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Alaska oil and gas jobs continue growth, but tax-cut opponents offer different causes

Alex DeMarban

In what could be one of the last hurrahs for the law that plowed billions of extra dollars into the state treasury, state Department of Labor statistics show employment in Alaska oil and gas fields continues to reach record levels.

While debate rages on about what's causing the increase, it's undeniable that the hotly contested 2007 law that hiked taxes on the state's major oil producers -- ConocoPhillips, BP and ExxonMobil -- has been in place during a period of steady job growth unseen since the late 1980s, according to figures from a report in Alaska Economic Trends.

Alaska's Clear and Equitable Share, also called ACES, quietly turned 6 years old on July 1. During those years, high-paying jobs in the oil-and-gas industry rose from 11,600 to 14,500 at the end of June, according to Labor figures. Those are lucrative jobs, averaging $127,000 a year.

During its life, ACES has allowed the state to squirrel away more than $16 billion. ACES opponents, of course, say those savings have come with a cost, that oil production in Alaska has continued to fall because of high taxes while the Lower 48 has enjoyed a production boom.

Despite the job growth, ACES critics, such as Gov. Sean Parnell, have tried to paint a picture of a declining workforce with the tax-hike to blame. Now that the Legislature passed Parnell's tax cut this spring -- worth hundreds of millions of dollars annually to the producers -- his administration is eager to say jobs are rising.

Based on video testimonials of oil-field service companies compiled by Parnell's public relations team, it appears the cut has produced some new jobs recently.

Tax-cut opponents counter that the growth has come from ACES' generous tax credits that sparked more exploration and capital expenditures, funded by increased North Slope investment. They say the tax cut, called Senate Bill 21 or the More Alaska Production Act, will give global oil giants the chance to spend their windfall outside Alaska if they wish.

The cut is set to become effective Jan. 1, replacing ACES. But it may not be on the books long. Alaskans will have a chance to repeal it in next August’s primary election and reinstitute the 2007 tax-hike signed by former Gov. Sarah Palin.

At any rate, the jobs increased again in July -- by another 200 positions to 14,700, according to preliminary estimates. The news prompted tax-cut opponent Sen. Bill Wielechowski, D-Anchorage, to send a shout-out for ACES.

“It’s great to see so much North Slope employment,” said Wielechowski in a press release. “This is what ACES was designed to do—encourage more investment in Alaska and more jobs for Alaskans. But it’s unfortunate that just as employment hit record highs, ACES is being replaced by Senate Bill 21, which does not have the same incentives for investing in Alaska.”

Tax cut creating more work

At least some of the newest jobs have come from the tax cut, and more will follow, according to Parnell's video testimonials. One is by Doug Smith, owner of Little Red Services, an oilfield services company in Anchorage.

Smith is also president of the Alaska Support Industry Alliance, the in-state group funding efforts to fight the repeal of the tax cut.

After the cut passed, industry wanted to show the measure would encourage companies to quickly turn around the state's declining oil production curve, Smith told the Dispatch. Smith's company works to stimulate and boost production from existing wells, tactic known as "downhole stimulation and intervention" and "well workovers."

After ConocoPhillips added an extra drilling rig to its Kuparuk field this summer, citing the more favorable tax policy, Little Red Services has had more work at that field, Smith said. The company's man hours are up 20 percent there, and Little Red recently added eight full-time workers and increased its fleet of hot-oil trucks to six to meet the extra demand, Smith said.

That fleet had dropped to five in 2011, he said. The large hot-oil trucks carry the gear and personnel that help stimulate production.

Meanwhile, BP, operator of the Prudhoe Bay oil field, has also increased Little Red Service's work to increase production in that field, Smith said. The extra work in the fields required Little Red to spend $2.5 million on a contractor to expand its man camp in Deadhorse by 18 beds, Smith said.

The attempt to quickly boost production is in addition to BP's plan to invest an additional $1 billion over the next five years with its partner companies, Exxon and Conoco, Smith said.

"We knew if the Legislature passed this (tax cut), there would be a need to get out of the starting gate as quick as we can so people can see we're doing something here," said Smith.

The improved production results could show up as soon as November's production numbers are posted, something he'll be watching closely to make sure the cut is working as planned, he said.

"For me as an Alaskan, that's what I'm looking for," he said, "to see measurable results that show a slowing decline curve as a result of this new activity."

Smith said his extra work is flowing to Anchorage fabricator Weona Corp. to build new hot-oil units to enhance a fleet of 19. One new hot-oil truck will go into service this fall at Prudhoe. Two more are being built for service next year at ExxonMobil's Point Thompson field and when ConocoPhillips begins drilling at its contested CD-5 prospect in the National Petroleum Reserve-Alaska.

After the cut passes next year, Smith said he'll use the 10 percent Alaska-built credit to help cover the cost of the new trucks.

Weona Corp.'s Mike McGinnis also appears in one of the Parnell videos promoting the tax cut, as do others.

Years of job growth

To be fair, jobs in the oil patch started growing significantly not long before ACES was passed. In 2005, oil prices rose, which may have led to more investment, and in 2006, a leaking BP pipeline and other corrosion problems surfaced, prompting more activity, according to the Alaska Economic Trends report. By 2008, the average monthly job count exceeded 12,000.

But the growth continued from there, coming up just short of 14,000 in 2012, with high oil prices the most likely reason, according to the report. Most of the growth has happened on the North Slope, with less but still important job growth in the Cook Inlet region, said state economist Neal Fried.

Not to be outdone, Wielechowski, who is weighing a challenge to Parnell next year, is waging his own campaign against the tax-cut, offering 52 weekly reasons that voters should repeal it next summer and replace it with ACES.

Reason number four is that capital investment grew under ACES -- a trend that was already underway starting in 2004. Investment rose from less than $2 billion in 2007 to nearly $2.5 billion in 2012, according to Department of Revenue figures provided by Wielechowski.

The chart from Wielechowski predicts even more capital investment in the oil patch, reaching $3 billion at the end of this year and $3.5 billion in 2014.Those were forecasts made before the tax cut passed the Legislature in April, Wielechowski said.

"You know, Parnell has these videos, but why wasn't he releasing them two, three, four years ago, when jobs and investment were up to record highs?"  Wielechowski said.

Contact Alex DeMarban at alex(at)alaskadispatch.com