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More oil is the answer to Alaska’s fiscal gap

  • Author: Gail Phillips
  • Updated: November 14
  • Published November 14

There's new math, old math and just plain crazy math, which best describes the latest formula from Sens. Berta Gardner and Tom Begich to close our fiscal gap in part by raising taxes on oil and gas a seventh time in 12 years.

While most governments around the world have offered incentives to help energy companies weather low oil prices, Alaska raised its oil taxes in 2006, 2007, 2014, 2016 and 2017 – and now talks about upping them again. To be fair, the Legislature did pass a tax credit incentive package in 2010, which turned a gas shortage in Cook Inlet into a surplus and doubled the area's oil production while also attracting new independents to the North Slope.

Changing tax policy every year or two just doesn't add up because it's a destabilizing factor that makes it harder for Alaska to compete for the capital we need to fully develop our assets.

Senators Gardner and Begich base their argument on their claim that Alaska is not receiving its "fair share" of the value of our oil and gas. The fact is Alaska has some of the highest oil taxes in the world. The fact is Alaska's share is higher than the producers at every price point. The fact is the state gets paid even when producers are operating at a loss because it still collects royalty, property tax and income tax.

Based on the facts, one could argue that's more than fair.

Our current oil tax policies are working, balancing Alaska's "fair share" with the needs of the industry to create a viable operating environment for the companies to do business.

Oil production has risen the past two years for the first time in a decade, even though 2016 was a rough year to be in the oil business. The industry cut its spending by 44 percent, laying off 3,600 workers and letting drilling rigs sit idle. The state expects another increase in production this fiscal year, even if oil prices don't rise significantly.

Workers changing shift at BP’s Parker Rig 272, which is drilling into the Lisburne Reservoir at drill site L3 in Prudhoe Bay on May 22, 2015. (Loren Holmes / Alaska Dispatch News)

In a Preliminary 2017 Fall Production Forecast report recently presented to the House Finance Committee, Paul Decker and Ed King from the Department of Natural Resources point to the efforts of Alaska's producers for the increased output, saying they "outperformed expectations, doing more with less."

That's a lesson the state should learn.

And in its Fall 2017 Preliminary Revenue Forecast Presentation, the state Department of Revenue reported that petroleum revenue is projected to represent 70-72 percent of the state's unrestricted revenue in FY2018 and 2019, up from 65 percent in FY2017, an increase tied to projected increases in production and oil prices.

It should be noted that these production increases come not from the giant new oil finds on the North Slope but mainly from existing fields, primarily Prudhoe Bay and Alpine. The billions of barrels of oil still in the ground need billions more in new capital before they can leave the ground.

The solution to increasing Alaska's revenues is not tipping the scales by piling more taxes on an already lean and still struggling industry. As we've seen under past oil tax regimes, increased taxes on the industry does not equal increased production. Instead, we saw years of decreased production when oil prices were sky high. In fact, Alaska was the only state to lose production when oil topped $100/barrel.

We must maintain stable policies, encourage investment and put more oil into our pipeline. That's how we increase much-needed revenues for Alaska.

We hope our elected officials will recognize the long-term effects of their actions, take steps to ensure a healthy and stable operating environment and recognize that the best way to increase revenues for Alaska is to get more oil in the pipeline. Threatening our resource industry with increasing taxes is not productive.

More oil is the answer – but to get more oil, we need more investment.

Gail Phillips is a former Speaker of the Alaska House of Representatives and current board member of KEEP Alaska Competitive, a group the aims to encourage oil industry investment and discourage higher oil taxes.

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com. 

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