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Halcro: Oil tax referendum supporters pull facts out of context

  • Author: Andrew Halcro
  • Updated: June 29, 2016
  • Published July 27, 2014

In the debate over Ballot Measure 1, supporters of repealing oil tax reform have consistently taken facts out of context.

Supporters of repeal say employment was at an all-time high under ACES. What they won't say is that before ACES new jobs on the North Slope were growing at an average rate of 840 per year, and then dropped 50 percent after ACES.

They say SB21 created a steeper projection of decline versus ACES. What they won't say is that the methodology of projecting oil production had to be changed to show a more realistic decline curve. When ACES passed, the Palin administration predicted we'd be pumping 687,000 barrels per day (bpd) in 2014, and predicted oil production wouldn't drop below 600,000 bpd until 2022. This year we're averaging 541,000 bpd, and production levels dropped below 600,000 bpd in 2012, a full decade ahead of what ACES forecasted.

Supporters of repeal say investment boomed under ACES. What they won't say is where that investment went. The growth that is trumpeted by repeal supporters was due in large part to poorly designed incentives targeted toward small explorers who ended up producing little or no oil. ACES also offered a 20 percent general capital credit that was utilized by major oil producers for paving runways and doing maintenance on the pipeline.

ACES subsidized high-cost drilling and production that would pay little or no production tax with generous tax credits, while the tax was increased on conventional oil, which did pay taxes. Under ACES, there were situations where the state's front-end subsidy was more than the royalty revenue that could be expected. Does anyone remember Great Bear? So yes, there was a surge in investment, however, most of it was subsidized.

Supporters of repeal say during the days of low taxes between 1996 and 2005, production still declined showing tax rates don't matter. What they won't tell you is that ConocoPhillips invested billions during that same time period bringing 18 new fields online and adding 250,000 bpd of new oil to the pipeline.

But the biggest lie peddled by repeal supporters is that SB21 is a giveaway. The state of Alaska is the sovereign, which means the state always has the last word. If SB21 fails to deliver in a reasonable amount of time, lawmakers have the ability to adjust tax rates to recapture the lost revenue. In fact, the oil tax revenue to the state during the first two years under ACES was more than the previous five years combined. There is no giveaway if you can get it back.

ACES was problematic from day one. With the government taking roughly 80 cents out of every dollar of increased profit, there was no incentive to invest in production. Just like the tourism industry in Alaska, peak prices provide companies with the margins to reinvest in their business. ACES robbed oil producers of that upside. But even without progressivity, on $110-barrel oil the state takes in more revenue per barrel than it did under ACES.

Since SB21 passed, the local economy has become electric. Oil industry investments have helped keep the unemployment rate low by injecting billions into businesses from accounting firms to restaurants. But even more compelling is that SB21 incentivizes new production.

ACES failed on every level. It failed to attract new oil production. It failed to live up to the rosy forecasts. And it failed to have the slightest impact on mitigating the decline curve. These are facts we know. Meanwhile, SB21 has succeeded on every level. It has attracted billions in new production investment. It has mitigated the decline curve. And it has breathed life into the prospects of an Alaska natural gas line.

We don't need to go back to a tax regime that even repeal supporters admit was broken. When SB21 passed, opponents protested there was no guarantee of success. A year later it's a success and critics have been proven wrong, just like they were proven wrong when they promised that ACES would produce more oil. Oil tax reform is working. Let's keep it working.

Andrew Halcro is president of the Anchorage Chamber.

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, e-mail commentary(at)

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