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There is a budget solution: Eliminate oil tax credits

  • Author: Joe Paskvan
    | Opinion
  • Updated: March 15
  • Published March 16

The trans-Alaska oil pipeline as seen near Delta Junction in June 2013. (LOREN HOLMES / ADN archive 2013)

The lose-lose conundrum advanced by the administration of maintaining either the Permanent Fund dividend or education (both K-12 and university) has a solution: Eliminate oil tax credits. Sadly, Alaska is obligated to pay an $8 credit per barrel when wellhead price is less than $80 per barrel.

Oil credits obligate Alaska to pay the oil industry billions of dollars, without a reciprocal return on Alaska’s investment expenditure. Alaska has not received its Senate Bill 21 promise. There has been no flood of oilfield workers to Alaska’s North Slope, and Alaska’s treasury is not replenished by increased oil production.

The dollar amount of oil credits given away by Alaska is staggering. The 2019 “per-taxable-barrel credit” is $1.245 billion. Yes, this fiscal year, more than $1 billion is being given away. The forecasted credit each year through 2028 is never less than $1 billion for each year. You can look this up yourself by looking at Alaska’s Revenue Source Book, Fall 2018, at page 106 in Chapter 8 in the credit section. Alaskans have more to discuss than the lose-lose loss of either PFDs or education. Alaskans should discuss eliminating the oil credit giveaway of billions and billions.

All you need to remember is the SB 21 promise in 2014 of a million barrels per day of oil production; this promise to Alaskans was not kept. For those who quibble about the promised million barrels per day, recall the comparable promise 20 years ago: “No decline after ’99.” Whether 20 years ago or by the false SB 21 promise, the natural decline of the mature Prudhoe Bay and Kuparuk fields and their satellite fields continues. Please look at page 138 in the appendix of Alaska’s Revenue Source Book Fall 2018 to see the unfortunate but continuing throughput declines; there is no million barrels per day in Alaska’s forecasted future. The promise to Alaskans was an election sham. The consequences of false election promises (the million-barrel whopper) can take years to be understood, and Alaska now knows the consequences of its oil tax system, which pays out billions and billions of dollars because of oil credits.

You justly may think that you were not told the truth and that throughput declines would stop under SB 21. Additionally, readers should know that developments such as Point Thomson, CD5, Greater Moose’s Tooth and others, including NPR-A developments across the Colville River, started before SB 21, not after.

The only SB 21 trickle-down to the citizens of Alaska is the lose-lose discussion between current death by loss of the dividend or the certain, but slow manifesting, death by loss of education. The solution, at a minimum, is to eliminate SB 21 oil credits.

For those who may think the oil bonanza in the Lower 48, such as the Permian Basin in Texas, might not be relevant to Alaska, please think about ExxonMobil. ExxonMobil generates more than a 10 percent average return in the Permian Basin “even at just $35 a barrel.” Texas royalties are higher than Alaska royalties; Texas production taxes are higher than Alaska production taxes. The cost of getting Alaska’s crude to the West Coast is less than the greater price obtained for Alaska North Slope West Coast pricing. As of March 7, Alaska’s price for its crude is $67.24 per barrel compared to Texas pricing at $56.66 per barrel. Alaska oil pricing is currently $10 per barrel greater than Texas oil pricing. ExxonMobil expects, by 2024, an 80 percent increase in its Texas Permian oil production. ExxonMobil must not be that interested in its Alaska oil interests competing with its Texas oil interests, even though Alaska has higher oil prices. ExxonMobil and other oil companies do not develop Alaska’s oil resources in the best interest of Alaska.

Norway’s $1 trillion sovereign fund is divesting stock ownership of exploration and production oil and gas companies to “reduce the vulnerability of our common wealth to a permanent oil price decline,” said Norwegian finance minister Siv Jensen earlier this year. Alaska’s solution is to get rid of oil credits now.

The time is now to eliminate the billions and billions of oil credit dollars given away with little to nothing received by Alaska. Alternatively, if you want a simple, straightforward tax system, institute a flat 20 percent oil production tax, with no other calculations needed; this also positions Alaska in the competitive range for cumulative royalty (ownership) and production tax (government) payments by the oil industry for extraction of Alaska’s owned, taxed and depleting oil resource.

Joe Paskvan is a lifelong Alaskan and an attorney at Paskvan & Ringstad. He served in the Alaska State Senate from 2008 to 2012, including a year as co-chair of the Senate Resources committee. He lives in Fairbanks.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.

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