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Roger Marks: Calling out six 'Vote Yes' claims

Roger Marks
OPINION: Petroleum economist Roger Marks takes issue with several claims he's seen in advertisements advocating a Yes vote on Ballot Measure 1. Bill Roth / Alaska Dispatch News

The following responds to claims in recent ads and statements by the "Vote Yes On One" campaign for Ballot Measure 1:

1. Vote Yes says ACES protects your Permanent Fund dividend. False. The dividend is only affected by royalties. ACES only affects the production tax.

If SB 21 increases production it will increase royalties. Higher royalties mean higher dividends. ACES means less production, less royalties, and lower dividends.

2. Vote Yes says Alaska is more profitable than the rest of the world. False. Vote Yes laid out claims of relatively high per barrel oil profitability for ConocoPhillips in Alaska. These numbers are misleading.

ConocoPhillips is an oil and natural gas company. Oil and gas are frequently found together, they are produced together, and their combined financial results are reported together, on a barrel of oil/Btu equivalent basis. However, in Alaska, Conoco's operations are nearly all oil. Elsewhere they are about 50/50 oil and gas.

In 2013, oil was worth $110 per barrel. Gas was worth $3.50 per thousand cubic feet.

Vote Yes claimed the company was reporting per barrel oil profits. It was not. It was reporting the combined oil and gas profits. What the Yes campaign has done is compare oil operations here to combined oil and gas operations everywhere else.

3. Vote Yes says Alaska does not share in higher prices under SB 21. False. If prices were to increase to $150 per barrel, Alaska would get 54 percent of the increase. The other 46 percent is shared between the producers and federal government.

Under ACES the state would get 86 percent of the increase. This is a policy of excess with serious negative consequences.

4. Vote Yes says ACES was better for development of new fields. False. ACES took away nearly all upside price potential from producers, the opportunity to make somewhat more money when prices go up. This potential is necessary for new development. This was a major disincentive to develop new fields under ACES.

For example, some of the most prospective acreage on the North Slope is currently being drilled by Repsol, a major foreign oil company. They have said repeatedly they will not develop fields under ACES. (Petroleum News Alaska, Nov. 25, 2012.)

5. Vote Yes says ACES will bring in more revenue. Not necessarily. If people are looking for short-term revenue, they should realize what a potential house of cards ACES is. The higher revenues that ACES brought in between 2007 and 2013 were based on higher prices and lower costs than what is expected going forward. The $8 billion party is over.

The relative impact of ACES and SB 21 depends on what happens to costs and prices. At current levels they bring in the same amount of money. In that case this whole issue is over nothing, except the producers invest more under SB 21 since there is upside price potential.

But what could very well happen? First, costs are likely to rise. This means ACES will bring in less. Second, albeit future oil prices are unknowable, many forecasts are that oil prices are going to fall. Worldwide, production is increasing (except in Alaska), and demand is decreasing. Futures prices, a good indicator, are $85 per barrel five years out. If that happens, coupled with rising costs, ACES would bring in a half a billion dollars annually less than SB 21; it is a ticking time bomb. If you live by progressivity, you die by progressivity.

6. Vote Yes says the producers did not guarantee they would spend their tax savings in Alaska. No one made the producers guarantee not to invest less when ACES passed. But the economic response was quite predictable. The rate of increase in investment here when oil prices doubled was a fraction of what occurred elsewhere. The result is that production under ACES is forecasted to be only 300,000 barrels per day in ten years; 200,000 in 15 years. It should work the other way around with a competitive tax.

Roger Marks is a petroleum economist in private practice in Anchorage. His clients have included private companies, research analysts, and federal, state, and local governments, including the Alaska Legislature. Between 1983 and 2008 he was a senior petroleum economist with the Tax Division of the Alaska Department of Revenue, specializing in petroleum taxation policy.

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, email commentary(at)alaskadispatch.com.