September 19, 2020
Saturday AM

We have seen this before. From 1985 through 1990 environmental groups, using the slogan “Save the Tongass,” promoted their prescriptions for “fixing” the environmental “problems” and economic “unfairness” caused by the long-term timber contracts. The result was the Tongass Timber Reform Act of 1990. By 2000 both pulp mills were closed, and we lost over 4200 jobs in Southeast Alaska.

Today, based on the slogan “Alaska’s Fair Share,” Alaskans are asked to vote “yes” on Proposition 1. This is a two-page tax bill drafted by a lawyer who has been engaged in litigation against the oil industry his entire career. Most Alaskans don’t know him. Most Alaskans haven’t read or digested the complex tax bill that Ballot Measure 1 would enact. Nevertheless, Alaskans are asked to trust that this anti-industry, anti-job individual’s tax bill will “fairly” pluck the golden goose and not strangle it.

Those who say that the oil industry won’t leave Alaska if Ballot Measure 1 passes are right. But they will go from investing in Alaska to find more oil, and creating new jobs to harvesting oil from their existing leases. Because production from oil fields on the North Slope naturally declines at a rate of 5-6% per year, we need investment just to keep oil flow around 500,000 barrels per day.

ConocoPhillips is a case in point. Prior to the Covid-19 pandemic and the determination by the Alaska Supreme Court that the Oil Tax Initiative would appear on the ballot, ConocoPhillips announced its intention to invest $25 billion on the North Slope over the next 10 years. Now in a recent article in the Petroleum News, ConocoPhillips says that it is delaying its exploration program pending the outcome of the Oil Tax Initiative on the November 3rd Ballot.

How much revenue is to be gained by risking billions of dollars of producer investment in the North Slope over the next 10 years? At $40-$45 oil perhaps an additional $250 million annually until the litigation starts over the meaning of ambiguous terms in the Initiative, which will reduce even that amount.

The price of oil is not projected to go up. In its Spring 2019 Forecast the Department of Revenue projects average prices per barrel of $41, $44, and $46 for FY 2022, 2023 and 2024, respectively. At this price, the State is already collecting 96% of all oil profits at forecasted oil prices around $40/barrel. So why risk $25 billion of new investment in maintaining and finding more oil by speculating over a comparatively small amount of new tax revenue? It’s a horrible time to raise taxes on anyone in Alaska.

Proponents of the oil tax initiative say that the oil companies are making too much money in Alaska. In fact, Alaska’s production costs and taxes are among the highest in the world. In 2019, ConocoPhillips’ profits equaled what they paid to the state and federal government.

Moreover, these arguments about what the producers are making sound just like what the environmental groups said in 1990 about the pulp companies making too much money and not paying enough in stumpage. Congress listened to the environmentalists and we lost the pulp mills. So, wouldn’t it be better to focus on how to get Alaska new revenues from increased investment resulting in new production? More jobs are gained if we grow the tax base instead of growing taxes.

What the Initiative proponents don’t tell you is that the current tax structure passed in 2014 is working. Oil production under the 2014 tax increased by 85,000 barrels/day over that projected by the Department of Revenue under the 2007 ACES oil tax. In short, higher production, not higher taxes, is the path to long term revenue and job growth from oil.

Finally, oil tax legislation is ill-suited to the Initiative process. Taxation should be enacted by the Legislature, not by a lawyer promoting a point of view. The legislative process allows for expert witnesses, public testimony, and the ideas, amendments, and votes of numerous legislators. ACES had 31 legislative committee hearings, six public testimony hearings, and eight versions before being enacted. SB 21 had 50 legislative hearings, eight public testimony hearings, and eight versions before being enacted.

The Fair Share Act has had none of these. It requires you to place your trust in what you are told about it by the individual drafter of the initiative whom you don’t know regarding a long, complex law that is very hard to follow and understand.

If you want a vibrant Alaskan oil industry or don’t fully understand what this tax initiative will mean for investment in Alaska, Vote NO on Ballot Measure 1.

Bill Moran
Ketchikan, Alaska

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The text of this letter was NOT edited by the SitNews Editor.

Received September 17, 2020 - Published September 19, 2020, 2020

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