Fair share? Not

Alaska’s Democratic lawmakers love to say the North Slope oil industry is not paying its “fair share,” to the state, but whatever that amount might be appears to be some sort of state secret. They simply cannot come up with a figure.

We are proud to report that, as we continue our lengthy search for exactly how much the oil industry in Alaska should pay the state – what that elusive “fair share” should be – we now know for certain what it is not. That is progress of a sort.

The Alaska Journal of Commerce, in an excellent editorial, points out that BP’s profit for last year in Alaska was $85 million. ConocoPhillips’ was $265 million. All that adds up to $350 million. Rep. Scott Kawasaki, D-Fairbanks, describes the amount as “gigantic.”

But the flip side – Democrats never want to talk about the flip side – is that the companies anted up to the state in various taxes and royalties nearly $1 billion – $959 million, the Journal says.

So, here is what we know now: Nearly $1 billion is no big deal when it is being paid the state by the industry and, in fact, is simply not enough, but $350 million in industry profit is “gigantic.” It is noteworthy that Democrats rarely, if ever, mention all the money the industry has pumped into state coffers. It would destroy their case.

The industry has underwritten 90 percent or so of state spending over the years. It has paid Alaska more than $58 billion in oil production taxes since statehood; $11.5 billion in corporate income taxes; nearly $4 billion to the state and cities in property taxes; and, about $47 billion in royalties. That seems a fairly “fair share” to us, but that seldom gets mentioned either.

Democrats seem to believe they can say or do anything to the industry without it responding; that they can raise taxes as much as they please and nothing will change. House Democrat Garen Tarr, during debate about the oil tax policy rewrite, even asserted companies would not leave Alaska because it has great geology, the Journal  noted. That sounds like bullying to us.

There was other buffoonery during the debate, all of it showing in vivid technicolor the Democrats’ lack of knowledge about the oil industry and the effects of their chicanery, but that gives you a taste.

While we still have no rock solid idea of what the industry’s “fair share” should be, we know that nearly $1 billion is too little, according to our pals on the left. We also know that if House Democrats have their way, jacking up oil taxes as prices remain low and flat, the nearly $1 billion Alaska receives now will shrink and Alaskans will suffer.

Jobs will be lost. The economy will suffer. The state treasury will get less money. The fiscal crisis will worsen.

Our search continues.

2 Responses to Fair share? Not

  1. Dave Rees April 13, 2017 at 10:47 am

    Here’s a memo to BP Employees, Retirees and Associated contractors about the 2016 economics for BP Alaska:

    From: Weiss, Janet L
    Sent: Tuesday, April 11, 2017 6:11 PM
    To: G AK All Users
    Subject: Did we or did we not lose money in 2016?

    Team Alaska:
    Last week, BP issued its 2016 Annual Report and the required 20-F form submitted to the US Securities and Exchange Commission. Unfortunately, the 20-F form only tells part of our BP Alaska business story which has caused some confusion and a number of questions that I want to help address.
    Let me be very clear, the BP Alaska Region did lose money (negative cash flow) in 2016 to the tune of about $1 million a day (a loss of $358 million for the year). And, the entire Region had a net income loss of $184 million. How can this be when the BP Annual Report 20-F says that BPXA made $85 million net income? There are several important facts to note:
    • The BP Alaska Region is made up of a number of separate businesses. For accounting purposes each of these businesses reports separately into the BP Group.

    • BPXA (the entity reported in the 20-F form) only represents one piece of our Alaska business. It does not take into account the cost of operating both our pipeline business (TAPS) and our marine shipping business. The BPXA business is specifically broken out as a requirement of the Prudhoe Bay Royalty Trust which is traded on the New York Stock Exchange.

    • The 20-F is an income statement and does not reflect cash flow. It is based on what our finance folks call “accrual accounting” which does not include ~$600 million of capital we invested in our Alaska business in 2016.
    As we think and talk about our business – our BP Alaska Region business – we must always think and act in terms of the entire entity, understanding the full cash flow picture. Looking at only one piece of our business is like a restaurant only looking at the cost of the food it buys and not taking into account the equipment needed in the kitchen, transportation costs to get the food to your restaurant or the marketing needed to attract patrons. As business owners we must take into account every aspect of our business – it’s about the entire Region.
    It’s important to note that even in this low price environment, BP invested $1.8 billion in Alaska ($1.2 billion operating expense, and $600 million capital) in 2016 and we paid $464 million in taxes and royalties to the State of Alaska.
    With our business owner hat on, it’s essential that we take time to understand and be able to explain the full story when asked by family or friends. I spent yesterday in Juneau talking with our state leaders about it.
    Please let me know if you have any questions or if there is any further information that would be helpful to you.
    Regards,

    Janet

    Reply
  2. Morrigan April 16, 2017 at 7:26 pm

    Dave, with respect, you missed the point.

    The defensive posture, the appeal to reason is misplaced.

    Alaska’s government seems to have transitioned from a logic-driven, business-friendly, capitalistic, representative (did I miss anything?) organization into a paternalistic, socialist, anti-business, corrupt, grossly mismanaged, legislative-lobbyist cabal.

    So, what BP faces is the equivalent of a third-world, banana republic (minus bananas) where, in order to do business and make money for shareholders, British Petroleum must buy (and sell) politicians.

    In other words, if BP has to colonialize Alaska to make a profitable return on its investment, then that is what will happen because, unlike Alaska’s state government, BP is too big to fail.

    Reply

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