On Tuesday, my vote will be "no' on Ballot Measure 1 to repeal SB 21. Having lived through the demise of the logging industry in Southeast Alaska, the rapid and devastating effect government policy can have on industry is not an abstraction for me. So, too it will likely be for Alaska’s oil industry if SB 21 is repealed. Major investments outside of the legacy fields will again slow to near zero, output will continue to decline and one day we will all wake up and find that TAPS is no longer able to function at the low flow rate.
The current debate over the repeal of SB 21 tends to focus on the details of who is benefiting how much from the legacy fields on the North Slope. Both sides make economic arguments that sound compelling, and both are cherry-picking data to support their position. However, no one argues that output from the legacy fields is declining. Replacing and growing the volume from the North Slope is what is most important. Striving to find the last nickel that can be extracted for state coffers is a foolish game of roulette that will not turn out well for Alaska.
Imagine if you purchased a house on a 30-year loan and were looking forward to the day when your income had increased to the point where the house payment did not consume so much of your paycheck. Then in year 20 the bank says “by the way, a part of the interest rate is variable at our discretion and we are going to raise it fivefold.” You would be justifiably furious, and even though you would continue payments to preserve your equity, you would never use that bank again.
So it is with Alaska’s treatment of the oil industry, since the legacy leases were issued for Prudhoe Bay, royalties, which are fixed in the lease, have remained constant, but under ACES the severance tax rate increased about fivefold. Just when the loan was about to be paid off, oil prices finally increased and the chance to cash in on the original investment looked good, the state decided it would take most of the increase. No major oil producer in its right mind would again make a significant investment in Alaska with that as a likely view of the future.
There also seems to be a fanciful notion entertained by the repeal proponents that we should be happy to see the big boys depart. After all, a larger number of smaller companies will spread the production and risk over a larger base and reduce the undue influence of a few major players. Alaska, and especially the North Slope, is not and never will be West Texas, North Dakota or any of the other mature oil provinces. The North Slope is at the end of a 900-mile straw through the wilderness and only companies with the resources of the major oil companies have the capacity to make the investments and take the risks necessary for significant new developments in Alaska. The independent producers will continue to play an important and growing role in our oil industry only if the majors continue to provide the backbone for the industry.
Alaska has a lot more oil to sell and we need customers to purchase it from us. The taxes generated from SB 21 will generate an attractive revenue stream for Alaska, and the oil industry has accepted it. It’s time we started treating the oil companies as valued customers, Vote "no" on 1 and send the message that we are serious about keeping the oil flowing from the North Slope for decades to come.
Steve Denton lives in Healy. He is a practicing engineer with professional experience in mining and civil engineering, and he owns and operates Denton Civil and Mineral.
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