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Myth-busting claims in Alaska's oil tax debate: Part IYou've probably heard that Alaska state legislators are debating whether to lower taxes on the oil companies. Competing plans are floating around Juneau, but the one that's gotten the most attention is Gov. Sean Parnell's bill, which would lower taxes about $2 billion a year on the oil industry. That's a lot of money. So you Alaskans, as resource owners, might want to know what you're going to get for your money and why there's a big rush to give the oil companies a tax break. Well, the truth is that you're not going to get a complete answer to either anytime soon. The governor says that it's part of his plan to get a million barrels of oil down the pipeline. However, nobody has promised that lower taxes mean more oil. Indeed, the fact that the state has received so few assurances makes some wonder if the governor's push is simply a platform for larger political ambitions. That, of course, is pure conjecture. But then again, so is the theory that lower taxes equals higher production. RELATED: Part II: More myths in Alaska's great oil tax debateWhat we do know is that you're probably confused. Much of what you've seen and heard -- charts and graphs and endless presentations by oil company executives, lawyers, analysts, and more lawyers -- has probably gone right past you. Marginal tax rates versus effective tax rates. Progressivity and proven reserves. Gross versus profit. Tariffs and transportation costs. The terms seem designed to confuse. When it comes to the oil tax debate -- the lifeblood of the state -- Alaskans have been confused since their dance with the oil industry began. It's confusion that's largely arisen due to lack of hard data, like how much oil is on the North Slope, to say nothing of what it costs to produce and how much the oil companies earn here. Hence, it seems it always comes down to judgment and trust, and with such conflicting data, and facts being thrown around, it does make you wonder who to trust. Obfuscation doesn't help. It is a fact that oil companies have made Alaska as we know it. We have libraries and performing arts groups and paved roads and big parking lots largely due to oil. But that doesn't mean that we should believe everything they tell us. It doesn't mean that we shouldn't fact-check the propaganda. In that spirit, below is what we consider top three myths perpetrated by the oil companies and/or those fighting the battle to lower taxes. Tomorrow we'll give you three more. The six myths that we've chosen to examine are by no means a comprehensive list. But the heart of the argument to lower taxes seems to rest on these myths that have arisen, one way or the other, from the oil industry and their allies -- myths that those who know better have done little to quash. Here are the first three (of six) Alaska oil tax myths: Thank you, thank you, thank you, for finally giving us an honest comparison between NoDak and Alaska oil taxes. Too bad 'Alaska's largest newspaper" never bothered to invest the time to write about this very important subject. "When it comes to the oil tax debate -- the lifeblood of the state -- Alaskans have been confused since their dance with the oil industry began." How could you possibly know this, as you weren't around "since their dance with the industry began."? I realize you're trying to portray the Dispatch as a pioneer in this field, but there were a few of us who beat you to it years ago. Check out the archives. Joe LaRocca Just like we didn't have to be around in 1867 to know that Alaska was purchased from Russia that year. It's called history. Ya mean that Parnell, Jenkins, etc are lyin'? I'm shocked. Amanda, if you would recognize the economic obvious, you wouldn't have to spin around in circles. The Econ 101 obvious is that oil companies do not have unlimited talent and financial resources. They must make choices where to invest their scarce resources, and they will invest those resources where they expect to make the greatest return. Right now that isn't Alaska, and it isn't Alaska because of ACES. I recognize that right now ACES is giving Alaska a windfall, but like all windfalls it comes at a price, and that price is less investment in Alaska. We should be cleared eyed about Alaska's poor investment climate and drop the disparagement of the oil companies. The oil companies are just responding to the poor investment climate that we in Alaska have created through our political choices. Right now the attitude in the State Senate, particularly, is that it is sitting on a bag of money that will fund the goodies for each senator's supporters and that will get him/her through the next election. It's a short sighted approach, but we as citizens expect to get a lot without really contributing out of our pockets, and our representatives are more than willing to pander to that delusion. Amanda also ask Cathy Foerster of the AOGCC, what happens to Prudhoe Bay oil production if Prudhoe Bay were recharged with gas and the oil reservoir pressure was brought back up from the 3100 psi it is today to 4400 psi , the discovery pressure. Just what do we not consider as a cost of being an oil state, things that a "fair share" tax can only partially make up for. After the Prudhoe Bay oil fields were discovered the late Alaska Methodist Universitys' students and professors helped wake Alaskans up to the fact that the Oil Barons were not coming into Alaska to do it or its population any favors. That anything we were to get out of them we would have to take by good deals and law. Crude Oil, let’s use it all up now. Folks in the future can just do without. Our economy, addicted to cheap energy, always demands more. So what if it is a non-renewable resource. Some whine about its price, its’ trivial tax, that it pollutes, that it makes a mess when spilled or that we have to fight wars over it. Cheap energy is a right, our greed, selfishness and short sightedness make it so. Are we proud that we are denying our descendents its uses by burning it up at about 15% of its potential energy? Once upon a time, one horse was enough, now each of us wields hundreds of horsepower. Just to be clear, it is not the development or production of a new oil field it is really the beginning of its depletion. In the ‘50s we were sold: “See the USA in your Chevrolet” but we bought commuting and traffic jams instead. Conservation should return as a value, we should pay a proper price for the energy our civilization needs. Amanda your statement It's confusion that's largely arisen due to lack of hard data" Your lying for them again the hard data has always been there but you, the press, have ignored it. Amanda your statement "It is a fact that oil companies have made Alaska as we know it". Amanda you are lying again It was our oil not their oil and we sold it for far to little and bought those things that we now have. If you had a large piece of property and sold it to the oil companies and bought a house with proceeds, Amanda would say the oil companies bought you a house? Amanda you are being deceitful . Amanda just because it is on the books since when did the oil companies actually pay federal taxes. the argument before congress is subsidy being paid to the oil companies ; the republicans want federal government to keep subsidizing the oil companies. The public confusion is due to the fact the press has been misleading the public for the oil companies last 40 years. But thank you, Amanda for exposure of Jenkins and Hamilton but you failed to include Parnell. Why? Hamilton was disaster for the UA. Amanda why don't you find out what the OOIP is for Prudhoe Bay ? Amanda obtain a copy of Congressional Public Document 95-73 (1977) and look on page 570 and see how producible Prudhoe Bay was in 1977 with 1977's technology. Amanda why don't you ask the AOGCC . Kathy Foerster, why Prudhoe Bay produced 6 billion barrels more of oil than if a gasline had been constructed in the 1980s. Do that after your read page 570 and know what the Prudhoe Bay OOIP was in 1977 and is today. Have fun , I am AKgasman, I would like to add something to one of the points you provided. The point regarding "Amanda you have grossly under estimated the ND land owner's take." Perhaps you meant to say she over-estimated it. Most oil and gas leases on privately owned lands in Western North Dakota before 1970 allowed the private land and mineral holder 1/8 Royalty on the produced oil after all of the expenses of the well were recovered. That is every 8th barrel's value went to the landowner if he owned the mineral rights. (North Dakota allows mineral rights to be sold off separate from the surface land) Mineral leases after the 1980s with the excitement of the development of Gulf Oil's Little Knife Field increased lease royalties in western ND to 1/6 or the mineral/landholder receiving the proceeds from every 6th barrel of oil and that is pretty much where it stands today at 16.66%. There is also payment for the gas associated with the well and a small payment to the surface owner for the damage caused by a well location and the associated access to it. @Common: I'll make a few phone calls, but two lawyers plus the ND tax dept. told me that 20 percent was standard. Thanks for sharing your knowledge, however. Amanda, Your people may be correct as to the 20% and even as high as 25% in rare instance where multiple pay zones are possible on the lease. These would be BAKKEN, THREE FORKS and BIRDAL pay zones and of course the less interesting MISSION CANYON and DUPROW formations may also be present. Also note Amanda that in most cases the State of North Dakota tends to get a little higher royalty percentage on State owned mineral leases than the private land owners I was referring to receive, so cross check State/Private percentages. There’s a very large source of petroleum that’s been known about since the early drilling at Prudhoe. http://juneauempire.com/stories/030710/sta_571814745.shtml I take note of the requirement to mix the heavy oil with lighter crude to produce a product with low enough viscosity to be pumped to and through the pipeline, into and out of tankers, and through a refinery. The mix is an inferior product worth less at the refinery and the heavy portion of the mix has quit significantly higher costs (possibly prohibitive) to produce. Maximizing the short term production of lighter petroleum may mean the heavy oil is never a revenue source for Alaska because the light stuff it needs to be mixed with for feasible transportation is gone. If we Alaskans want to extract the maximum petroleum production and get a maximum amount of revenue from that resource, it means taking a longer view than has been common in the more recent past. Great article Amanda !! I see you are not not fooled by the Oil Industry Shell Game any more than any one who actually looks at the facts. The Oil lobbyists and ex-lobbyest Governor can fool the majority of the Legislative house, they may fool many Alaskans, but not the majority of the Legislative Senate, and me. Myth 7 may be: The Trans-Alaska Pipeline (TAPS), can be filled back up to 2 million barrels or even 1 million barrels per-day. We just need to give the oil industry more incentives. Fact: The TAPS is 35 years old. Alyeska Service Company has "strategically reconfigured" the pumping capacity to 700,000 barrels per-day. The TAPS has corrosion issues which limit pressure,...which also oil throughput is limited. Major reconstruction of the buried sections, and upgrade of pump stations would be needed to transport even 1 million barrels per-day. This would be an investment in the billions of dollars. Quote from Feb 8,2012.Dermot Cole Fairbanks News/Miner. .... "Feb. 9, 2004 BP document in which the Alaska branch of BP was recommending that the company move ahead with electrification for four pump stations. The reality is the Arctic Ocean could be a sea of oil, we could lower the State of Alaska's tax to the lowest in the world, BUT until there is major work done to the TAPS, production will not increase over 700,000 barrels per-day. And apparently BP is not willing to increase production, or even invest in Alyeska's transportation system. Lower production works well for the Oil Companies. Lower supply is higher demand....higher price. Lower production is an excellent political leverage tool to reduce taxes and increase margins further. Which leads to Myth 8.... Oil Companies want to sell America and the world oil at rock bottom prices... For those who believe all the oil company myths... I have the Golden gate Bridge to sell you. Parting thoughts.... Perhaps our Legislators are not so much working on reducing the Oil Tax as they are...unknowingly laying the groundwork for a State Income Tax If our Legislators are going to give a tax break, let it only be to the independent small oil company's who are more focused on exploration and production, while the Big Oil's focus is to dominate and leverage excessive profits for the benefit of their shareholders. I found it interesting how BP just recently donated a whole bunch of money to an Alaska University....now what would the real purpose of that move be....any thoughts.....perhaps continuing education in the BP discipline? If the Big Oil's says the pipeline will have to be shut down for lack of product flow....might that also mean that they lose their leases which are currently "held by production"? Great article! It is noteworthy to see the media do a factual report. We want to price the selling of our oil resources low enough to allow the oil producers to make ample and competitive profits and to encourage them to explore and develop our resources, but not too cheaply so as to give it away and put our State’s future at risk. We do not need to give tax breaks and giveaways on oil production that will take place regardless of any tax changes.http://stopouroilwealthgiveaway.org/wp/ It is really refreshing to see the news media working clear up the misconceptions and offer a clear and honest clarification of the Oil Tax structure. (something one should expect of our political leadership) By the way, regarding North Dakota, lets not forget that in addition to the oil tax levied by the State of North Dakota, they also have... 5.04% Personal Income Tax payable to the State of North Dakota 5.0% State Sales Tax on all general purchases in the State of North Dakota Now how does the Alaska vs North Dakota Oil Tax compare? @common-sense. It's a little confusing, because you have to jump ahead, but Alaska v. North Dakota is myth #3. http://www.alaskadispatch.com/article/myth-busting-claims-alaskas-oil-tax-debate-part-i?page=0,3 Well done. It's far past time for an intelligent comparison between the "facts" that both sides are trying to sell the Alaska resource owners. Gov. Parnell is hell-bent on giving away OUR money without a single guarantee from the oil companies that they'll actually do anything. Heck, Governor. Give me $2 Billion a year and I'll create some jobs in Alaska. the flow of oil can only increase or be maintained by bringing on new fields,hence the clamor 20 years ago to open ANWR.that being said it is obvious that the oil companies are foot dragging in order to infflict enough pain to get some effective mesures from their man in the governors office,this article does every Alaskan a great favor by laying a lot on the table,. We Alaskans are guilty of electing a governor with political ties to one side of that industry and no imagination,they want 2 billion a year?Well thies guys know all about the world of high finance,so i say,give them a loan of 2 billion a year if they colateralize the loan with a newly constructed refinnery in or near valdez, to provide resonably priced fule for Alaska, they will make money with it as our fishing fleets and home heating oil users are willing to pay resonable prices for fule,at that point it is no longer the states oil,just like the moose on the hillside belongs to the state untill it is processed, once in my freezer it is mine, Alaskan fule companies would be free to buy the refined products and store for speculative resale or turn as quick a profit as possible,some where along the path we got things turned around, if it is our oil than they should be buying it from us and we hire them as a contractor with the experties to produce it, then if the built some refineries here they could buy it back as the needed raw metirial to produce the product that Alaska's people will buy from them,that sounds complicated,but i am sure accountants can make sense of it all,the one thing that the oil companies do not want to throw on the table when they try to paint Alaska as hostile to their business is that the people working in the oil fields here are not risking their lives to be there other than the occaisonal industrial accedent,(no one is shooting at them), i suspect that along thoes lines they are very happy to be here Good work Amanda & Alex! The more actual facts brought out the better Alaskans can determine what is fact and what is fiction. Parnell (big oil's advocate)is merely doing what he promised big oil. I don't think he cares if his oil tax reduction passes or not. His main focus is to demonstrate to big oil that he tried. That will secure unlimited funding for his next campaign. So this whole comparison thing between Alaska and North Dakota is over 6%? I would hope that the average Alaskan and legislator can see through the industry/Parnell smokescreen and stand up for Alaska. Good reporting....better explained than most everything else put out there. All oil fields decline, a fact that is missed by a lot of folks. Asking the oil co what is a reasonable tax is like asking a teenager what is a reasonable amount of chores he should do...... Keep up the good work Ms. Coyne. You are doing the public a great service. No eriv, there is less oil in the pipeline because theres less oil in the ground. giving oil companies more tax breaks will not put more oil in that pipeline. you won't get any more to drink no matter how many straws you stick in a cup. Nordakota may have 25 billion barrels of oil in their shale. thats why theres a boom going on there, when they're cup starts to run dry, they'll be in the same boat we are. as far as taxes go, lets see Jenkins, et al's sources for their numbers. until then, the guv's hopey feely good plan is just that. pure bs. @jdohren. Check out the very last myth in the two-part series abou that very thing. http://www.alaskadispatch.com/article/myth-busting-claims-alaskas-oil-tax-debate-part-2?page=0,3 Of course there is less oil in the ground, but there is still plenty in the ground. A bunch of people are flat against drilling to get it. They use economic arguments, because it is more effective than being honest about being against resource development. Funny that there are lots of greenies who read AK Dispatch but they don't show their face here. I got it: oil companies are stupid and Gary Stevens et al are smart. Alaska is a much better investment than NoDak, which is why 2011 through put was the lowest since the pipeline started in 1977. http://www.alyeska-pipe.com/Pipelinefacts/Throughput.html |
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