvements in ACES' investment incentives, that would have required new Alaska oil development to earn reasonable breaks. But Gov. Parnell and all 39 GOP legislators except two (Sens. Gary Stevens and Bert Stedman) chose a fiscal cliff-creating slash in your oil share. That will guarantee years of deficit spending. Or an income tax and PFD cuts.

By 2021 it will require more than 100,000 barrels/day in additional oil just to break even with ACES. That's likely a low estimate by PFC Energy, a paid consultant that promoted SB 21 (it's higher than consultant paid to push the Governor's bill estimated). Some objective analysis by folks not paid to push this bill will serve us well.

What about that sudden new "SB 21-inspired" development?

Nine days after SB 21 passed the governor touted that "Repsol has found oil in three test wells drilled this winter." He quoted a Repsol spokesman who expectedly claimed it was a "critical factor in ensuring the development of this project."

Fact Check: In 2011, under ACES, Repsol announced major investments in Alaska. Repsol didn't peep about the need for any tax breaks. Its March, 2011, press release stated, "The estimated minimum exposure for this investment ... amounts to $768 million. The start of exploratory work is scheduled for next winter.... The North Slope of Alaska is an especially promising area for Repsol as it has already shown to be oil rich and carries low exploratory risk." The touted by the Governor was intended in 2011 to be developed, with recognition that ACES was the law and that investment would likely increase as oil was discovered.

Three days after SB 21 passed, Conoco claimed SB 21 would lead to development of an area next to its Alpine development, called Mooses Tooth.

Fact Check: In 2009 Conoco announced development at its Mooses Tooth and Bear Tooth units in NPR-A, under ACES. They did this in part under the threat that they'd lose these leases for not developing them (companies have a duty to develop leases or lose them). They began work in 2008 and again in 2012. Conoco bought leases to expand Mooses Tooth acreage in 2008, promised drilling, and in 2012 "staked nine potential well locations in the Mooses and Bear Tooth units (2012 Anchorage Economic Development Corporation (AEDC) report). Companies proceed with development because they've calculated the chances of production are worth the risk.

One commentator suggested the Mustang field was SB21-related.

Fact Check: Brooks Range Petroleum has developed the Mustang field under ACES. They discovered oil in 2011. The 2012 AEDC report noted they planned to "sanction this project" in 2012 with "first oil expected in 2014." Nice spin, again.

We're not naive. Oil companies have an honest legal duty to maximize shareholder profit, and promote all tax breaks that let them keep more money. They, and the governor will credit this tax slash for every drop of oil they can.

Expect more spin from those who want to keep SB 21's massive tax breaks. Expect less revenue, continued education cuts, construction and other job losses, and big dips into Alaska's billions in ACES-created savings.


Les Gara, D-Anchorage, has served in the state House of Representatives since 2003.

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