Evidence is strong that Alaska is driving off oil investments
By TOM BRENNAN
I don’t have the expertise to counter the oil-tax claim made by the state’s oil and gas consultant, Rich Ruggerio from Gaffney, Cline & Associates, but I sure as hell have a few questions.
Ruggerio said Alaska is about in the middle of oil taxing provinces and its share of the take compares with a number of other parts of the world. I wouldn’t accept that as gospel — I’d be very suspicious, if you want the truth — but I would ask him if the so-called comparable oil provinces were on their way up or, like Alaska, on their way down.
The ones he mentioned, Australia, Brazil and Indonesia, don’t seem in any way comparable to Alaska — except that they are all on the decline the way Alaska is. The risks and investments required to find or develop large reserves there are relatively small and returns far greater than in Alaska, where the reverse is true.
If Alaska is going to compete for industry investment, those provinces are the ones we have to beat. Matching them in tax levels just won’t do the job.
Alaska is trying to squeeze enough oil out of declining reservoirs to keep the trans-Alaska oil pipeline running, its people working and state revenues flowing. None of those things happen unless we beat the other guys and convince leaseholding companies that Alaska is the place to put their money.
Ruggerio also said the tax credits offered as drilling incentives are a “very significant” factor in drilling considerations. And indeed they are, but logic suggests the attraction would be to independents and others whose interests are relatively short term. The primary benefit would be to companies that are looking to find oil in whatever pools are available, then sell their interests to larger companies.
The problem then becomes that Alaska’s tax system means profit from long-term production is low compared to other places in the world competing for investment dollars. That is a disincentive to producers, who must amortize their investments over decades, not the few years it takes to drill a well and cash in the up-front tax benefit.
If Alaska’s tax system really was attractive to potential investors, you would see them making significant investments in heavy oil and hard-to-reach, hard-to-produce oil reservoirs — and exploring on state lands — but none of those things are happening.
The maxim is that oil exploration is a risk-reward game, with the dollars being put at risk only if the reward is potentially large enough to cover the costs of the lemons as well as provide a sizable return on the good producers. That’s not what we have to offer nowadays. Except for offshore prospects, beyond the reach of state taxes, Alaska these days is out of the oil picture altogether.
Gaffney, Cline is on contract to the Alaska Department of Revenue and that department wants to keep things the way they are. The Legislature, if it had good sense, would seek additional advice.
Revenue Commissioner Pat Galvin cites as proof that things are hokey-dokey the fact that drilling continues on the North Slope. But those are wells in existing oilfields and their purpose is to reduce the field decline rate. When that drilling ends, the oilpatch would effectively be on life support.
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And if Sen. Jack Coghill really is spending his lunch hour discussing with a lobbyist whether his lunch costs $14.99 or $15.02, then he is dumb as a stump and shouldn’t be in the Legislature.
Coghill is, of course, not dumb and has been representing his district in the House and the Senate for about 11 years, not too badly as far as I can tell. In complaining about the time it takes to bill-quibble, he was exaggerating to make a point.
Whether the spending limit on meals picked up by lobbyists is too low is a good question. It’s a lot like a legislative photo radar system where politicians can barely speak to lobbyists without getting it on their records.
Should they be able to speak to lobbyists without having the media and the public jump to conclusions about which side they are on — and whose pocket they are in? In my book, yes.
Lobbyists are often a good source of information and if legislators cut themselves off from them for fear of being branded, the legislation passed by those politicians will become increasingly less informed.
You think you’ve seen stupid now? Wait until your legislator is afraid to talk to the people who have the best information.
The idea is supposed to be that legislators should not become so indebted to those with vested interests that they make decisions harming their constituents in order to help their financial backers.
I have no idea where the line should be redrawn. In the meantime, all I can suggest is: Jack, try the salad.
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While we are on the subject, let’s talk about the length of the session. My old boss Bill Tobin’s ashes would be ginning up a whirlwind if he heard me say this, but I really think a 90-day session is too short.
Three months is just not enough time to deal with important issues, run them through the appropriate committees, hold hearings and bring them to legislative fruition in a single session. With straightening out the oil-tax mess and finding a solution to the cruise ship Titanic initiative of a few years ago still on the public plate, it seems extremely unlikely that the issues will be resolved this year. And that will put a lot of people out of work.
With this being an election year, a special session seems very unlikely. Since the specials add big dollars to the cost of the 90-day session anyway, we would have been better off with a 120-day meeting in the first place.
It used to drive Bill Tobin nuts when legislators killed time in Juneau getting the House or the Senate — or both — to send birthday wishes to an elderly person in a remote community somewhere. Those sentiments were nice, but when the Legislature has the meter running, such frivolous pursuits are infuriating to those who think it’s wasting time and money already.
A better reform would be to clamp down on legislators who travel the world over on the state’s dime, in session and out. South Africa, Europe, Canada (during a legislative session, if you can believe it) just to name a few.
Those who go conjure ridiculous reasons for frivolous travel, usually to look at a new energy project somewhere or see how the French handle permafrost problems. The legislative leaders who sign off on those things deserve a kick in the butt as much as those who take the trips.
Tom Brennan is author of The Snowflake Rebellion, Murder at 40 Below, Cold Crime and Moose Dropping & Other Crimes Against Nature. His Website is: http://arcticternbooks.com/
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