Alaska Dispatch

By Tony Hopfinger

Gov. Sarah Palin is enmeshed in media interviews this week, presumably trying to repair her bruised image from the brutal presidential race and the malicious reporters who dogged her every step of the way. Palin says she’s doing these interviews for the sake of Alaska and to educate the rest of the nation about the many valuable resources the Last Frontier has to offer America.

But her remarks on the state’s lifeblood industry are baffling, perhaps misleading, even flat wrong.

And this is disturbing, given the recent policies she’s championed in Alaska’s oil industry, from leading the charge for a $500 million subsidy to a foreign company to jumpstart construction on a natural-gas pipeline to revoking state leases at the Point Thomson oil and gas field to the windfall profits tax she supported in fall 2007, which could slow development in the oil patch.

In an interview with Fox News’ Greta Van Susteren this week, Palin attempted to explain how oil development works in Alaska compared to other parts of the country. The governor claims Alaska is unique because it owns the oil, as opposed to oil companies holding sole claim to the crude on the North Slope.

She’s wrong. We tried to find an example elsewhere in the country where a company owns the oil, but came up short.

Many states generate revenue, as Alaska does, from issuing leases to companies to develop oil and gas on state land. The companies pay taxes and fees to extract the oil.  For example, the state of New Mexico, where I’m at this week, expects to collect nearly $2 billion from oil and gas taxes this year. The federal government also conducts lease sales to develop the nation's oil and gas resources. Palin should know this – a record offshore lease sale was conducted by the Feds earlier this year for the Chukchi Sea, one in which Palin issued a press release praising oil companies for bidding on the leases.

Yet, here’s what Palin tells Van Susteren:

"It [Alaska] is not like other states where perhaps the oil company actually owns all the resources underground and they're the ones that solely benefit from development. Here in Alaska we partner with the oil industry. Alaskans own the resources and the oil companies lease the ground and lease the rights to develop, and they make a healthy, healthy profit, of course, from the development of our resources. But our constitution says that Alaskans own the resources, so they derive benefit every time the resource is developed and the money is made on it. That is what the Alaska permanent fund dividend check is every year that people get."

To make sure I wasn’t missing anything, I asked a former state oil and gas official for his assessment on Palin's interview (he watched it last night). Here’s what he told me in an email:

She says that in other "states" the oil companies . . . actually own all the resources underground and they're the ones that solely benefit from development". I am not aware of any place that this is true in "the (United) states". Deals on private land are done differently than on public land to be sure, but the companies do not "own all the resources". A deal with farmer Brown in Kansas, or CIRI (say) here in Alaska, is often done through negotiation of terms. The landowner is compensated in some manner, generally, as a royalty, but the payment might include other things as well (maybe a new road, or a water well). The payment is dependent on the outcome of the negotiation. I cannot think of an example where a publicly traded oil company "owns all the resources underground". They either buy leases at a lease sale or negotiate terms with a private landowner.

If by "states" she means foreign governments then the picture is more complicated. Exploration and development is often done using more complicated procedures (like production sharing, licensing etc.). A country-owned oil company (like PEMEX) may indeed be exploring and producing its "own oil". But I don't think this is what the governor was talking about.

Palin’s remarks come as she battles with Big Oil. The state of Alaska is currently trying to revoke oil and gas leases at the Point Thomson field. ExxonMobil, the main leaseholder, has threatened to sue our state for $800 million if we take back the leases. Then there is the $500 million our state is providing TransCanada to build the long-sought gas pipeline. Problem is TransCanada doesn’t hold any gas leases in our state. In fact, it does not own gas leases anywhere in the world. Meantime, our state has jacked oil taxes. Industry, predictably, has said that it may cut back on some oil developments because the taxes are too high.

Is it too much to ask that our leaders understand the fundamentals of oil leasing, taxing and ownership, both in Alaska and the rest of the country? We are America's oil province, after all.

Now, what does make Alaska different than other states is that nearly 90 percent of government tax revenue comes from oil taxes and fees. Nowhere else in the country is that true.

But being addicted to oil isn't something we should be proud of. Since Prudhoe Bay was discovered in 1968, we've had 40 years to develop new economies not tethered to our finite natural resources. We’ve failed miserably, in part because our politicians have viewed Alaska’s future as dependent on finding more of the black stuff (and natural gas).

But our proven oil reserves are running dry. What about ANWR and offshore oil, you say? Keep dreaming. Those ideas have been around forever, just like the gas pipeline that governor after governor has championed. (Besides, the Feds would take the majority of the oil royalties if ANWR or federal offshore leases were ever developed.)

If Sarah Palin wants to leave her mark on Alaska (and then leave us to run the country), she should come up with fresh ideas on how we can move forward in a post-oil era. Meantime, she should brush up on our oil industry before her next interview.

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