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Alaskans need to stand up for free market, reject flawed oil tax 'reform'

Steven Merrill
OPINION: Alaskans should no longer accept third-rate prices for their most valuable resource overall. Aaron Jansen illustration

By listening to this summer’s political commercials, Alaskans could rejoice that a job-friendly atmosphere has been restored to the Alaska oil slope due to the end of the ACES pricing structure now replaced by the pre-ACES lower tax rates. So, Vote No on Ballot Measure 1 to create Alaska jobs!

According to that legend, the magic free market crashed Alaska oil production in the face of the “higher taxes” on oil production created by ACES. The storied ending of the tale is now the free market has rebounded greatly due to the restoration of low taxes. The oil companies are drilling and hiring in Alaska again.

So now, by the Legislature’s discarding ACES at this year’s session, when the worldwide price of oil goes up, the ones to profit from a higher price will be the global oil companies alone.

According to a study relied on by the legislature at the time ACES was enacted, the government share of revenues was expected to rise from 56 percent to 61 percent. Instead, according to unaudited oil industry figures submitted to the legislature this year, the government share at the present oil price of $100 barrel has risen to 69 percent due to higher than expected oil prices and a supposed increase in production costs. With the Alaska share now headed back down to 56 percent, in contrast the nation of Norway manages to capture 78 percent of oil revenues for its citizens as shown by the same chart.

State government resource management in this most important area has been largely a failure then, unless the main client is actually Big Oil rather than the people of Alaska. The major contenders for U.S. Senate in Alaska this year have all cast their lot with the oil industry. Good elitists all, they oppose Ballot Measure 1.

How does this happen? How is it staged? What clear evidence is there that somehow the oil industry is purposefully manipulating the price it pays Alaskans for their oil?

Just watch the money.

Words versus actions

While the Alaska Big Three in oil -- Exxon Mobil Corp., BP and ConocoPhillips -- were forgoing drilling in Alaska over the past few years, each of those companies moved in a large way into hydraulic fracking and more offshore drilling.

Yet, the price of oil extraction on the ocean floor can be twice as much compared to the price of oil extraction at places like Prudhoe Bay. Of course, the environmental danger of ocean drilling is a multiple compared to drilling on land.

Key here though, oil pumped from the bottom of the ocean pays less in royalties to owners than any other drilling method by far. Offshore carbon leasing is a boom trade in crony capitalism and official corruption across the world orchestrated by the global oil industries and their government patrons.

Indeed, the oil giants are planning to pass up drilling in Alaska northern wastelands so they can drill offshore in the Arctic Ocean and Beaufort Sea, effectively stiffing Alaskans of their share of revenues while unnecessarily endangering the environment in an outrageous manner. Our two U.S. senators pushing this policy onto Alaskans claim it is for our benefit.

The fracking of oil, driving water and chemicals underground to push the product out, is also often a multiple of the cost of conventional drilling on land. Even at an oil price of $100 per barrel, the big new fracking startups have yet to turn a profit and maybe never will as estimates of available reserves absolutely crash.

Yet, back where the competitive free market is supposedly punishing Alaska for high costs over the past few years, oil company gross revenues under the ACES structure were approximately 145 percent of their total costs less depreciation, including the payment of royalties and ACES taxes.

Of course now oil company profits from Alaska are headed much higher at the expense of Alaskans.

A harsh truth

So, what rules the Alaska oil industry? Is it the free market? Or is it instead the corporate game plan that rules the oil market?

It is a telling fact on this score then that the global oil industry’s primary 21st century directive appears to be to use all means of drilling possible at all times so long as the product pumped from the ground or ocean floor is paid for at a rock-bottom royalty. The equation is clear. One part of the global oil market is punished for its high royalty rates by colluding producers while those willing to sell for a lot less (or nothing) are rewarded, even if the overall production costs at that location are near double.

Over time this equation leverages the cost paid by oil companies to owners to the lowest price possible, with the difference always fattening industry profits.

Think it through. Only industry-wide collusion could possibly end with such a global game plan in place and working to great effect. This is the very sort of market posture a truly free market makes quite impossible. No one in a free market passes up the easiest place to drill in order to drill at the bottom of the ocean at a far higher production cost and risk profile.

An opportunity for Alaskans

With the voters' choice on Ballot Measure 1 on the Alaska primary ballot next month, Alaskans have the opportunity to throw a monkey wrench into the global plans for our oil. The voters are not as easily hoodwinked by the oil industry as the Alaska Legislature and Alaska governor have been.

A restoration of ACES, as Ballot Measure 1 calls for, brings back a better balance to the sales price of Alaska oil. The eventual goal should certainly be to place Alaska as one of the less profitable places for the global oil cartel per barrel produced, like Norway is, instead of as one of the best locations for Big Oil profits. Alaskans should no longer accept third-rate prices for its most valuable resource overall. The days of smoke and mirrors policymaking in Juneau for the well-heeled industries are hopefully also on the decline from here on.

Should the Big Three retaliate again as they did post-2006, this time against voters, another movement by Alaska state enterprise is called for, the imposition of true producer competition on the Alaska oil slope for the first time. The more drillers the better should be and will become the policy of Alaska someday.

By voting Yes on Ballot Measure 1 next month, Alaskans will have laid their stake to the future in opposition to the plans of global elites. Global corporatism is the greatest danger to Alaska’s future.

The Big Three need Alaska, never the other way around.

Steven Merrill, a practicing Anchorage attorney and served in the Navy Judge Advocate General’s Corps and as a Navy Reserve intelligence officer. He is the editor of the Alaska Freedom News.

Editor's note: The fourth paragraph was included after publication. It was withheld to allow the author to find a publicly accessible source for the information mentioned.

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