The lose-lose conundrum advanced by Gov. Mike Dunleavy’s administration of maintaining either the Permanent Fund Dividend or education has a solution — eliminate oil tax credits. Sadly, Alaska is obligated to pay an $8 credit per barrel when the wellhead price is less than $80 per barrel.
Oil credits obligate Alaska to pay the oil industry — without a reciprocal return on Alaska’s investment expenditure — billions of dollars. Alaska has not received its Senate Bill 21 promise. There has been no flood of oilfield workers to Alaska’s North Slope and Alaska’s treasury is not replenished by increased oil production.
The dollar amount of oil credits given away by Alaska is staggering. The 2019 “Per-Taxable-Barrel Credit” is $1.245 billion. The forecasted credit each year through 2028 is never less than $1 billion each year. You can look this up yourself by looking at Alaska’s Revenue Source Book Fall 2018 on page 106 in Chapter 8. Alaskans have more to discuss than the lose-lose of either PFDs or education.
Remember the SB 21 promise in 2014 of 1 million barrels per day oil production; this promise to Alaskans was not kept. For those who quibble about that promise, recall the comparable promise 20 years ago: “no decline after ‘99.” The natural decline of the mature Prudhoe Bay and Kuparuk fields and their satellite fields continues. Please look at page 138 of Alaska’s Revenue Source Book Fall 2018 to see the unfortunate but continuing throughput declines; there is no 1 million barrels per day in Alaska’s forecasted future.
The promise to Alaskans was an election sham. The consequences of false election promises can take years to be understood, and Alaska now knows the consequences of its oil tax system that pays out billions because of oil credits. You may think you were not told the truth and that throughput declines would stop under SB 21. Additionally, readers should know that developments such as Point Thomson, ConocoPhillips’ CD5, Greater Mooses Tooth and others, including National Petroleum Reserve developments across the Colville River, started before SB 21.
The only SB 21 trickle-down to the citizens of Alaska is the lose-lose discussion between current death by loss of the PFD, or certain, but slow manifesting death by loss of education. The solution, at a minimum, is to eliminate SB 21 oil credits.
For those who may think the oil bonanza in the Lower 48 such as the Permian Basin in Texas might not be relevant to Alaska, please think about ExxonMobil. ExxonMobil generates more than a 10 percent average return in the Permian Basin “even at just $35 a barrel” (See Matt Egan Business update March 8). Texas royalties are higher than Alaska royalties and Texas production taxes are higher than Alaska production taxes. The cost of getting Alaska’s crude to the west coast is less than the greater price obtained for Alaska North Slope west coast pricing.
As of March 7, Alaska’s price for its crude is $67.24 per barrel compared to Texas pricing at $56.66 per barrel. ExxonMobil expects by 2024 an 80 percent increase in its Texas Permian oil production. ExxonMobil must not be that interested in its Alaska oil interests competing with its Texas oil interests even though Alaska has higher oil prices. ExxonMobil and other oil companies do not develop Alaska’s oil resources in the best interest of Alaska.
Norway’s $1 trillion sovereign fund is divesting stock ownership of exploration and production in oil and gas companies to “reduce the vulnerability of our common wealth to a permanent oil price decline” according to Norwegian Finance Minister Siv Jensen.
The time is now to eliminate the billions of dollars of oil credit given away with little to nothing received by Alaska. Alternatively, if you want a simple, straightforward tax system, institute a flat 20 percent production tax with no other calculations needed. This also positions Alaska in the average/competitive range for cumulative ownership and production tax payments by the oil industry for extraction of Alaska’s owned, taxed and depleting oil resource.
• Joe Paskvan is a former state senator from Fairbanks.