The state of Alaska is simultaneously facing two crises: a viral pandemic and the economic collapse of the oil industry. They present terrible prospects and challenges to us all, but they certainly force us to focus on what we must do to survive.
Two crises, one wrought by nature and one self-inflicted. Both challenge us to be smarter, better and stronger than we have been.
Are we up to the challenges?
If not, then this may spell the end of the shining promise of Alaska statehood. A mass migration south will leave a skeleton economy to those of us who remain, and our natural resources in the possession of Outside colonial forces, inevitably bent on leveraging our economic desperation to control both our economy and our political culture.
If we do rise to that challenge, we can be better -- much better -- for having survived these crises.
We believe that those who survive COVID-19 will enter a world with a deeper understanding of the power of sacrifice and of doing what needs to be done. Our willingness to collapse an economy to fight a biological siege will show that our public will can be brought to bear to overcome a crisis. That is affirming and powerful.
This would be a lesson that Alaskans could carry into the new resource development future that must evolve from our second crisis: the global collapse of the oil industry.
Alaskans need look no further than our own constitution to find their roadmap to the future. Article VIII, Natural Resources charges the legislature with providing “…for the utilization, development and conservation of all natural resources belonging to the State … for the maximum benefit of its people.”
To accomplish Article VIII’s intent requires the state of Alaska be a proprietor of its resources, not a “partner” of those who would exploit them.
Over the last 35 years, resource policy has failed to meet Article VIII’s objectives. The laundry list of policy actions that have undercut Article VIII is long and depressing, but a few will serve as examples. The change from Separate Tax Accounting to Unitary Accounting has cost Alaskans tens of billions of dollars over the past 30 years. Failure to vigorously challenge pipeline tariff manipulation by pipeline owners has cost billions of dollars. Failure to fairly tax tankers after the courts upheld Alaska’s right to do so has cost Alaskans billions of dollars in revenue. Unwarranted tax breaks for large oil fields already in production have cost Alaskans billions of dollars.
Analyst Richard Fineberg estimated that in real dollars, the state’s failure to adhere to Article VIII has cost Alaskans $50 billion-$75 billion — roughly the size of today’s Permanent Fund.
It is time for new oil and gas resource policy that adheres to Article VIII — policy that serves the public interest and ensures maximum benefit is derived from severance of our resources.
We are now faced with the reality of what is a permanent decline in the global oil industry over the next decades. Alaska must refocus its hydrocarbon policy to reflect an “Alaska First” principle. As we both have noted throughout our careers, Alaska’s Legislature is the rightful board of directors for management of our oil and gas — not ConocoPhillips, BP, ExxonMobil or Hilcorp.
The state of Alaska needs a realignment of oil and gas tax policy that achieves the following results:
1. Fix a per-barrel of oil equivalent (BOE) revenue floor to ensure that Alaska’s most basic government and emergency operations can continue in the event of a cratering of oil prices. The level of this severance tax floor can be set only after thorough analysis, but might be in the range of $3-$5 per BOE.
2. Remove the cents-per-barrel bonus for “new” oil established by Senate Bill 21.
3. Return to a gross tax based on a wellhead value of price minus reasonable transportation costs. A permanent decline in oil prices suggests that a gross tax benefits Alaskans more than a net production tax.
4. Reestablish separate tax accounting for Alaska’s oil.
5. In future lease sales, establish short lease terms and enforce these terms to prevent “banking” of speculative leases by lessees.
6. Maximize leasing revenue in the future by establishing a minimum royalty of 20%, matching that of most private mineral owners.
7. Maximize leasing revenue in the future by utilizing alternative bidding methods (eg: royalty bidding, net profits share bidding) when geology and market analysis indicate they are appropriate.
8. To limit backsliding in future years, the Legislature must define what is a major resource policy action, require a commissioner’s finding that a proposed major action complies with Article VIII’s intent, and require legislative approval of that finding through a Joint Resolution before the action is taken.
Robert LeResche was Commissioner of Natural Resources during the Jay Hammond administration and was at the forefront of shaping natural resource and oil and gas leasing policy at the genesis of Alaska’s oil era.
Elstun W. Lauesen was a socioeconomic specialist working for the State Pipeline Coordinator’s office under Commissioner LeResche and is retired after a 30-year career as a rural and community economic development professional.
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