AJOC EDITORIAL: Democrats reach peak self-parody
It was Alaska House Majority Leader Chris Tuck for the win during a recent episode of “Democrats Say the Darndest Things.”
Amid the debate on the House floor April 10 over the oil tax policy rewrite hastily introduced and passed within three days by a single vote, the Anchorage Democrat uttered the most fallacious argument among the many offered by his cohort.
First the runners-up.
There was Rep. Scott Kawasaki, D-Fairbanks, describing 2016 Alaska profits of $85 million by BP and $265 million by ConocoPhillips as “gigantic.”
What’s gigantic is the ongoing ignorance about the oil industry displayed by House Majority members like Kawasaki.
BP and ConocoPhillips Alaska profits totaled $350 million in 2016.
Their combined payments to the state came in just shy of 10 figures at $959 million. That’s 27 percent for BP and ConocoPhillips and 73 percent for the state, but asking Democrats to do math is probably an unrealistic expectation at this point.
Then there was Rep. Justin Parrish, D-Juneau, whose head seems best suited as the home for the Legislature’s best gathering of hair and little else, stating that a bill doubling and even tripling the effective tax rate at prices between $55 and $75 per barrel “doesn’t go nearly, nearly as far” as he’d like.
Parrish wasn’t the only Democrat to say the bill didn’t extract enough new money from the industry, and several others including Resource Committee Co-chairs Andy Josephson and Garen Tarr actually claimed the bill is “modest” in its impact.
The ghost of Jonathan Swift could sue for copyright infringement, if only the Democrats’ modest proposal was also a satire.
Credit to Tarr for at least saying what Democrats believe, though, when she asserted that the companies aren’t going anywhere because Alaska has great geology. In other words, Democrats have carte blanche to pass any tax hikes they like and it won’t change production or investment at all.
Nevemind we have recent history under the previous regime known as ACES to know that policy does matter no matter how great the North Slope rocks.
But just when you thought Democrats were at peak self-parody, along came Tuck to plant the flag.
In answer to repeated statements by Republicans that the current policy is working, as evidenced by an increase in production through the Trans-Alaska Pipeline System for the first time in 14 years, Tuck said we should be thanking ACES for spurring the growth.
“Oil production is going up, but when you look at how long it takes to explore and develop, it takes seven to 10 years, so Senate Bill 21 isn’t playing a factor,” he said. “At this point it’s ACES that’s playing a factor in new production. Eventually some components of Senate Bill 21 might make that happen, but you can’t give credit to Senate Bill 21 when it’s only been in effect for about three years.”
With that, Tuck proved why he’s the captain of the Democrat canoe.
Tuck’s nonsense echoes the canard regularly uttered by Rep. Les Gara, D-Anchorage, that no increase in production on the North Slope can be attributed to the current policy passed in 2013 and upheld by voters in 2014.
Their only evidence to support this is CD-5, which ConocoPhillips started working on way back in 2004, and the fact Repsol started exploring on the Slope in 2011.
Just like their myopic focus on production taxes to the exclusion of all other sources of oil revenue, the Democrats are attempting to mislead the public about the current tax policy when they discount the growth in throughput and new projects.
For starters, there is Greater Mooses Tooth-1 in the National Petroleum Reserve-Alaska.
ConocoPhillips applied for those permits in July 2013, two months after former Gov. Sean Parnell signed the More Alaska Production Act into law. The company sanctioned the project in November 2015 and first production is expected next winter.
Drillsite 2S was sanctioned in October 2014 by the Kuparuk River field owners ConocoPhillips, BP and ExxonMobil and was the first new drillsite in 12 years.
ConocoPhillips, which operates the Kuparuk field, didn’t drill a single exploration well anywhere on the Slope from 2010 to 2012.
The price of oil during those three years averaged $94 per barrel.
Just to help out the Democrats again with the math, that’s about $40 more than the current price.
Same rocks, nearly double the price, and the state’s biggest oil producer wasn’t even exploring.
But sure, Rep. Tarr, tax policy doesn’t matter. The companies may not be going anywhere, but their capital certainly can and it has before.
Back to Tuck’s comment about crediting ACES for production growth, which was so farcical it resembled internet trolling. That would be preferable to the reality that Democrats truly believe this.
Tuck should take a look at the 2016 Prudhoe Bay Plan of Development, in particular the Division of Oil and Gas approval document issued last September:
“In 2015, (BP) again conducted a high level of drilling and wellwork in the IPA (Initial Participating Area) with 8 grassroots wells and 52 sidetrack wells. BPXA also performed 413 rate adding jobs and ~1,400 non-rate adding jobs. Rig Workovers have continued to increase over the past four years with 27 RWOs in 2015. Drilling and wellwork in all categories has been increasing for the last four (Plan of Development) periods in the IPA.”
Note the timeframe mentioned twice in that paragraph: the past four years.
That would be from 2012, when Parnell first introduced a tax reform bill, to 2015.
In 2012, BP performed 315 rate adding jobs at Prudhoe. That number increased to 485 by 2014.
In the Analysis section, the Division of Oil and Gas puts it even clearer:
“The activities conducted in the IPA over the last four years have seen record levels of drilling, RWOs, and rate adding jobs along with heavy investment in facility upgrades, pipeline replacements and inspections, and TARs (turnarounds). The IPA experienced an average daily production decline of only about 7,000 barrels of oil per day in 2015.”
After noting that Prudhoe Bay has exceeded its original recovery estimate by 2.7 billion barrels, the division stated BP is “progressing and developing new reservoir projects.”
Record levels of drilling.
New reservoir projects.
Rate adding jobs.
In. The. Past. Four. Years.
The current policy was designed to encourage both new oil, which would take longer to develop, and “old oil” from the legacy fields that it was known would result in additional production sooner.
And it worked.
So here come the Democrats demanding to tax these profitable fields more and thinking this will somehow encourage new development elsewhere when it is those very profits that are reinvested for new projects like Mooses Tooth or new reservoirs within existing fields such as the Sag River work at Prudhoe.
At $70 oil, the Democrats’ plan would increase taxes by about $2.5 million per day at current production levels. That’s about $900 million in a year, or about what it will cost ConocoPhillips to build Greater Mooses Tooth-1.
What is most troubling about the House action is the message it sends to industry. The bill itself will die a rightful death in the more sane Senate, but by insisting this bill is moderate, or doesn’t go far enough, tells the industry that if the Democrats ever get ahold of the upper body again things will get a lot worse.
Combine that with a governor perfectly willing to hike taxes on the industry while refusing to pay what the state already owes and you have the ingredients for chilling the Alaska investment climate once again.
Andrew Jensen can be reached at [email protected].