Business leaders in Kodiak were treated to lunch and a presentation Friday by an Alaska group advocating greater production and development of state oil resources.
The dire economic consequences presented for not acting to change the current state oil tax structure, however, may have left some without much of an appetite.
The Kodiak Chamber of Commerce sponsored the event with Mark Hamilton, former University of Alaska President, who has come out of retirement to speak across the state with the Making Alaska Competitive Coalition (MACC).
Hamilton was invited to speak by Will Anderson, President of Koniag Inc. who is on the steering committee of MACC.
“What (the coalition) is really about is educating the broader community about the perils we’re facing in regard to the oil tax situation and our lack of competitiveness in the world economy when it comes to attracting capital dollars from the oil industry,” Anderson said.
With oil royalties and taxes funding 90 percent of the state budget and footing the bill for public services, Hamilton said it was essential to consider the long-term integrity of the Trans Alaska pipeline, which is currently running at only one-third full.
“If your Alaskan, you’re in the oil business,” Hamilton said. “It’s time we learn something about the business we are all in.”
The decline in the throughput of oil in the pipeline, as well as the more viscous and cooler oil coming from maturing fields, equates to a limit where oil could stop flowing through the pipeline altogether if further production and exploration doesn’t take place.
That limit could come in about three years at the current rate of decline, Hamilton said.
“It could quite literally freeze up,” he said. “If that thing freezes, you’re not talking about a slow withdraw from … this tremendous revenue stream we have. It stops. It’s just boom, nothing’s flowing.”
But the decline isn’t because Alaska is out of oil, Hamilton said. Instead what Alaska lacks is the investment to produce and explore for oil.
“We’ve recently put together a tax regime that frankly has them walking away, going to other places where they can just make a whole lot more profit,” he said.
For example, Hamilton said, when all the taxes and royalties are subtracted, a barrel of oil pumped in Alaska brings oil companies $18, as compared to $45 in Alberta and $57 in Louisiana.
“Where would you invest?” Hamilton asked. “Where would you try to produce more oil?”
Kodiak state Sen. Gary Stevens has taken a critical approach to the oil tax reform proposed by Gov. Sean Parnell and which has already passed the state House of Representatives.
Stevens, speaking at the annual meeting of the Kodiak Chamber of Commerce, questioned whether additional tax breaks would go to fund exploration and the development of new oil resources in Alaska or simply go toward oil company profits.
He has also asked oil companies for some guarantee that they would add more exploration and development in Alaska if the oil tax rate is eased.
“We have got to make sure that if we give (oil companies) the credits they want, that we get something out of it,” Stevens said (see Capital Report, Page 4).
The governor’s proposed oil tax change would give about $2 billion a year back to the oil companies and Stevens said that may force the state Legislature to dip into the state’s savings account, the Constitutional Budget Reserve, to pay for state services.
Hamilton called arguments like this one a scare tactic.
Recently the state revenue department revealed that the state faces a $3.6 billion surplus.
Hamilton said the state could have collected $2 billion less this year in oil taxes and would still have had a $1.6 billion surplus.
Hamilton also said that if oil companies didn’t start making investments in new exploration and production with the new tax structure, that the Legislature could see fit to revise the tax structure again.
“We’d figure it out in a very short order,” he said.
He also said that state legislators shouldn’t expect a guarantee. It just doesn’t happen in business.
“Would you write a guarantee with the state of Alaska having just raised your taxes three times in three years?” Hamilton said. “I wouldn’t.”
Hamilton did, however, note the commitment by ConocoPhilips chief executive Jim Mulva on Thursday to make a $2 billion investment in oil development if the Legislature agrees to change the tax structure.
“Oil companies are going to go make a profit. That’s their job,” Hamilton said. “And they’re going to go to the place where they have the best opportunity to do it.
“It’s time we had a decision that says, ‘We would prefer to be competitive.’”
Kodiak Rep. Alan Austerman voted against the House bill that would change the oil revenue tax structure, but he did so because the bill also increases tax credits for legacy oil fields that Austerman felt were unnecessary. Austerman believes the progressivity tax, or higher tax rates when the price of oil also goes up, needs to be changed.
Mirror writer Wes Hanna can be reached via email at email@example.com.