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Alaska oil tax myths, surprise, remain busted

Amanda Coyne
istockphoto

ANALYSIS: Last week, I, along with reporter Alex DeMarban, wrote a two-part series entitled “Myth-busting claims in Alaska's oil tax debate.” (Read the first part here, the second part here). The series looked at six claims surrounding oil-industry taxes. These claims are either outright falsehoods or possibly innocent obfuscations spread through the state by industry and its allies.

In any case, these claims have been repeated so often that they have become truths in the mind of many in the public. And the public is scared because of them.

Among other things, some believe Alaska’s lifeblood, the oil patch, is drying up. They believe we are on the verge of seeing the trans-Alaska pipeline dismantled. They believe oil related jobs are fleeing the state. They believe Alaska is taxing oil producers 80 to 90 percent, one of the highest rates in the world. All of which are myths that have been allowed to spread across the state, myths largely unchallenged by those who know better.

We chose to bust those myths, and more of them, for which we received much feedback. Some of it was positive and appreciative. Some of it wasn’t. Some fired back that we weren’t being objective.

The possibility of objectivity in journalism is a subject for another time. But perhaps we should have said the obvious somewhere in the piece: Quoting people who would have simply repeated the myths would have defeated the purpose of the myth-busting exercise.

Halcro, Keithley take issue

Two of those who chose to respond on their own blogs are Andrew Halcro, who I once wrote in a book is one of the smartest men in the state, and a friend of mine. Another response came from Bradford Keithley, a lawyer who represents and advises oil and gas companies and investors. He’s plenty smart, too.

There’s not time here to respond to every point of theirs in full, but I do want to say to Halcro that nowhere in the piece did we indicate the oil companies didn’t have a right to contest their property tax bills. Neither did we suggest the companies were bad corporate citizens for doing so.

And I will later take up in a separate column Keithley’s assertion that a “reasonably prudent operator is not expected to forego alternatives offering higher economic returns in order to pursue others that offer lower, or more uncertain, returns.” A large body of case law in the Lower 48 suggests that the issue is much more complicated than Keithley boldly asserts based on the conversations I’ve had with legal scholars and lawyers. But, as I said, I’ll get to that in a later story.

What both Keithley and Halcro seem to most object to, as did others who are in favor of lowering taxes for the oil producers, is the “myth” about Alaska's ultra-high oil tax. That, by the way, was one of my contributions to the myth-busting series.

Let me be clear: At no time did I write that Alaska’s oil taxes weren’t high. What I did take exception to was the myth being perpetrated that Alaska taxes the oil producers up to 90 percent, making Alaska’s tax among the highest in the world.

It’s a myth perpetrated by charts and graphs disseminated by the oil industry and a group advocating for lowering oil taxes -- "Make Alaska Competitive." The nonprofit is in part managed by MSI Communications of Anchorage and claims to accept “funds from companies and individuals that do business in Alaska but does not accept any money from oil producers.”

Can the 'average guy' understand?

State Sen. Bert Stedman probably said it best during a committee hearing when he commented, “The average guy in the state… assumes that we’re taking 90 percent of every dollar. We don’t have a 90 percent tax rate.”

No we don’t, as us average folks understand tax rates to be. Those high rates would be in Russia, Algeria, Angola, private lands in Texas and Louisiana, among many other oil taxing jurisdictions.

What the oil companies are focused on in Alaska is what’s called a “marginal” tax rate. That’s the tax rate on an additional dollar of income, rather than the total paid to the tax collector. That marginal rate has been used on both sides of the political aisle in the wider debate about taxation.

For our purposes, however, let’s go back to the numbers, as we average folks see them. These numbers come directly from the Alaska Department of Revenue.

When oil is $100 a barrel, the state's total take, including royalties and taxes, is roughly $39. The feds take about $12.50. The other $49 goes to the oil companies. The estimated profit they make is about $22. That’s after they write off the costs of producing the oil, including transportation fees.

Bottom line: When oil is $100 a barrel, the total state and federal government take in Alaska is $51.50.

The state collects more in taxes as oil prices go up. For instance, when oil is at $120 a barrel, where prices are hovering above today, the state collects about $54, the feds about $13, and the oil companies the rest.

Bottom line: When oil is $120 a barrel, the total government take in Alaska is about $67.

But what happens when oil prices drop?

At $75 a barrel, the total state and federal take is $31, leaving the companies with profits of about $18 a barrel (after production and transportation costs) to take home to Houston, London and Bartlesville.

The North Dakota comparison

There’s been huge skepticism of my comparison of oil taxes in North Dakota to those of Alaska. As I made clear in our series, in North Dakota, unlike Alaska, most of the oil is found on private land. And companies must pay those private landowners for production rights, as well as taxes and fees to the state of North Dakota.

In North Dakota, when oil is $100 a barrel, the state’s and landowners’ total take is $33 -- $6 a barrel less than what Alaska collects in taxes and royalties. That's not including federal taxes, which are higher in North Dakota than in Alaska because the companies pay less in state taxes. And neither does North Dakota have nearly the incentives Alaska has to offer for companies wishing to explore for new oil deposits.

Bottom line: Alaska’s total state tax is not that much more than North Dakota’s at $100 a barrel, and nowhere near a "double and triple the rate in North Dakota,” as has been asserted by some supporting a tax cut.

At $120 a barrel, North Dakota's tax division, along with private landowners collect, about $40. In Alaska, the state’s total state is about $67. Again, that's nowhere near "double and triple the rate in North Dakota," as some have asserted.

At $75 oil prices, however, North Dakota collects about $24.75 on each barrel. That’s not including federal taxes. In Alaska, not including federal taxes, the state collects about $22 a barrel.

To the average guy, the myths remain busted

When Wally Hickel was governor in 1992 and he declared he was not going to be bullied by the oil companies -- that he was going to fight them to get Alaska’s fair share of the wealth -- a whisper campaign began that he was mentally ill, perhaps suffering from Alzheimer’s.

It was just another myth, one that became so pervasive that Hickel actually had present to the public a doctor's note declaring he was in no way mentally diminished.

Hickel, who came from humble beginnings, often said that within him he carried a version of a “little guy” -- an “average guy,” if you will – that he often turned to for a reality check. "You listen to that little guy because he's the guy that tells you the reality," Hickel said on his 90th birthday in 2009.

Perhaps it was what that average, little guy told him to do that made those mental-illness myths so pervasive.

By standards of the average guy -- the one who isn’t getting rich working for the oil companies, the one who doesn’t have future political aspirations, and the one who, in fact, makes up nearly all of our majestic state -- the oil-tax myths we busted remain busted.

Contact Amanda Coyne at amanda(at)alaskadispatch.com