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Myth-busting claims in Alaska's oil tax debate: Part 2

Alex DeMarban,Amanda Coyne
Whaley, Frank H. photo. AMRC. Wien Collection

Yesterday we began a two-part series about what we consider the most duplicitous oil-tax myths being perpetrated surrounding the oil-tax debate raging in Juneau. The first myth we chose to bust yesterday was the notion that the oil industry is always a good business partner. The second was that Alaska extracts an 80-90 percent tax on the oil industry. The third was about the comparisons of tax regimes in North Dakota and Alaska.

We now present you with three more.

Here’s a recap of the backstory: As part of his plan to get a million barrels of oil down the pipeline each year, Gov. Sean Parnell is calling on lawmakers to pass a bill that would lower taxes on the oil industry by about $2 billion a year. He says he has assurances that lower taxes mean higher production. He hasn’t, however, received firm commitments.

Many throughout the state wonder why the governor is so willing to trust industry. His trust is all the more questionable considering the myths circulating around the debate, myths that those who know better have done little to quash.

RELATED: Part I: Myth-busting claims in Alaska's oil tax debate

As we wrote yesterday, these myths spring from a dearth of hard data, data that Alaskans have been lacking since their dance with the oil industry began. Couple that with the confusing, often conflicting data that is presented, and you have fertile soil from which propaganda can grow like fireweed.

Don’t get us wrong: We understand all the oil industry has done for Alaska -- meaning nearly everything. But that doesn't mean that we should believe everything they tell us. It doesn't mean that we shouldn't fact-check the propaganda.

The six myths that we've chosen to examine are by no means a comprehensive list. But the heart of the argument to lower taxes seems to rest in no small part on these myths. Read on.

Myth No. 4: Jobs in droves are heading south

Tax-cut advocates paint a picture of oilfield operators packing their bags and dashing off to boom times in North Dakota.

Some of that's no doubt true. Oil-patch workers come and go, and Lord knows there's plenty of work and more sun to be had down south.

But the fear-mongering over lost jobs is leakier than a busted pipeline. The jobs drumbeat has been led by Gov. Sean Parnell, Revenue Department leaders and the Make Alaska Competitive campaign. Revenue Commissioner Bryan Butcher even relayed first-hand observations of the trend -- he'd spotted Alaska license plates in North Dakota.   

But Butcher's roadway poll and other claims weren't enough for the Senate Labor & Commerce Committee. So they commissioned a study. Now the McDowell Group report is back. It says North Slope hiring has reached "record" levels.Yep. All-time-high. Best ever. Not only that, but industry spending has risen at least four straight years, increasing more than $1 billion during that period to $4.9 billion in 2011.

Not that all is perfect in the oil patch. Maintaining aging Prudhoe Bay infrastructure drove much of the increase. It'd be more reassuring if a larger percentage of the new hires were explorers and producers, though new development and projects are the other big reason for the increase.

And while the record 2011 average of 9,000 North Slope workers was a nice increase from the year before, up about 500 workers, it's not the massive upswing some of us would like to see.

Then again, it might never boom as big as everyone wants. Technological advances, as all the companies brag about employing, are intended to reduce the workforce. In fact, a 2004 internal BP memo about installing electric pumps on four TAPS pump stations said that it will “allow Alyeska to eliminate over 285 full time positions.” Eliminating these positions, the memo said, would translate into savings of more than $41 million a year.

Still, the figures in the report are more optimistic than this recent statement by Parnell, who has proposed a $2-billion annual tax cut:

“How long do we need to watch Alaskan workers go to North Dakota before we say, ‘Let’s get new production now?’”

-- Alex DeMarban

Myth No. 5: The pipeline is running dry

Indeed, Alaska’s oil patch is in decline. Every barrel produced -- more than 16 billion so far since oil began flowing in 1977 -- means one less barrel remaining. The oil-is-running-out mantra continued throughout the 1990s, with help of those who espouse peak oil and environmentalists. And it began to take the form of panic in the 2011 legislative session, but with a twist. This one involved the trans-Alaska pipeline and its imminent demise.

The most popular RIP date was in 2021, by which time many politicians, opinion writers, et al., predicted that there wouldn’t be enough oil produced to keep the trans-Alaska pipeline going.

Unless, of course, Gov. Sean Parnell’s bill to cut oil industry taxes by about $2 billion a year passed.

The Juneau Empire’s Pat Forgey documented many of the 10-year death-of-pipeline predictions. Resources Committee Co-Chair Rep. Eric Feige, R-Chickaloon, said in an oil-tax debate last year, “If no action is taken now, there is a good possibility that in less than 10 years the oil flow will be too low to operate the trans-Alaska pipeline system.” Here’s Juneau Rep. Cathy Muñoz: “The pipeline now carries only a third of what it once was, and the pipeline may not longer be viable in 10 years,” she said then.

It went on. Some said 10 years; some said soon, others said “within our lifetime.” The governor said the current tax regime threatened the “very existence of our pipeline.” He never gave a date, but he didn’t dispute the 10-year myth either.

The myth about the imminent death of the pipeline even made its way to the nation’s capital, where things got even more mythical. Congressional Quarterly wrote that U.S. Sen. Lisa Murkowski said low flow “could render the pipeline too expensive and dangerous to operate as early as 2017.”

That’s in five years.

Where Murkowski got that date is a mystery. The other 10-year number is easier to track. Although how it made its way from the courtroom to the Legislature is anyone’s guess, unless someone planted it there.

In any case, it probably came from a property tax court case heard by Anchorage Superior Court Judge Sharon Gleason on what, until recently, was a relatively unknown court battle about the trans-Alaska pipeline and municipal taxes.

The decision -- at 212 pages -- is a treasure trove of data on the value and life of the pipeline.

Among other things, the judge, using experts, BP filings with the U.S. Securities and Exchange Commission, and internal documents, disagreed with the BP-hired expert who initially said that it would shut down by 2021, just 10 years from 2011. That’s how the 10-year death-myth began.

If no additional production is found -- unlikely given the amount of oil still up there -- Gleason ruled the death of TAPS won't come until at least 2068.

But remember, that’s only if oil production continues to decline at current rates, a big 'if' considering how much oil is left on the North Slope. Read on.

--Amanda Coyne

Myth #6: Alaska is running out of oil

“Almost every day, it seems, someone is mentioning Prudhoe Bay -- its development activities, the direction of its oil production, and more recently its decline rate. Almost as frequently, someone is mentioning the number of companies abandoning exploration in Alaska.” So went the beginning of an article published by ARCO managers in Oil & Gas Journal.

The year was 1992, when more than 1.7 million barrels of oil day were flowing down the trans-Alaska pipeline. By that year, Alaska’s North Slope had already produced about 7.5 billion barrels of oil since the pipeline first transported oil in 1977.

By 1992, only 4.5 billion barrels still supposedly could be recoverable. People across the state discussed when the oil would run out.

Twenty years later, people are still taking it as an article of faith that oil is on the verge of running out.

Using basically the same standard used in 1992, a judge recently found (amassing tons of data the oil companies didn’t dispute) that the proven reserves remaining underground were still about 7 billion barrels as of 2009.

This is what you need to know: Those 7 billion barrels are harder to extract than in the North Slope’s heyday, but that’s still a huge amount of oil -- with anywhere from 20-35 billion barrels of heavy oil beyond that and still more untouched oil in the U.S. Outer Continental Shelf off Alaska's coast.

The term “proven reserves” is a specific term used by industry and government. It means when oil can be technically, legally, and economically recoverable. It’s also a number that changes, sometimes dramatically, as technology improves.

When TAPS was first constructed 35 years ago, proven North Slope reserves were estimated at just over 9 billion barrels. Since then, additional discoveries and technological advances have allowed the pipeline to carry more than 16 billion barrels of oil -- and that's just so far.

And to put it into even greater perspective: North Dakota's proven reserves, a state that is supposed to jump ahead of Alaska in the near future, are only 1 billion. Estimated reserves (that’s both proven and unproven) from the Bakken formation, which holds most of North Dakota's oil, are approximately 4.3 billion barrels, according to the American Petroleum Institute.

This is what you need to know: We’re not going to run out of oil for a long, long time.

--Amanda Coyne