Over the past two weeks, the House Resources Committee, co-chaired by Representatives Paul Seaton of Homer and Eric Feige of Valdez, has been hearing testimony on House Bill 110, the governor's bill that would create much-needed reform of taxes levied on oil production. As CEO of a small oil-field services company and a member of the board of directors of the Alaska Support Industry Alliance, I was honored to testify before the committee on Feb. 18.
I have worked in the oil industry in Alaska for over 20 years under a variety of oil and gas tax structures. Over the past five years we have gone from a gross tax structure to a net tax structure under the Petroleum Profits Tax. The PPT was amended under ELF and then discontinued when former Gov. Sarah Palin's solution, ACES, went into effect in 2007 following an expensive special session.
The reason that I am supporting HB 110 is simple. The tax structure currently in place under ACES is bad for business on the North Slope. Investment in our state and in our oil fields has diminished since ACES went into place in 2007, and exploration by the major producers has all but ground to a halt. In 2010, Alaska's most prolific explorer, Conoco Phillips, did not drill a single exploration well for the first time in 45 years.
When production stalls in Alaska, skilled, hard-working Alaskans are forced to look outside for gainful employment. From 2001 to 2006 the Alaska North Slope production declined 163,000 barrels per day, or 16 percent, and from 2006 to 2010 the decline increased another 217,000 barrels per day, or an additional 25 percent. The trans-Alaska Pipeline is operating at very low capacity, filled only one-third of its intended amount.
In Alaska we need a long-term, predictable solution that encourages investment by producers and creates jobs for Alaskans. The oil and gas industry is already subject to the relentless ebb and flow of the marketplace and a myriad of federal regulatory entanglements. For our oil and gas resource development to thrive here, we must be granted the stability by the state Legislature to work in a business environment that is conducive to responsible development.
Our ability to attract new investment in Alaska is dependent on the fiscal and regulatory environment put forward by the state. It is our desire to work with government, at all levels, to create the hospitable economic environment necessary to induce increased oil and gas production. This will benefit the state, Alaska employers, and most importantly, the everyday Alaskans who need a future filled with long-term, good paying jobs.
Organizations like the Alaska Support Industry Alliance and the Make Alaska Competitive Coalition are not advocating for reform on behalf of a corporate stock margin. Our goal is to give a human face to the often vilified industry in which we work. We are not major producers. Most organizations working in oil field services are not, but collaboratively we generate one-third of the state's economy.
As an Alaska employer working in the oil field services industry, I am confronted daily with the ramifications of the current tax structure. Due to the decline in investment an infield production related activity resulting from ACES, small Alaskan companies are losing revenue and our employees are losing jobs. Since 2008, Little Red Services has seen a 20 percent drop in demand for services realized by a reduction of over 6,000 hours of hot-oil truck use. For our company, this resulted in substantial revenue loss and forced the layoff of 11 Alaska employees.
I urge you to join me in voicing your support for meaningful tax reform that will spur investment and exploration in Alaska's oil fields, fill our pipeline, and encourage responsible development of our resources for the maximum benefit of Alaskans for generations to come. Contact your senator, representative, and our governor today and ask them to stand up for hard-working Alaskans and pass House Bill 110.
Doug Smith is president and CEO of Little Red Services Inc. and Spartan Service Inc., oil field services companies working in hot-oil services and construction on the North Slope. He is a board member of the Alaska Support Industry Alliance.
By DOUG SMITH