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Oil and gas development: Does Norway do a better job than Alaska?Like Alaska, Norway is a petroleum province that brings in billions of dollars in annual revenues from oil and gas development. But important differences exist in how Alaska and Norway collect, save and spend their wealth, and issue oil and gas leases. About one-third of Alaska's oil and gas revenues come from its royalty slice of production by private companies on state lands and waters. Norway doesn't take a royalty share of its oil and gas production. Instead, Norway makes all of its money by taxing the producers' profit - plus taking a substantial equity share in many projects, plus earning stock dividends from a government-controlled oil and gas company. In another difference from Alaska, Norway doesn't award its oil and gas leases to the highest bidder. Rather, it awards leases to what the government determines is the best bidder, based on the company's experience, expertise and work plan to develop the field. And unlike Alaska, which saves only a portion of its oil and gas revenues in its nearly $40 billion Permanent Fund and does nothing with the fund's investment profits but pay dividends to individual Alaskans, Norway deposits 100 percent of its oil and gas revenues into its sovereign wealth fund - worth about $540 billion as of late last month. It then withdraws an average of 4 percent a year to help pay for public services. Almost three dozen Alaskans - legislators, state and municipal officials and private-sector representatives - learned the differences between Alaska's and Norway's fiscal regimes during a week-long Norway tour and meetings with government and oil industry officials Aug. 28 - Sept. 3. The Anchorage-based Institute of the North organized the sessions. Norway, a nation of just under 5 million people, once used a royalty system to take a share of oil and gas wealth but phased it out because the government decided a profits-based tax would work better than a gross-based royalty at aligning the state's interests and the companies' interests, said a tax official with the Ministry of Finance. Oil and gas tax systemNorway's income tax on oil and gas profits has two components: A 28 percent tax on profits (the same income tax charged on all businesses in Norway), and a special 50 percent tax on profits from offshore oil and gas production, for a total tax of 78 percent. (All of Norway's oil and gas production comes from offshore federal leases.) For example, the owners of gasoline stations and the two refineries in Norway pay just the 28 percent tax rate, even if they are owned by an offshore oil and gas producer - the profits are counted separately. "It's stable, and still they earn money," said an official with the Ministry of Petroleum and Energy, explaining that companies continue bidding on Norwegian oil and gas leases, despite the substantial tax bite. The profits tax is assessed on earnings in Norway, unlike Alaska which assesses its corporate income tax on a proportional share of producers' worldwide earnings. Also unlike Alaska, which has a state tax on oil and gas exploration, production and transportation property, Norway leaves property taxes entirely to the municipality, where it is optional - there is no federal property tax. Norway's oil production is declining, just like Alaska's, but the decline is more recent and production reached a much higher peak than in the 49th state. Norwegian offshore production peaked at about 3 million barrels a day a decade ago, and has been in decline since, down to a projected 1.7 million barrels a day in 2011. Production started a little earlier than on Alaska's North Slope; the first oil flowed out from a North Sea platform in 1971, and by the end of the 1980s was up to 1 million barrels a day before really booming in the 1990s. Alaska North Slope oil production peaked at 2 million barrels a day in 1988 and is down to about 600,000 barrels these days. Along with all that oil, Norway is rich in natural gas, too - production is expected to average 10.5 billion cubic feet per day this year. Here's another difference......make sure you check out item 5 of the contract. How many investigations have there been over the years into price gouging????????? The new contract is due up in 2014 I think. I can deal with $4 gasoline but $4 fuel oil to heat the house? How many Alaskans are not aware of this arrangement? Alaska Royalty oil is sold to the Flint Hills Refinery on a contract. A copy of which is on the net. Page iii of the contract sets the wholesale royalty crude to the "RIK ANS average spot" minus some deductions and increases which amount to about $5 dollars per barrel. Here is the exact text: Converting to price per gallon When gasoline or fuel oil is $4.00 per gallon the State of Alaska gets $2.74, and the refineries get $1.26 per gallon to refine it and distribute it. The legislative investigations every time the price goes up always conclude that there are no price gouging and monopolistic practices taking place. This is true because the (State)contract HAS set the wholesale price to the spot market price. “4. Study the use and viability of the hydrant fueling system at the Fairbanks International Airport (FIA), concentrate on promoting FIA to cargo carriers, evaluate and possibly upgrade FIA fuel distribution facilities, and charge a jet fuel customer in Fairbanks the same or lower price as FHR charges that same customer in Anchorage. 5. Maintain the wholesale truck rack prices for gasoline in Fairbanks at a price not to exceed the wholesale truck rack prices for gasoline in Anchorage.” When the legislature and governor set the wholesale price in 2004's contract to the Alaska North Slope spot market price, it has made the state filthy rich, off of every Alaskan, when they have to buy their own oil back to heat their homes and operate their vehicles. Call up all of our Legislators and the governor and ask them for a copy of the DNR Division of Oil and Gas spread sheet "Royalty Volume...." listed below. The difference between Alaska and Norway and Norway’s system works and Alaska is struggling against the on slot of the oil companies is because Norway political system is inherently honest and Alaska’s political system is inherently dishonest. The press in Norway is inherently honest and press in Alaska is inherently dishonest. And, Norway is a socialist State. Socialist or not, they seem to be kicking our butts. Aside from the labels, they are doing it better overall. To our shame. If we could get past the labels, maybe we could do better. Of course, a lot of striking similarities between Alaska and Norway, but stiking differences. (System of government, that we are a state and they are a nation, etc.) This is an excellent set of notes recounting the many presentations offered by top Norwegian government officials and industry representatives to the Alaskan group. Thank you Larry. One additional statistic that caused some in the group to bolt upright in their chairs is the number of jobs in Norway's oil and gas sector. In Alaska, the Department of Labor reports 13,200 direct jobs in the oil and gas sector with another 12,000 indirect jobs for a total a little over 25,000. In Norway, the corresponding oil and gas employment figure - direct and indirect - is 235,000. according to the Ministry of Petroleum and Energy. Thousands of these jobs are abroad as Norway now successfully shops its expertise in 33 countries. One example: Statoil's North American headquarters is in Houston where is it joined by 140 Norwegian oil support businesses. This summer Statoil opened an office in Anchorage to support its exploration efforts on Chukchi Sea leases it owns or will operate with Conoco-Phillips. When oil and gas do eventually run out in Norway (estimated to occur 50 - 100 years from now), Norway will continue to be major player in the global energy business. Now I see why Norway didn't join the European Union. We would have to get the Feds to agree to another form of taxing it isn't just us on that decision. Transportation, who pays to get the college students to campus? There are a lot of things to talk about but great ideas to discuss. My compliments to Larry on this one. His years of reporting have paid off. Unfortunately his governmental position didn't permit him to ask some pointed questions regarding any possible conflicts having Norway being a partner in private investments. It would be interesting to hear whether there has been any similar behavior such as our CBC scandals. Also, having government involved in decisions about drilling in seawater. It is questionable that it is safe to drill in areas with sea ice. The statement from Norwegian owned Statoil that it would be easier to clean up an oil spill in sea ice isn't believable. You don't think it's beliveable? Well the Norwegian government asked some our most prominent research facilities to research and test it in practise. They actually spilled a limited amount of oil in our most northern regions to test it. The results are as we described them, it was easier than expected. Here is a link to the research facility in question and some reports: Here's an article on ice and oil: Good article. A net profit tax better aligns interests of the resource owner and the producer. Our royalty on gross revenue explains the insane policies from our side. A PFD is an incentive for the Pilgrim clan and attractive for populist pols such as the late Gov Hammond, but are not an incentive for those who will make our state better. Norway's policy of using public resources for public purposes is superior to our PFD/entitlement mentality. Awarding contracts based upon the "best" bid is scary in our CBC environment. Perhaps we should encourage a takeover of our fossil fuel resources by Norway/Statoil. The only way a "net profit" tax works is if Norway defines what "net profit" means and has the will and resources to both audit and enforce such a tax. Don't underestimate what a challenge that is. Second, I am sick of people calling the PFD an "entitlement". It's not. It's the piddly payment we get as the OWNERS of the oil. We should all get a lot more per year than the PFD, but until people get serious about being resource owners, it's what we've got. As for "best bid"---we don't have the integrity built into our public policy process to ever do that consistently. The "best bid" would always come from whoever happened to grease the skids and shake enough hands. Norway does audit. Obviously we should too. That we don't invites accusations that our government is in bed with those who would cheat us of billions. Norway's calculation of net profit is simple compared to ours. They claim a staff of 30 conducts all the audits at a cost that is a tiny fraction of a tiny fraction of one percent of the value being audited. Because they audit 1) constantly 2) consistently and 3) make tax compliance a condition of getting future licenses, Norway claims producers are paying what they should. We can do this too. Our PFD is indeed piddly compared to what oil provides Norwegians now and guarantees them in the future. I would trade my PDF for free healthcare, college tuition and a retirement pension in a flash. Paying and saving for those three costs me nearly $20,000 a year. The PFD is only $1,300 or so and is no sure bet to continue because our $40 billion fund is not big enough to replace oil when oil eventually runs out. Norway's fund is big enough and getting bigger at a rate of $50+ billion per year! Norway estimates the fund will top $3 trillion before oil and gas runs out. That is enough to "pay out" $120 billion per year at their 4% pay out limit and still keep the fund inflation proofed. Calculate what that amount works out to for each of 700,000 Alaskans. Stunning. And to think they made their first deposit into their fund in 1996 while we started ours in 1977. We need to do better. As far as avoiding corruption in the bidding process, if Norway can do it, so can we. They set up procedures and rules that assure transparency and accountability in their award process. We can do that too. And we have to believe we can. To be defeatist about this is more than a bad attitude, it prevents us from realizing full control of our oil and gas resources and robs us of our future. The Norwegian state offers free consulting for resource rich developing nations around the world as part of our development aid. We help put tax, ownership and management structures in place to help other resource rich nations. I'm sure Alaska would get the same help if you only ask.. |
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