In the lead-up to the Nov. 3 election, the Daily News is producing a series of articles about Ballot Measure 1. Up next, we’re looking at the players behind the campaigns for and against the measure. If you have questions about Ballot Measure 1 or ideas for future coverage, email us at email@example.com.
The text of the proposed Fair Share Act stretches only two pages, but it will make significant changes to the way the three largest oil producers in Alaska do business in the state.
Opponent OneAlaska, a campaign group funded largely by the oil industry, says the measure will hurt future investments in the oil patch if it passes. That will harm a vital source of future state income and jobs, the group says.
Initiative group Vote Yes for Alaska’s Fair Share says its measure will boost badly needed state revenue, supporting public services and thousands of good jobs for things such as capital projects. They say it won’t hurt the oil industry.
Here’s what the biggest oil companies in the state would have to do differently if it passes:
Oil companies' taxes will go up. In some years, by more than $1 billion.
If the proposed act passes, ConocoPhillips, Hilcorp Energy and ExxonMobil, the state’s largest oil producers, will pay more in production taxes.
The companies own the Prudhoe Bay unit, home to Alaska’s largest oil field. ConocoPhillips also owns the Kuparuk and Colville River units.
The measure would apply to those three units, because they have produced more than 400 million barrels of oil over their life, and more than 40,000 barrels in the past year.
The three units are the largest-producing and most profitable units in Alaska, said Robin Brena, chair of the Vote Yes group and an oil and gas attorney.
For those units, the Fair Share Act would amend Senate Bill 21, the current law dictating how much oil companies pay in production taxes.
Smaller units outside of those big three units would continue to operate under the original limits of Senate Bill 21.
The proposed act will increase the production tax bill for ConocoPhillips, Hilcorp and ExxonMobil as oil prices rise, but at a time when the oil companies are also enjoying higher income, Brena said.
If the Fair Share Act had been in place for the past five years, it would have brought the state an extra $1.1 billion annually, on average, compared to Senate Bill 21, Brena said.
In years when oil prices were low, such as 2016, it would have brought in about $450 million extra, according to his group’s analysis. The industry paid $177 million in production taxes that year.
In 2019, when prices where higher, it would have brought in about $1.7 billion extra. The industry paid $587 million in taxes that year.
Roger Marks, a former petroleum economist for the state, argues the measure could harm the economy.
Oil companies can’t afford to pay much extra when prices are low, he said. And they make costly investments up front, he said, with the expectation that they’ll benefit when oil prices are high. The Fair Share Act will take away much of that future potential, and could reduce industry investments in Alaska, he said.
“If the ballot measure takes away a lot of that upside when prices are high, it’s a lot easier for the companies to invest elsewhere,” he said.
Production taxes have fallen to historically low levels under Senate Bill 21, Brena said.
Alaskans could look at the three oil companies' tax records
If the Fair Share Act passes, the major companies must disclose their production tax records and supporting documents associated with the Prudhoe Bay, Kuparuk and Colville River units. The tax records are currently confidential.
“Alaska legislators are stewards for hundreds of billions of dollars (in oil value) and we don’t know how our own fields are doing," Brena said. “At some point we have to say, ‘This is our oil, and we need to know how we’re doing.’”
Scott Jepsen, vice president of external affairs and transportation for ConocoPhillips in Alaska, said the disclosure of tax records will create another strike against Alaska, he said.
“It creates an overall more negative atmosphere for investors up here,” Jepsen said. “It’s another impediment to doing business in Alaska.”
A ‘ring-fence’ would rise around the state’s biggest oil fields
Under the current law, if prices rise to around $60, ConocoPhillips can deduct expenses from exploration and development at its big new oil discovery, Willow, from its overall production tax bill.
The opportunity has been in place for several years in Alaska, to encourage oil producers to advance new projects in the state, Marks said.
But if the Fair Share Act passes, the three major oil companies would lose the opportunity to deduct exploration and development costs at smaller fields from their taxes at the Prudhoe, Kuparuk and Colville units. The big fields would be “ring-fenced” — essentially walled off from other fields for the purposes of tax deductions.
Under Senate Bill 21, deductions for costly new projects can reduce tax payments to very low amounts for many years, Brena said.
“Any major project will gut us,” Brena said.
Jepsen said ring-fencing could reduce the timely availability of cash, by hundreds of millions of dollars, that helps pay for the development of projects like Willow.
Construction at the discovery could begin next year, with first oil anticipated as early as 2025.
“If the measure passes, it will cause us to go back and look at all our investments in Alaska,” Jepsen said. “If we don’t have cash to develop the field, it could certainly have an impact on the timing.”
Brena said he does not think ConocoPhillips' Willow project would be deferred.
“There is no economic reason for Willow to be deferred because they have the available cash and it’s an economic project,” Brena said.