Oil investment up, drilling down?

The administration has sent  a letter to House lawmakers who queried Gov. Sean Parnell on the state of Alaska's oil industry and whether the current tax structure, ACES, is working.

The letter was sent from Revenue Commissioner Pat Galvin to House Speaker Mike Chenault, a Nikiski Republican who has voiced serious concerns about industry job losses that are hitting hard in his hometown.

There's about 15 pages of data in a line-by-line response to lawmakers' questions.

I haven't gone through it all, but this tidbit jumps out from the cover letter by Galvin: While industry investment has increased each year since Alaska adopted a progressive oil tax and employment also rose steadily, there's less drilling activity within roughly the same period - 2005 through the present, compared to the previous five-year period.

Galvin also notes, as Parnell has, that Alaska's oil tax system isn't the only factor companies consider when deciding where to invest millions or billions worldwide. Markets play a role, as do environmental rules and other regulatory considerations.

Oil taxes are poised to take up a sizable amount of lawmakers' time this session, as production declines from aging North Slope fields. The easy oil is gone from Prudhoe Bay and other legacy fields, and the heavy oils that remain are more costly to extract. ConocoPhillips and BP, which with Exxon are Alaska's three kings of oil, are curtailing exploration and capital spending for 2010.

But the state relies on oil taxes and royalties for 85 to 90 percent of its annual income, leaving some to wonder what it's going to take to spur investment in Alaska - or whether state incentives won't weigh in heavily enough against those other factors, like markets, out of our control.