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Alaska should get its fair share from oil production

  • Author: Robin Brena
    | Opinion
  • Updated: August 23
  • Published August 23

FILE - This undated file photo shows a portion of the 800-mile Trans-Alaska pipeline crossing the tundra north of Fairbanks, Alaska. For decades, Alaska has had an uneasy reliance on oil, building budgets around its volatile boom-or-bust nature. When times were rough, prices always seemed to rebound, forestalling a day of reckoning some believe may finally have come. The situation has politicians weighing changes to the annual dividend paid to residents from earnings of the state's oil-wealth fund, the Alaska Permanent Fund. (AP Photo/Al Grillo, File)

A diverse group of Alaskans called “Vote Yes for Alaska’s Fair Share” are coming together under the common cause of getting a fair share of Alaska’s production revenues through the Fair Share Act. For my part, I am a pro-growth, pro-oil, independent voter. I am also an energy, regulatory and tax attorney who has represented far more taxpayers in the oil industry — including producers, refiners, drillers and transportation companies — in their efforts to be taxed fairly than I have taxing authorities. Whether representing taxpayers or taxing authorities, the positions I have advanced have been measured, reasonable and ultimately proven correct upon judicial review by our courts. I offer this personal background so Alaskans will know my motivation for supporting the Fair Share Act is my sincere belief that Alaskans are not getting a fair share of the production revenues from the sale of our oil, and it is harming the Alaska I love.

Alaska should be thriving. We are oil resource owners in one of the major oil regions of the world. The price of oil today, about $60 per barrel, is more than twice as high, adjusted for inflation, as when the oil industry agreed to build the trans-Alaska oil pipeline and develop Prudhoe Bay in August 1970 — $3.39 per barrel in those days or $22.08 per barrel, inflation adjusted. In 2018 alone, 195 million barrels of Alaska’s oil were produced and sold for an average price of $63.58 per barrel, creating $12.5 billion of wealth.

Given such wealth creation, Alaska should be economically thriving. We should be able to fund essential services such as education, universities, health care, public safety, senior services, rural electrical equalization and our marine highway system. We should be able to fund capital projects for needed infrastructure. We should be able to fund larger Permanent Fund dividends. And we should be able to create many more jobs for Alaskans. Instead, we are in a lingering recession and unable to do any of these things.

We have to get our fair share.

The primary reason Alaskans are not sharing in the wealth being created from our oil resources is because we are not getting a fair share of oil production revenues from our largest and most profitable fields. We are currently getting the smallest share from the sale of our oil in our history and are giving away $1 billion to $2 billion per year in unnecessary tax breaks to the producers of our largest and most profitable fields.

These massive tax breaks are resulting in Alaskans getting far less from the sale of our oil than in the past. In 2009, the price of our oil was $68.34 per barrel, and our production share was $12.09 per barrel. In 2015, under the current tax breaks, the price of our oil averaged $72.58 per barrel, $4.32 per barrel higher, and our production share was $2.01 per barre l— one-sixth as much as before. The tax breaks for production revenues have become so unfavorable that our share of the production revenues has been negative in three of the last five years.

What is clearly broken: Transparency. The revenues, costs and profits of producing oil from our major fields are kept secret from Alaskans. Instead, we get anecdotal, partial and self-serving information from the major producers and their proxies. Alaskans are in business with the major producers. Alaskans give them the rights to develop and produce our oil in exchange for a share of revenues. Alaskans should know how our share is determined and how each of our major producers are doing in each of our major fields. It is inconceivable that Alaskans do not know the revenues, costs and profits from the Prudhoe Bay field, the crown jewel of Alaska, even though it has been producing for more than 40 years.

The Fair Share Act will require complete transparency of revenues, costs, and profits for each producer for each of our major oil fields. This is long overdue.

The current tax breaks permit the costs of developing unrelated fields to wash away our production share from our largest and most profitable producing fields. The Fair Share Act will require our production share to be calculated based on the revenues, costs, and profits for each producer for each field. This, too, is long overdue.

We are giving away our oil, and with it, our future. We can no longer afford to provide massive tax breaks for oil produced from our largest and most profitable fields.

The Fair Share Act will only apply to our largest and most profitable fields — Prudhoe Bay, Kuparuk and Alpine. It will not apply to the smaller or developing fields, which need more support. For the largest and most profitable fields, the Fair Share Act will raise the gross rate from 4% to 10%, will eliminate the unnecessary $8 per barrel credit, and will progressively increase the rate as the price of oil and producer profits rise. However, even with these changes, the Fair Share Act will recover less than the production share we have historically recovered for the past four decades.

For several reasons, our governor and Legislature seem unable or unwilling to protect our fair share of our production revenues. Nonetheless, Alaskans will soon have a choice to support their fair share directly by voting for the Fair Share Act. Please visit the voteyesforalaskasfairshare.com website and Facebook page to become more informed and to help make a difference for Alaska.

Robin Brena is one of the members of the initiative committee sponsoring the Fair Share Act. He is an oil and gas, regulatory and tax attorney who served as Chair of the Oil and Gas Subcommittee for the Walker Transition Team and has been invited to give testimony to the Alaska Legislature on several oil and gas policy matters.

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