Endnotes: 'Sense, nonsense and the power of the Big Three on Alaska's oil patch'

Richard Fineberg

Editor's note: The following article consists entirely of endnotes to accompany Richard Fineberg's commentary, "Sense, nonsense and the power of the Big Three on Alaska's oil patch."

Endnotes

(1) Scott Goldsmith, “Alaska’s Oil Production Tax: Comparing the Old and the New,” Institute for Social and Economic Research (University of Alaska Anchorage), May 2014 (Web Note No. 17); Scott Goldsmith, “SB21 SENSE AND NONSENSE – The More Alaska Production Act (MAPA),” presented to the Resource Development Council, Anchorage, Alaska, May 1, 2014 and Fairbanks Economic Development Council, Fairbanks, Alaska, May 27, 2014. (For a typical news review of the Goldsmith presentations, see Lisa Demer, “Economist says new tax structure isn’t the main reason for drop in oil revenue,” Anchorage Daily News, May 1, 2014.)

(2) Tony Knowles, “The economic case for keeping Alaska’s oil tax reforms,” Alaska Dispatch, May 5, 2014 and Anchorage Daily News, May 6, 2014, p. B6.

(3) Alaska Department of Revenue (ADOR), “FY 2012 Production Tax Rounded Estimates for Prudhoe Bay and Kuparuk River Units Under ACES,” provided in letter from ADOR Commissioner Bryan Butcher to Senator Bert Stedman, March 11, 2013 (estimate based on average daily production and average annual price; accompanied by similar attached estimates for FY 2010 and 2011). This letter is one of many documents that Goldsmith chose to ignore that show estimated revenue losses under SB 21 based on historical or other specific data sources cited by legislators in comparing state revenue effects of SB 21 and the regime it would replace.

(4) Senators Hollis French and Bill Wielechowski have both cited information from ADOR noting that production at Kuparuk, then the nation’s second largest oil field, declined steadily between 1996 and 2006 despite steady and steep reductions in the previous ELF production tax. (See for example, Senator Hollis French, “Special Report on Ballot Measure 1” [undated report provided by Senator French, June 1, 2014, p. 2].)

(5) Gregg Erickson’s comments on Scott Goldsmith’s assumptions were made on “Alaska Edition,” Alaska Public Media, March 1, 2013 (weekly television news broadcast).

(6) This writer asked Goldsmith if he had explained the discrepancies in his report’s opening chart discussion following his presentation in Fairbanks May 27, 2014. During these comments he also noted that he had not spent a great deal of time looking at FY 2013 data.

(7) Based on Alaska Department of Natural Resources royalty data reports.

(8) For a short history of Alaska revenue disputes, see the author’s “Securing the Take: Petroleum Litigation in Alaska” (in Svetlana Tsalik (ed.), Caspian Windfalls: Who Will Benefit? [New York: Open Society Institute, 2003], pp. 53-69 [ch. 3]). For listing of annual litigation settlement deposits to the Alaska Constitutional Budget Reserve Fund (CBRF) since 2003, see Aaska Department of Revenue, Fall 2013 Revenue Sources Book, p. 92.

(9) For historical background on pipeline rate regulation and the problem of regulating vertically integrated (shipper-owner) pipelines shortly after TAPS entered operations, see Edward J. Mitchell, Oil Pipelines and Public Policy: Analysis of Proposals for Industry Reform and Reorganization, American Enterprise Institute, 1979, at pp. 6, 7 and 11.

(10) For a history of the TAPS 1985 settlement compiled by this writer, see “The 1985 TAPS Settlement: A Case Study in the Effects of Confidentiality on Information Available to Decision Makers in Oil and Gas Revenue Disputes,” prepared for the Alaska State Legislature, February 5, 1990 (supplemental report).

(11) U.S. House of Representatives Committee on Small Business, “H.R. 245 and Trans-Alaska Pipeline System Tariffs” (Washington, DC: Government Printing Office, 1985), pp. 157-158.

(12) Regulatory Commission of Alaska (RCA), Order No. 151 (Docket P-97-4), Nov. 27, 2002, p. 131. For quantification of these estimates, see “Exhibit 2 Data Sheet,” in “SB 21 and Petroleum Revenue Policy: Six Subjects Requiring Further Consideration (A Report on Pending Legislation),” April 4, 2013, Exhibit 2 (independent report submitted to Alaska legislators).

(13) For background on these decisions, see Richard A. Fineberg, “Federal Energy Regulatory Commission (FERC) and State Supreme Court Confirm TAPS Overcharges, Hand Pipeline Owners Their Sixth Successive Defeat Since 2002: After 30 Years, FERC Rules Owners' Attempts To Justify High TAPS Tariffs Lacking in Merit; State Supreme Court Finds Nothing In Owners' Appeal Worthy of Discussion,” July 1, 2008.

(14) Federal Energy Regulatory Commission (FERC) Administrative Law Judge Carmen A. Cintron, BP Pipelines (Alaska), Inc., et al., 146 FERC ¶63,019 (Docket Nos. IS09-348-004, et al. and IS09-348-006, et al.), Initial Decision, Feb. 27, 2014; Alaska Supreme Court, BP Pipelines (Alaska) Inc., et al. v. State of Alaska, et al., No. 6867 – February 19, 2014 (Nos. S-14095/14116/14125), Opinion (Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Sharon Gleason, Judge), Feb. 19, 2014. Dermot Cole reported, “Board rejects Parnell effort to slash pipeline’s tax value by billions,” Alaska Dispatch, May 23, 2014.

(15) The Legislature passed SB 138, an act dealing with gas pipeline issues, the Alaska Gas Development Corporation and and the oil and gas production tax, on May 8, 2014. (The record of legislative action is available online.)

(16) The author reviewed two television advertisements sponsored by the major producers in January 2014, The Alaska Oil Tax Cut Controversy: A Case Study (In This Era of Information Overload, Does Our Political System Enable Tall Tales to Triumph?), text accompanied by slides presented at panel session, "Where Sustainability Meets Policy" (Society for Applied Anthropology [Albuquerque, New Mexico], March 20, 2014), pp. 12-14.

(17) The distinction between desktop and field audits is based on the author’s experience working with the state government as a policy analyst during the 1980s, and in preparation for testimony in 2001 on behalf of the public advocacy section of the Regulatory Commission of Alaska in the TAPS tariff case (decision issued Nov. 27, 2002),

(18) Regulatory Commission of Alaska, “Public Hearing: Proposed Changes in the Regulations of the Department of Revenue,” August 13, 2013, pp. 11, 14-15; Kara Moriarty (Executive Director, Alaska Oil and Gas Association), “Re: AOGA Comments on Proposed Regulations for Chapter 10, SLA 2013 [‘SB 21’] Amending the Oil and Gas Production Tax, AS 43.55” ( letter to Angela Rodell [Acting Commissioner, ADOR], et al.), Aug. 26, 2013.

(19) Alaska Department of Revenue, Fall 2013 Revenue Sources Book, pp. 39, 104.

(20) For ConocoPhillips Alaska and rest-of-world earnings since 2007, see: ConocoPhillips, 10-K Annual Reports filed with the U.S. Securities and Exchange Commission for 2008 (p. 41), 2010 (pp. 31, 40), 2011 (pp. 44, 47), and 2012 (p. 38).

(21) See, for example, William Van Dyke, P.E., “Report on the Estimated Life of the Alaska North Slope Proven Oil Reserves,” May 2014, pp. 24-25 (before the State Assessment Review Board, OAH No. 14-0555-Tax (based on input of Dudley Platt, P.E.).

(22) This view is held by Dudley Platt, whose testimony on North Slope production prospects has been found “persuasive” and more credible than the testimony of industry representatives by Alaska Superior Court Judge Sharon L. Gleason in her 2011 decision on TAPS property tax valuation.(See: BP Pipelines [Alaska], Inc., et al. v. State, et al., 3AN-06-08446 CI [Decision Following Trial de Novo: 2007, 2008, and 2009 Assessed Valuations; Alaska Superior Court, December 30, 2011], ¶ 1, 4, 461, 476, 480, 505, 506, 599).

(23) After mentioning the term “profits“ on the second page of the report under the heading, “How the Production Tax Works,” the term “profit” did not appear again until page 36, the second to last page of the main body of the report, “Alaska’s Oil Production Tax: Comparing the Old and the New.”

(24) “Alaska’s Oil Production Tax: Comparing the Old and the New,” pp. 33-36.

(25) “Alaska’s Oil Production Tax: Comparing the Old and the New,” p. 37.

(26) Ibid.

(27) “SB21 SENSE AND NONSENSE – The More Alaska Production Act (MAPA),” Slide 27.

(28) “Alaska’s Oil Production Tax: Comparing the Old and the New,” p. 40 (Appendix).

(29) “Alaska’s Oil Production Tax: Comparing the Old and the New,” p. 41 (Appendix).

(30) See, for example: Investors Chronicle, “Hunting for elephants offshore Morocco,” April 2, 2014. “Oil companies plan to drill as many as 10 exploration wells in Moroccan waters this year as the race to discover the next big oil field off the coast of Africa hots up.”; and Brian Swint, “Chevron Hunting Moroccan Elephants Marks First Oil Boom: Energy,” Feb. 28, 2013 (Bloomberg News). “Chevron Corp. (CVX) and Genel Energy Plc (GENL) are hunting for elephants in Morocco. Not the animal, rather the giant oil fields that send explorers’ market values soaring when they’re discovered in the frontier.”

(31) The entire text of BP’s untitled advertisement read: “Twenty years ago two million barrels a day flowed down the pipeline. Today it’s about five hundred thousand. Our plan, pure and simple, is to get more oil in the line. That’s why we’re spending one billion dollars for two new oil rigs and drilling about 200 more wells. A lot of projects that were on the backburner are now moving ahead, which means more production and more jobs for future generations of Alaskans. It just shows what a positive economic climate can do.” (This advertisement aired at least 10 times between January 12 and March 4, 2014; the ad was most recently heard June 16, 2014.)

(32) According to ADOR, North Slope production peaked in FY 1988 at 2.006 million bpd (Prudhoe Bay 1.605 million bpd and Kuparuk 0.287 million bpd) and had declined to 1.593 million bpd in FY 1994 (Prudhoe Bay 1.002 million bpd and Kuparuk still at peak performance, 0.308 million bpd). “Historical and Projected ANS Production” (FY 1978 – 2010), Fall 2001 Revenue Sources Book, p. 130. (In FY 2013 Prudhoe and Kuparuk, with satellites, were at 0.294 million bpd and 0.112 million bpd, respectively. Fall 2013 Revenue Sources Book, p. 100.])

Richard A. Fineberg, of Ester, is an independent analyst with decades of experience in oil and gas policy. He served as a senior advisor to the governor on oil and gas (1987-89) and testified as an expert witness in the Regulatory Commission of Alaska TAPS tariff case (2001). He was appointed to the U.S. Extractive Industries Transparency Initiative (EITI) Multi-Stakeholder Group as a civil sector alternate (non-voting) member in 2012 and published an article on that experience in the Oxford University Press Journal of World Energy Law & Business (“The United States joins EITI: a case study in theory and practice,” January 2014).

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for  consideration, e-mail  commentary(at)alaskadispatch.com.