AJOC EDITORIAL: More math education needed ... for Democrats

For a party that spends as much time as it does carping about education funding, the least the state Democrats could do is open a math book.

A pair of late October announcements had Democrats falling over themselves yet again with embarrassing attempts at arithmetic and basic accounting in their ongoing campaign against the oil tax reform passed as Senate Bill 21 this spring.

Leading off was the chair of the state Democrat party issuing a press release Oct. 28 blasting Gov. Sean Parnell’s reaction to Pioneer Natural Resources selling its North Slope assets. Pioneer cashed out for $550 million to a relatively new startup company called Caelus headed by an industry veteran who has known the Pioneer CEO for 30 years.

Parnell welcomed the announcement and touted the purchase as evidence of Alaska as an attractive investment climate after the passage of SB 21, noting Caelus’ declared intent to spend $1.5 billion in Alaska over the next six years. The company is retaining Pioneer’s 70 full-time Alaska employees, adding some of its own staff, and keeping another 300 contractors working.

What a bum deal for Alaska.

Naturally Parnell’s attempt at a little political hay could not go unanswered by the Democrats with a governor’s election and the referendum to repeal SB 21 in 2014, but the response was laughably incoherent.

As someone who occasionally goes over the top, I had to chuckle at the Democrats’ opening description of Parnell’s statement as “Orwellian.”

(I’ll let it slide, though, that the Democrats misspelled “Oooguruk” in their release.)

“In fact, Caelus was taking advantage of a fire sale after Pioneer Natural Resources fled Alaska following passage of Parnell’s Oil Giveaway,” stated the Democrats, who went on to assert Pioneer was “moving its investments from Alaska to Texas and taking a $350 million loss.”

Never mind the inherent contradiction in proclaiming an Oil Giveaway! as the reason an oil company would flee the state, Mike Wenstrup, chair of the Alaska Democratic Party, huffed thusly: “No amount of spin can conceal the fact that Pioneer’s departure is bad news for Alaska and the latest casualty of Parnell’s Oil Giveaway.”

And no amount of huffy puffery can conceal that state Democrats and Wenstrup haven’t spent 10 minutes reading a Pioneer financial report.

The loss the Democrats point to refers to the Pioneer announcement it would recognize a $350 million noncash loss in the fourth quarter after receiving $550 million cash for Slope assets that produced about 4,300 barrels per day so far this year.

That means Pioneer had its Slope assets including the Oooguruk field valued on its books at $900 million, so selling for $550 million results in a $350 million “noncash” writedown for the quarter.

At the end of the third quarter, Pioneer had $744 million in cash and cash equivalents on hand. Its total assets were valued at a bit more than $14 billion.

The Slope transaction increased the Pioneer cash position by 74 percent, to nearly $1.3 billion, while taking an accounting writedown representing 2.4 percent of its assets.

What a bum deal for Pioneer.

Not to pile on, but Pioneer isn’t “moving” its investments to Texas, either. Texas is now its entire portfolio. Alaska production accounted for a fraction of Pioneer’s 173,000 barrels per day in production in the third quarter, and represented just $190 million of its $3 billion in capital expenditures this year.

The tax credits Democrats so often point to about their beloved ACES were also running out for Pioneer after years spent developing the Oooguruk field, declining from $49 million in 2010 to $29 million in 2012.

Some people might wonder if ACES is a great deal with the credits but a bad deal once the taxes kick in, and whether that might be a reason a company would flee the state. Not Democrats, apparently.

At $100 per barrel, Pioneer’s North Slope daily production adds up to about $157 million in gross revenue per year. That revenue will be taxed less under SB 21 than it would be under ACES and will free up more money for investment by a company focused on the Slope.

What a bum deal for Caelus.

Speaking of the sacred ACES, I missed the press releases this summer after Alaska finished fiscal year 2013 with a deficit of nearly $400 million while operating under the Democrats’ preferred tax regime and their budget. 

One of the chief ACES proponents and an equally prolific press releaser, Sen. Bill Wielechowski issued his quarterly congratulations to ConocoPhillips for making money in Alaska on Nov. 1.

Hyping ConocoPhillips Alaska third quarter earnings as usual, Wielechowski helpfully divided the $494 million up into increments of days and hours. He got the daily rate right at about $5.3 million, and only missed on the hourly rate by a factor of 10 by headlining it as $22,731.

When he wasn’t getting simple math wrong or perhaps as he debated whether it would be silly to divide into seconds (the answer is $62.15), Wielechowski for whatever reason ignored the bigger picture staring at him from the investor presentation he linked to in the press release. That shows ConocoPhillips Alaska earnings declined 7.6 percent year-over-year.

Compare that to its Lower 48 and Latin America holdings, which increased 15 percent year-over-year and 18 percent from the second quarter. For Canada, ConocoPhillips earnings increased from $5 million in the second quarter to $181 million in the third; its European earnings grew nearly 9 percent in the same period.

Overall, ConocoPhillips total earnings increased 7 percent year-over-year at the same time its Alaska income decreased 7.6 percent. The most profitable ConocoPhillips unit may be in Alaska, but its earnings in the state under ACES were actually a drag on its net income growth.

Forgive the bookkeeping pun, but the bottom line is the Democrats should spend less time on the PR and more time on the three Rs.

 

Andrew Jensen can be reached at andrew.jensen@alaskajournal.com.

 

Updated: 
11/09/2013 - 4:31am

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