June 18th, 2014

Think About It……                                                                                                 June 18. 2014

Alaska oil production is only a quarter of its 1988 peak of 2 million barrels a day and production is declining at a rate of 6 to 8 percent annually. Our Alaska oil fields still contain billions of barrels of recoverable oil, but production has been sinking at an unacceptable rate. Once the top oil producer in the United States, Alaska is now fourth….after North Dakota, Texas and California.

Governor Sean Parnell told the Legislature and Alaskans that the only way to increase oil production is to cut taxes. His answer was Senate Bill 21 which was passed into law this year. SB-21 creates a 35% flat tax with credits for production as incentives to encourage oil companies to invest in Alaska oil fields to increase production. Conoco Philips immediately announced plans to increase investment in North Slope oil fields, where it will add two more oil rigs. Other companies followed suit. BP plans to increase investment by over $1 billion and two new rigs resulting in an increase of about 200 workers.

The old ACES system, championed by Sarah Palin, in effect raised the tax rate to more than 50% as oil prices rose. It immediately boosted state coffers, but oil companies said it ate too deeply into their profits which made them cut back on drilling and development of new fields and wells. New oil field development took much less investment in other parts of the world.

Across the state business leaders are positive and excited about the way the SB-21 tax system is working. Janet Weiss, BP Alaska President says “It is already having a profound impact on the pace and scale of projects that her company and the rest of the industry are pursuing on the North Slope”. BP plans to invest another $3 billion to develop projects in the western part of Prudhoe Bay and that could last for decades and provide thousands of new jobs. They also plan to develop the Sag River formation with the possibility of 200 million barrels of new oil.

Northrim Bank’s 2014 construction forecast shows Alaska’s oil and gas sector leading the construction uptick, accounting for $4.3 billion in new construction, up over $1 billion from 2013. That means that more supplies, services and equipment will be needed and Alaskan companies are already feeling the effects. Jim Jansen, chairman of Lyndon Transport and Alaska West Express estimates that business is up over 10% already and says that is just the beginning.

However, the governors SB-21 is not without its detractors. In fact several legislative democrats call SB-21 a giveaway to the oil companies. They have succeeded in getting a ballot measure, “Proposition One” on the August primary ballot that would repeal the measure.

When we go to the polls we must remember that oil companies can invest anywhere in the world, where they can and do get the best returns for their stockholders. So, where do Alaskans go if we lose the industry that provides our jobs, pays 90 percent of our taxes, contributes to the Permanent Fund and supports our charities? “Vote No On One”!  That is very important!

Think About It!    John C. Davis    6-18-14

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