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Lowering oil taxes won't boost oil in trans-Alaska pipeline; it'll just ensure our demise

  • Author: Joe Paskvan
  • Updated: September 29, 2016
  • Published December 19, 2013

The vast majority of oil flowing in the trans-Alaska pipeline comes from just two fields -- Prudhoe Bay and Kuparuk. The oil from just these two fields should be the benchmark against which SB 21, the tax giveaway plan, is measured.

A study performed by Alaska's Department of Revenue recently estimated that one-year real losses to Alaska from SB 21 just from these two fields approach $1.7 billion. (Source is March 11, 2013 analysis.) That should cause everyone to shudder.

To those who think that "promised" increased throughput under SB 21 from Prudhoe Bay and Kuparuk will overcome the loss of revenue, BP's reservoir development manager on Nov. 20 said to the Resource Development Council: "We can't stop the decline" and "as go Prudhoe and Kuparuk, so goes the North Slope."

Decisions by the Big Three oil companies (BP, Exxon Mobil Corp., ConocoPhillips) were made decades ago to place Alaska's legacy oil fields in harvest mode. The Big Three determined that their level of capital investment in infrastructure, including above-ground treatment facilities, was appropriate for them. As part of that harvest mode extraction model, the billions in profits made by the Big Three in Alaska were intentionally transferred to other regions of the world and not spent here. This determination was made under the previous tax system known as ELF (Economic Limit Factor) and continues.

Under ELF, the tax rate on the nation's second-largest oil field, Kuparuk, approached 0 percent. Also, 15 of the 19 operating fields paid no tax. The North Slope remained in harvest mode under ELF; no throughput increases occurred, even without much in the way of taxes. There is no reason that anyone should think SB 21 will increase oil that has been flowing for more than 35 years from Prudhoe Bay and Kuparuk.

ELF tax rates at or approaching 0 percent did not produce any lasting action by the Big Three to increase throughput. Remember the failed "no decline after 1999" political motto. It is folly to think that SB 21 will increase throughput when Alaska's own history at low (or even zero) tax rates did not result in increased throughput.

The important points to remember is that ACES brought:

• Record levels of capital investment;

• Record levels of employment; and

• A record number of companies doing business in Alaska.

These successes under the 2007 ACES legislation are objective and measurable.

SB 21 would return Alaska to ELF-like taxation. Under SB 21 at high oil prices, the Big Three would rake in windfall profits from the sale of state resources. Alaskans would then see and understand that our resources are being looted. We would be like an exploited Third World country where the country's non-renewable resources are forever taken away, leaving nothing in the treasury for the people.

Alaska's constitution mandates that Alaska is an owner state. However, Alaska's history is unfortunately full of recurring examples of exploitation by Outside interests. Those activities are always sold as development, but it only takes a little looking to discover exploitation under the thin disguise of development.

Alaskans should never forget that oil is a finite and non-renewable resource. Once gone the oil is gone it's gone. Once sold cheap, the true value to Alaska can never be recaptured. And SB 21 is a giveaway that sells our resources far short of fair value.

The private owners of the oil in North Dakota and Texas demand and receive $2.5 to $3.5 billion per year (same volume of oil) more for their ownership interest than Alaska does. Alaskans should factor this into their thoughts on whether the state is exploited under SB 21.

The projection on Dec. 12 by Alaska's Department of Revenue of deficits each and every year (from FY2015 to FY2024) totaling more than $23 billion and capped general fund spending is partial proof of Alaska's exploitation under SB21.

ACES should be kept, but ACES should be modified at high oil prices. The way to keep ACES is to scrap SB 21 when it comes before voters. Keeping ACES is consistent with honoring Alaska's constitution. Keeping ACES promotes Alaska as a true owner state. Keeping ACES blocks exploitation of our resources.

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

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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