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'Broil over Oil' ends without a knockout, tax debate rages on

Alex DeMarban
The Broil over Oil was hard-fought at a Monday luncheon hosted by the Anchorage Chamber of Commerce, but fight fans remain as divided as ever about whether or not to cut taxes and remove credits for Alaska's life-blood industry. Aaron Jansen illustration

Two men. Two visions of public policy. And a state that's racing toward an uncertain future as oil production continues to dwindle at North America's largest oil fields. That was the backdrop for the "Broil over Oil" on Monday, more staidly dubbed the "Great Oil Tax Debate" by its organizer, the Anchorage Chamber of Commerce. The battle pitted Chamber president Andrew "The Dapper Destroyer" Halcro against six-year state Senator Bill "Babyface" Wielechowski.

"Babyface" jabbed with a blur of facts, claiming that the state's current tax policy has benefitted both oil companies and the state, producing record revenue for both, while sparking unprecedented levels of oil-patch investment that will yield increased production in the coming years.

Meanwhile, Halcro fought with flair and prose as shiny as anything Muhammad Ali ever dreamed up, mixing in pop culture references and movie quotes as he argued that the current tax policy must be overhauled. Alaska's tax structure has not led to new production as promised, he argued, because it takes too much from oil companies, especially at legacy fields such as Prudhoe Bay, the largest oil field in North America, run by BP, Exxon Mobil Corp. and ConocoPhillips.

The sparring was over Senate Bill 21, a proposal introduced by Gov. Sean Parnell. It's designed to put more oil in the trans-Alaska pipeline by lowering taxes by more than a billion dollars yearly and removing hundreds of millions of dollars the state pays to oil companies in tax credits for capital expenditures.

The credits Parnell wants removed were designed to stimulate new production, but he says they're not working. The Alaska Department of Revenue projects that the bill, assuming there's no new production and crude prices rise only slightly, will cost the state an average of $900 million a year over the next six years.

Stick and move

The current tax system, dubbed "Alaska's Clear and Equitable Share," has helped Alaska squirrel away $16.5 billion. Now's the time to lean on that savings and lower the burden on oil companies so they can invest in new fields, argued Halcro.

The Sarah Palin administration once predicted ACES would do more than it has. It was supposed to yield 100,000 more barrels per day than current levels of about 580,000, Halcro said. It was also predicted that oil production wouldn't fall below 600,000 until 2022. But the state dipped below that level last year, a decade early.

"This was a train wreck waiting to happen," Halcro said of ACES, calling the measure a punishment for oil companies passed in a fit of anger in the same year that Bill Allen, former head of now-defunct oilfeld services contractor VECO, had pled guilty to bribing lawmakers to vote for favorable oil taxes.

But Wielechowski had a counter for Halcro's flurry of jabs. A key point: Lower taxes don't lead to increased oil production. Studies have shown it, and Alaska has lived through it. Oil flow in the trans-Alaska pipeline has fallen since 1988, with the decline coming even though taxes were nonexistent in some Alaska fields, such as at Kuparuk, the nation's second largest oil field.

"To think it will work now, that's the definition of insanity, doing the same thing over and over and expecting different results," Wielechowski said.

Parnell's proposal will fail because it strikes tax credits that force companies to reinvest in Alaska. Without that incentive, oil companies will be able to take their tax break -- potentially worth hundreds of millions of dollars a year each for BP, Exxon and Conoco -- and invest that money anywhere in the world they want, he said.

Moreover, Wielechowski said, the companies are already making bank. ConocoPhillips, for example, reported recently before the Securities and Exchange Commission that it makes $29.20 for every barrel of Alaska crude produced, beating the global average by $12 a barrel.

A counter-punch from Halcro: Oil prices were much lower before ACES than they are now, which is one factor that limited reinvestment in new production that's often not mentioned by critics of a tax cut.

Wielechowski produced documents showing oilfield investment aimed at increasing production is up and hiring is up, thanks to incentives under ACES that have brought an unprecedented number of companies to Alaska, including one of the world's largest, Repsol SA of Spain.

Halcro said the increased investment is due to maintenance on a pipeline and processing facilities that are 35 years old, not to efforts that will yield new production.

A draw? Perpetual rematch?

Doug Smith, president and CEO of oilfield subcontractor Little Red Services, said after the debate he was concerned to see both sides misuse data. But Wielechowski seemed to do most of the misusing, by relying excessively on outdated information, Smith said.  

Wielechowski had said workers are "hot-sheeting" because there are not enough beds for all the workers, meaning they're renting shared bunk space for $125 a night.

Not so, Smith said. "I run a camp on the North Slope with 140 workers, and no one on the Slope is hot sheeting. We make these egregious statements without fact patterns and we mislead our citizens."

Wielechowski also said the independent Alaska-based shale-oil prospector Great Bear Petroleum has testified that it will produce 600,000 barrels of oil a day from the North Slope's vast shale rock.

That won't happen, Smith said. "Great Bear told our Legislature in 2011 they'd drill 200 wells this year. They will likely drill no wells this year. They were showing production rates, starting in 2013-2014 of 150,000 barrels per day from their leases. We're going to see, probably none. So we've got to stop clinging to these hopes that aren't materializing to replace the oil we're losing in our legacy fields."

Malcolm Roberts, a member of a group called Backbone that opposes Senate Bill 21, said Halcro never rebutted many of Wielechowski's arguments. Roberts took issue with a key point offered by Halcro, who had blasted Wielechowski for failing to mention that massive overspending by the state will soon put the treasury in negative territory.

The money from ACES and the state spending it's allowed has helped make Alaska recession-proof, Roberts said.

"It just makes no sense to cut way back for no real reason," Roberts said. "The oil companies are making record earnings, their executives are making multi-million dollar annual salaries, and where's our spending going? It's going to the schools, to roads, to new projects, and it's really kept us free from the national recession."

What about the fact that oil production has continued to decline steadily under ACES, a reality that has Alaska's treasury on a crash course?

Roberts said the pipeline owners -- BP, Conoco and Exxon -- won't let the pipeline go dry. "They're making too much money on it, and we're on the right track with these tax credits that brought 69 companies up there that are paying taxes."

Contact Alex DeMarban at alex(at)alaskadispatch.com