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Oil tax reform provides maximum benefit to Alaskans

  • Author: Rick Rogers
  • Updated: June 29, 2016
  • Published February 17, 2014

There is at least one thing Vic Fischer and I agree on: Our constitution mandates that Alaska's natural resources, including oil and gas, be developed for the maximum benefit of the people. Where we part ways is that his approach to maximum benefit would over tax the industry, killing Alaska's golden goose (oil taxes and royalties constitute over 90 percent of the state's unrestricted revenue).

In spite of historically high oil prices, seven years of the tax system Mr. Fischer wants you to vote for in August, ACES, resulted in an oil production decline of almost one-third! Counter to the claims of Fischer and the disgruntled minority, the Legislature thoughtfully crafted a new oil tax that incentivizes new oil production. The state gained an increased base tax rate, which guarantees more revenue at lower prices in exchange for taking less speculative revenue at high prices. Given recent projections of declining oil prices by the U.S. Energy Information Agency, in hindsight this deal makes our Legislature look like geniuses.

The biggest threat to the state treasury is continued oil production decline. Legislators from both sides of the aisle have publicly stated that ACES was broken. At current oil prices of approximately $105 a barrel the Alaska Department of Revenue concludes the two tax systems are essentially revenue neutral -- essentially a wash between what ACES would have generated in revenue to the State and what the new tax will bring in. The advantage to the producers is that it is predictable, and should prices escalate they can share in the upside. But if prices decline as anticipated, the state collects more than under ACES.

Absent from the outrageous claims lacking a factual foundation, such as "giveaways" and constitutional malfeasance, proponents of going back to ACES have no plan. How will they address continued declines in production and associated revenue? How will they mitigate the risk to the treasury of falling oil prices, which under ACES result in less tax revenue coupled with burdensome tax credits that fail to incentivize production? How do they expect Alaskans to benefit from North Slope gas when a healthy oil industry is vital to developing a gas line?

Oil tax reform has only been in place since the New Year. Already companies are upping their investments with billions of dollars in capital projects announced, and the State now predicts an additional $10 billion in oil patch investment over the next ten years. This year ConocoPhillips is increasing its capital-spending budget in Alaska by more than 50 percent to $1.7 billion. ConocoPhillips investments are expected to produce 55,000 barrels per day in new production by 2018. Repsol is drilling three new wells using three new rigs this winter. BP has announced it will reinvest 90 cents of every dollar it makes back into Alaska, a 60 percent increase over pre-tax reform levels.

In testimony before the House Finance Committee on Friday, Jan. 24, David Teal, director of the non-partisan Legislative Finance Division characterized the administration's revenue forecast as conservative as it does not factor these recent announcements of new investment. The new tax law needs time to demonstrate its positive impact on slowing decline in production.

Contrary to the rhetoric, the Legislature did not give away the farm. Instead, after three years of in-depth deliberation, it improved upon a politically motivated, punitive tax system, ACES, that was passed in about 30 days. ACES drove investment out of Alaska and exacerbated our biggest threat, production decline. Going back to ACES all but guarantees more of the same.

Rick Rogers is the executive director of the Resources Development Council of Alaska, a statewide business association consisting of individuals, localities, groups and companies concerned with Alaska's oil and gas, mining, forest products, tourism and fisheries industries.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.

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