Posted Wednesday, March 15, 2017 - 10:50 am
The first time Bill Armstrong met former Gov. Sean Parnell several years back he pointed at a map of the North Slope and told him where he intended to find a huge amount of oil.
A confident Texas wildcatter is about as uncommon as a member of the House Majority that wants to raise taxes on the oil industry, but only one of them is actually good for Alaska.
As information has trickled out over the years since Armstrong and his former majority partner Repsol began exploring, he has been proven more and more right.
First there were initial drilling results that Repsol described as successful, and led to some preliminary paperwork being filed with the U.S. Army Corps of Engineers that indicated potential production of 60,000 barrels per day.
That alone would have been a significant find, but it got better.
About a year later in late 2015, Armstrong swapped positions with Repsol to become the majority 51 percent owner and operator of the find, and the production estimate from the discovery in what’s now known as the Nanushuk play in the Pikka Unit doubled to 120,000 barrels per day.
Armstrong bought leases and drilled them this winter some 20 miles from his initial find, establishing that the Nanushuk play discovered at Pikka could easily hold more than 2 billion barrels of recoverable, high quality conventional oil.
Repsol billed this winter’s results as the biggest onshore conventional discovery in 30 years in a press release March 9.
Just five days later, and only four days after the bill was introduced, the House Resources Committee expressed its appreciation for the Armstrong-Repsol work by reducing the net present value of their discovery with legislation that would cut their deductions for development and raise their taxes across every range of prices once they reach production.
The process for the Resources Committee substitute bill was so rushed that a fiscal note from the Department of Natural Resources regarding the impact of provisions requiring approval of certain lease expenditures ranged from “minimal to significant.”
There has been no modeling on potential production impacts from raising taxes and cutting development deductions.
Talk about passing a bill to find out what’s in it.
This is just the latest episode in the neverending quest by Alaska Democrats to create a “heads we win, tails you lose” oil tax policy that isolates the state from the risk of exploration and low prices while allowing it to capture a majority share of the upside when a company like Armstrong or ConocoPhillips is successful.
Here’s what we do know about production.
During the last full fiscal year of the previous tax policy known as ACES that ended June 30, 2013, North Slope production was 531,000 barrels. That was down more than 200,000 barrels per day in the six years of ACES, or an annual decline rate of 5 percent.
Current North Slope production is averaging 520,000 barrels per day, which averages out to a 0.5 percent decline rate in just less than four years, or 10 times better than the rate under ACES.
Should the 5 percent decline rate have continued, we would be at about 433,000 barrels per day rather than the current 520,000. That adds up to 31.7 million additional barrels over just one year.
Democrats will cry til the cows come home that you can’t make a connection between the first production increase in 14 years with the tax policy they have staked so much political capital in overturning.
At current production rates, the North Slope will blow away the state forecast of 490,000 barrels per day and it is still a possibility we could see a second straight year of growth if the fiscal year finishes in June with a daily average greater than 514,000 per day.
It is always wise to not assume that correlation (production increasing) implies causation (changing oil tax policy in 2013).
But it is also a sound conclusion to recognize that the current tax law has certainly not hurt the state from a production or revenue standpoint. (The cashable exploration credits that are the source of so much budget angst predate the More Alaska Production Act by nearly a decade.)
It’s indisputable we’d receive no production taxes at current prices under ACES compared to about $2 per barrel under current law.
That doesn’t consider the royalty share either, which ranges from 12.5 percent to 16.6 percent off the top and means the state has unquestionably benefited from the near-complete reversal of the previous decline rate despite the price collapse.
The Democrat leaders of the House Resources Committee are not wrong in their attempt to ensure the state is getting maximum value for either its direct cash investments in development or foregone revenue in exchange for additional production.
However, it seems the only place Democrats are willing to examine return on investment regarding state spending is where oil tax policy is concerned.
They certainly have no interest in determining whether our health and education policies are working as those departments soak up billions in the annual budget while producing results that are mixed at best.
Any claim to the contrary is nothing more than the same lip service House Democrats paid to repairing the state’s reputation as an unreliable business partner while working behind the scenes to cement it.
Andrew Jensen can be reached at [email protected]
Posted Tuesday, March 14, 2017 - 5:00 pm
As we reach the halfway point of the 2017 legislative session, we wish to share some thoughts about this critical time that represents a truly defining moment in our state’s history.
What we do or fail to do over the next few months will send ripples through the lives of Alaskans for generations.
Alaska faces new realities and unfamiliar struggles. Navigating the uncomfortable concepts needed to overcome these challenges has pushed each of us to question what we really need or want from our government. After two years of public outreach and input, this difficult debate now rests with our legislators.
Both the House and Senate have taken this seriously and filed legislation that, if passed, would begin to address this historic challenge. We therefore applaud both chambers for showing the courage to engage in these discussions.
We are also pleased that things are progressing well, and we see no reason why this work cannot be completed within the regular 90 day legislative session. Compromise is certainly still required, and we have stated all along that these plans should be considered written in pencil — but the time is rapidly approaching to break out some ink.
As we work toward a solution, we will evaluate all plans against two main criteria. The first is math: does it add up; are the assumptions associated with it valid; and can it realistically eliminate the entire deficit in a reasonable period of time?
The second criterion is vision: do the mechanics of the plan remove uncertainty from our economy; will it preserve the quality of life Alaskans deserve; and does it have a long-term view that will put us back on a path to prosperity?
It is essential that both math and vision be considered together as we move forward. Otherwise the easiest, most non-controversial math will gain traction at the expense of a severely tarnished vision.
We must remain vigilant against such tendencies. Our children deserve better. We therefore encourage all participants to avoid the path of least resistance and to embrace the tough decisions required to reach a truly meaningful solution.
One needs only look at the legislation we proposed last year to know what we consider to be an example of a fair and balanced approach.
There are those who say we cannot solve our entire fiscal problem this year; that there are too many difficult lifts to do at once; or that implementation should be spread out to minimize impacts on the economy.
While these may be reasonable concerns, there is simply no perfect solution.
Continued delay results in even worse consequences. Without a comprehensive solution this year, we will see the recession deepen, state investments dry up, a further out-migration of Alaska’s best and brightest, and short-sighted decisions like shifting state expenditures to our local communities who are far less equipped to handle them.
Partial solutions only extend the runway; they do not allow us to actually take off. It means continuing to rush down a runway at high speed for a longer time, but with no plan for how to clear the trees when we finally get to the end.
And even if we got off the ground at the very last minute, the more time spent on the runway means less fuel to reach our ultimate destination — a bright future.
Alaska has shining potential. If we can only get this fiscal challenge behind us, we can immediately devote all our attention to priorities like building a strong economy with safe and vibrant communities; ensuring healthy families; and pursuing responsible resource development.
It is all within reach — if we solve the crisis. We must first fix Alaska to build Alaska. We just need to balance our checkbook, and then we can get to work on what’s really important.
History is waiting. Posterity is watching. We have a sacred responsibility to honor both.
So please let your legislators know that you support them as they do the difficult job we were all sent here to do. Tell them it is okay to make the tough decisions and that we need to tackle it all.
Most importantly, be sure to let them know it all has to happen this year.
Posted Wednesday, March 08, 2017 - 1:01 pm
During a town hall meeting with local legislators, Alaska Senate Majority Leader Peter Micciche, a Republican from Soldotna, discussed a plan to use earnings from the Alaska Permanent Fund to help pay for state government. At a press conference in Juneau on Feb. 26, he said that he would consider the current session a success if the Legislature could pass such a measure, along with the operating and capital budgets.
On Feb. 27, House Majority Leader Chris Tuck, an Anchorage Democrat, responded that focusing on the use of permanent fund earnings would be the “easy route” in addressing the state’s multi-billion dollar deficit.
We’d like to pose this question: If a plan to use permanent fund earnings is easy, why hasn’t it been done yet?
Indeed, Rep. Tuck seems to disprove his own point with that sentiment. For the past two sessions — and extended sessions, and special sessions — lawmakers have adjourned without any plan in place to use earnings from the permanent fund.
No, lawmakers have been taking the easy route for the past two years, drawing on the state’s savings to cover the $3 to $4 billion gap.
But because lawmakers have taken that route for the past two years, they are quickly running out of the easy route option going forward.
At that point, using permanent fund earnings will be the only route.
Rep. Tuck’s point is that he would like to see lawmakers also look at oil tax credits, a point of contention over the past two sessions as well.
However, lawmakers have known for quite some time that some version of a plan to use permanent fund earnings is the largest and most crucial part of addressing the deficit. It’s been acknowledged by Gov. Bill Walker, by the Senate, and even by other members of Tuck’s House Majority coalition. Too many lawmakers have been putting that tough decision off, saying that they don’t want to look at the permanent fund until they’ve done this or that or the other.
Meanwhile, Alaska has burned through billions of dollars in savings waiting for this, that or the other to get done.
We hope that the Legislature takes significant steps during this session to address both the short-term and long-term fiscal health of Alaska. We know that means using a portion of the permanent fund earnings to pay for state services.
We are under no illusions that doing so will be easy.
Posted Wednesday, March 01, 2017 - 1:00 pm
As Ron Burgundy may say, “That escalated quickly.”
Things went sideways not long after House Resources Committee Co-Chair Garen Tarr, D-Anchorage, began a Feb. 22 hearing that was, in her words, to hear from the state’s “industry partners” about the oil tax increases proposed in House Bill 111 introduced by her and her fellow Democrats on the body.
Less than six minutes later, Tarr put the smack down on the lead representative of the state’s partners, Alaska Oil and Gas Association President Kara Moriarty.
Moriarty was in the middle of responding to the presentation two days earlier by the Legislature’s latest oil and gas consultant, Rich Ruggiero, who’d asserted that tax policy changes were a constant around the world and Alaska shouldn’t feel bad about tinkering with its system for the seventh time in the last 12 years.
Backing up that claim, Ruggiero used a slide from IHS CERA plotting the changes by regimes around the world from 2001 to 2011.
Former Resources Chair Rep. Dave Talerico, R-Healy, asked Ruggiero if he had updated information from 2012 to the present that would show how regimes have responded to the price crash that accelerated in late 2015 and early 2016.
“You had mentioned ‘if you had the rest of the years,’” Talerico said. “Is there any chance you might be able to finish this out to 2016 and maybe provide that information to the co-chairs?”
In response, Ruggiero said this: “That would be quite an extensive effort, and I’m not sure what it would inform. Which is why I stated on the slide titled ‘forward’ that some of these slides are dated. The message they’re telling is that Alaska should not be embarrassed or feel bad that it is changing its fiscal system because the regimes around the world where most of the money is being spent are changing their regimes as often or even more often than Alaska is.”
Ruggiero, by the way, is being paid $35,000.
Talerico looked a bit bemused.
“I guess that means no,” he said. “I would like to see even North America if possible.”
At that point Tarr asked Ruggiero to see what he could provide and he said he’d see what he could come up with before coming to Alaska the following week.
The committee didn’t have to wait that long, because Moriarty found the updated slide from IHS in a report to by the Oil and Gas Competitiveness Review Board from May 2016 that is hosted on the state Revenue Department website. She also got IHS to email it to her.
Not much of an “extensive effort” and quite a bargain considering the Legislature isn’t paying Moriarty anything, let alone $35,000.
What the slide shows is that in January 2016 while prices bottomed out at about $26 per barrel, every regime that changed its policy offered incentives, not tax increases such as those proposed by Tarr and her fellow Democrats.
Before getting into what riled up Tarr against Moriarty, it’s important to know what Ruggiero said on Feb. 20.
On his very first slide, he stated: “Working from a common understanding will help everyone better understand the input that will be received from various respondents putting forth self-serving opinions.”
Then a couple slides later he went into the “detractor themes” guaranteed to be deployed by the oil industry in response to increasing government take, namely stability, competition and jobs.
The next bullet point stated: “In their world there is no concept of the operator earning too much and a government earning too little.”
Later he said of the companies, “they’re not charities,” which is a bit rich from a guy who is hardly working pro bono himself.
He’d probably have an interesting opinion on a bill that would tax consultant income at a rate of 65 percent, which is roughly the government take on oil revenue between federal, state and local taxes. He might even have a thought about whether anyone would work for the Legislature if they were going to be taxed at such a rate.
Ruggiero portrayed the industry representatives as robotically repeating the same thing over and over no matter the circumstance.
“Part of what you have to do is decipher from that message is what’s really critical or will chill industry or negatively hurt the state versus their natural inclination, that they have to come out and say whatever takes money out of their pocket is a bad thing,” he said.
All this time as Ruggiero told the committee to tune out the oil companies as speaking from an agenda, Tarr never interrupted and never cautioned him not to question the motives of the industry partners she would later be calling to testify.
So after Moriarty explained how easily she found the updated information, she said, “Having your consultant share older data from other consultants may demonstrate that he either didn’t take enough time for his presentation, or he is possibly using the data to drive an agenda —”
At this point Tarr cut her off.
“Miss Moriarty, we’re not going to make statements like that in this committee,” Tarr said. “So you’re not going to impugn the motives of that individual. If you want to respond to anything that was said, that’s fine. But we’re not going to do that.”
Tarr’s anger should have been directed at Ruggiero, who’s being paid not a small amount of money to present outdated information and act as though getting new information is going to be an “extensive effort.”
It should also probably be directed at him for, to his credit, repeatedly stating that governments typically lower taxes and increase incentives in a low price environment, which is the exact opposite of what Tarr’s bill would do.
Moriarty further corrected Tarr on her statement Feb. 20 that the industry requested “half” of the six tax changes in the last 12 years. Moriarty noted that the oil business supported the current tax policy because of the elimination of progressivity at high prices even though it was concerned about the 35 percent base tax rate.
She pointed out that industry supported the Cook Inlet Recovery Act in 2010, but that bill didn’t originate at its request. It came out of the Legislature in response to looming natural gas shortages for the state’s population center.
“We supported two out of seven if you count the one before you,” Moriarty said.
If Tarr wants witnesses to stick to the facts and not make unfounded accusations against others she’s going to need to start with herself.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, February 22, 2017 - 2:42 pm
Democrats in Alaska are once again sharpening the hatchet and taking aim at the state’s favorite goose — the oil and gas industry.
As Alaska slips deeper into a recession that began in mid-2014, lawmakers in the 49th state are wrestling with ways to close a $3 billion budget deficit caused, primarily, by an extended period of low oil prices.
But increasing the tax burden on the government’s number one source of revenue when the industry is struggling with declining production, increased regulatory costs, and falling profits is likely to collect less, not more for the state’s treasury.
There’s no question that Alaska is hurting. The once politically unthinkable — imposing an income tax or cutting the amount residents receive each year from the state’s Permanent Fund — are both now being openly discussed in the halls of the state capitol in Juneau.
In the state House, majority Democrats are seeking to increase the tax burden on the oil and gas sector, which, despite the downturn, still supports one third of all Alaska jobs and accounts for 65 percent of state revenues.
The governor’s office has already taken aim at the oil industry, vetoing hundreds of millions of dollars in tax credits promised by the previous administration in exchange for new investment in the state’s aging oil fields.
The administration argues the state can’t afford to pay the credits in the current fiscal environment, but the investments have already been made — resulting in the first uptick in oil production since 2002 — and the obligation to make good remains on the books.
A bitter fight over changes to the state’s oil tax system also brought the legislature to a standstill in 2016.
Legislation introduced Feb. 8 — House Bill 111 — picks up where things left off last year, attempting to increase the government’s take by further rolling back tax credits on new investment and raising the minimum tax to 5 percent of the gross value of production — which equates to an increased tax liability of 25 percent to 100 percent, depending on the company.
The legislation reduces the risk to Alaskans of developing the state’s resources by shifting it almost completely onto the oil companies. Resource extraction taxes usually try to strike a balance to encourage continued investment.
Governments either set a floor to capture a guaranteed minimum at low prices in exchange for allowing companies a greater take when prices rise or they share the risk at low prices for a bigger piece of the prize at high prices.
But the House proposal goes after the producers at both ends of the scale. It seeks to capture more revenue at low oil prices and grabs a bigger share when prices rebound as well. Doing so greatly reduces the incentive for private companies to invest in Alaska.
Hiking taxes on the oil industry may be popular with voters but it’s not necessarily sound economic policy. Higher taxes may bring in additional revenue in the short term but at a cost to long-term investment.
Put another way, killing the goose that lays the golden egg will result in further job losses and economic contraction, not increased state revenues.
Oil taxes are always a contentious issue in Juneau, but here are few things lawmakers should keep in mind before considering further changes.
Alaska lawmakers have changed the tax regime on the oil industry six times in 11 years, including three times in the past three years alone.
Such volatility is unsettling in the best of times to companies that make investment decisions years, often decades into the future. But raising taxes when oil prices are barely above the breakeven point on the North Slope and production has on average declined steadily for more than two decades makes an already challenging environment worse.
Tax hikes don’t happen in a vacuum. Drive taxes high enough — and factor in the uncertainty created by constant change — and companies will alter their behavior. For oil companies that means weighing investment of limited capital in Alaska against any number of competing prospects in the Lower 48 and around the globe that offer better returns and a more stable tax system.
The long-term challenge facing Alaskans is not so much the low price of oil — which fluctuates with market forces beyond their control — but the amount of oil being produced. The trans-Alaska pipeline has seen a 39 percent decline in throughput in the past decade and is operating at one third of its capacity.
Production on the North Slope has fallen 68 percent over the past 20 years from a peak of 2 million barrels a day. Alaska currently produces about 500,000 barrels a day, putting it fourth on the list of top-producing states, behind Texas, North Dakota, and California. Add the Gulf of Mexico and Alaska drops to fifth place.
The North Slope oil fields are far from exhausted. Prudhoe Bay remains one of North America’s biggest oil fields and large areas of Alaska have yet to be fully explored. But if Alaska’s tax regime makes the state uncompetitive then it can expect to lose investment needed for exploration.
Instead of digging themselves deeper into recession, Alaskans should focus on making the North Slope competitive with other oil-producing regions and improving access to untapped resources to attract private investment and boost production to ensure a stable economy for future generations.
Robert Dillon is vice president of communications for the American Council for Capital Formation, a pro-growth economic think tank based in Washington, D.C., and the former Communications Director of the U.S. Senate Energy and Natural Resources Committee.
Posted Tuesday, February 21, 2017 - 11:11 pm
Having spent time in Juneau at the beginning of the legislative session for the Alaska Chamber’s annual Legislative Fly-In, I’m pleased to see that my enthusiasm for 2017 is reflected in the halls of the state capitol. There are some optimistic new faces in Juneau this year. And I saw confident, determined looks on the faces of veteran legislators.
Over the past several years, Alaskans have watched as state government argued over the size of our public spending problem. In rare cases, some questioned if the state truly faced fiscal challenges at all. But the paralysis of indecision that plagued the capitol appears to be behind us.
As Alaskans, we are blessed in so many ways, including the resources needed to fix our fiscal problems. Our financial reserves are most certainly under strain and we can’t live off savings forever. But our resources are considerable and by working swiftly, collaboratively and wisely, we can close our fiscal gap while encouraging future investment.
Alaska needs a fair and balanced approach to solve our fiscal crisis. The options for balancing the budget remain viable.
1. Cut the cost of government. We must live within our means.
2. Restructure the Permanent Fund to protect the dividend and include controlled use of the earnings reserve account to pay for government services.
Alaskans have made it abundantly clear that new and increased taxes are an option only after steps one and two are complete. While the state has made some cuts, we have yet to tackle the large-dollar, formula-based spending items. Similarly, recent budget reductions are the result of pushing obligations off into the future. When the bill eventually comes due, we must have a fiscal plan that accommodates those obligations.
Restructuring the Permanent Fund can help us close the gap. Moving to a percent of market value plan — as proposed in the Senate — or similar structure is a part of Alaska’s blueprint for economic stability. When paired with spending limits like those proposed by both the House and Senate, Alaska can again be a stable and predictable partner for investment.
Sustainable state spending isn’t the only issue for chamber members and Alaska’s economic future, and it’s not the only issue moving in the capitol this year.
Workers’ compensation reform is a perennial top priority for both employers and workers. Workers’ compensation is a complicated system and one with universal impact on Alaska’s workforce. It’s taken years to bring the stakeholders to the table and to lay a foundation for systemic, comprehensive reform. Expect more from the chamber on this topic over the coming months. And look forward to a workers’ compensation system that better protects employees and employers while getting Alaskans back on the job.
Seeking to grow our economy we are working with our federal delegation on access to lands and resource development for the benefit of all Alaskans. We’re working with within our fisheries and with our maritime, tourism, mining, and timber industries to ensure Alaska’s economy is diverse, robust and marketed successfully to the world. But stability for the future starts with a predictable and sustainable state government.
With stability comes investment and economic health for Alaska. That’s a goal that crosses party lines. It’s important for employers and workers — public and private. It’s something that Alaskans are demanding more and more vocally. And I’m optimistic that we’ll get there this year.
Curtis W. Thayer is lifelong Alaskan and serves as president and CEO of the Alaska Chamber.
Posted Wednesday, February 15, 2017 - 2:32 pm
This question gets to the heart of the matter: What is it we really want Alaska to look like? What kind of Alaska do we want 20 and 40 years from now?
We would wager that more people than not want to have a strong education system with reasonable class sizes, reliable public safety in our communities, well maintained roads, health care, affordable energy, well managed fish and wildlife, clean water and air, a fair justice system, a strong university, and of course a Permanent Fund Dividend check every year.
We would go a step further and say that most Alaskans are willing to contribute if it means having these things now and for future generations.
In order to consider the magnitude of the obstacles that stand between us and the Alaska that we want to live in, let’s consider the fiscal deficit that has been discussed these last several years. Alaska has a $3 billion budget deficit caused by the precipitous drop in oil price and the long-term downward trend in oil production.
Our oil fields are not what they use to be and the global economics of oil have changed significantly during the past 40 years. Our state’s unrestricted general fund revenue, which is predominately derived from oil (90 percent), has dropped from $9.9 billion in fiscal year 2012 to $1.4 billion in fiscal year 2017 and a projected $1.6 billion in fiscal year 2018.
North Slope oil production is projected to decrease to 455,000 barrels per day in fiscal year 2018 — the lowest level in the pipeline’s history and far from the more than 2 million barrels per day it used to carry.
If no solutions are passed this session, the Constitutional Budget Reserve account will be nearly depleted by the end of fiscal year 2018, and our Legislative Finance Division predicts that all our state savings accounts will be depleted in five years.
There would not be enough money in savings and Permanent Fund investment earnings accounts to cover future budget deficits, and there would be no money to pay PFDs.
There is no silver bullet for solving our fiscal problem. To maintain the Alaska that we want to live in, we need a durable solution that includes a combination of measures: 1) A percent of market value draw from the Earnings Reserve account (within the Alaska Permanent Fund); 2) A reasonable broad based tax; 3) A moderate and protected PFD payout; and 4) A restructuring of the oil and gas tax credits. Implemented together, these four pillars will lay the foundation for a prosperous future for all Alaskans.
Two bills were introduced this past week by the House Majority members that address these four essential pieces. House Bill 115, sponsored by the House Finance Committee, asks lawmakers and Alaskans to embrace a fair and balanced approach to creating fiscal certainty for our state.
Fiscal certainty is a necessity for economic growth, and greater economic growth will contribute to further fiscal certainty. HB 111, sponsored by the House Resources Committee, would restructure the oil and gas tax credit program. Together, these bills place Alaska on a sustainable path.
We think about Gov. Jay Hammond and what actions he would consider at such a time. Gov. Hammond was a man of vision. He had the ability to look well into the future to see the day that the Earnings Reserve account would replace oil’s role in supporting our state, while maintaining both the Permanent Fund principal and dividend.
Each year we delay implementation of such a plan is another year of borrowing from the CBR that we need to pay back. The state has now seen four straight years of Alaskans leaving the state — over 17,000 to date.
According to the Institute of Social and Economic Research, between 2014 and 2016, we lost 1,500 private sector and 1,700 public sector jobs. There is a powerful direct correlation (in our state) between the price and production of oil and employment. It is time to break this cycle of dependency and put Alaska on a stable path that is no longer so reliant on oil.
In the early years of our state, Alaskans pulled together to pay for the services that were important to our families and our future: education, roads, and hospitals. We willingly paid a state income tax, a school tax, and other fees.
Then oil came along and we enjoyed the profits that came with it. But anyone who has lived here long enough knows there is a cycle to everything. Some years the fish limits are high, some years they are low. If we respect the cycles and work with them we can sustain our way of life.
It’s not going to be easy. We will have to adjust to a smaller government, and we will have to accept the fact we must start contributing to the services that we want for our children and our quality of life. Yes it will be a difficult shift, but when have Alaskans backed down from a challenge?
This is why many of us chose to live here and why we choose to stay. The Alaska House Majority Coalition members are willing to face this challenge. We encourage you to reach out to us, to learn as much as you can about possible solutions, and to offer your ideas.
Together we will craft a plan that is fair and balanced for all Alaskans, provides for a strong economic future, and helps realize the Alaska we want to live in.
Reps. Paul Seaton, R-Homer, and Neal Foster, D-Nome, are the co-chairs of the House Finance Committee.
Posted Wednesday, February 15, 2017 - 2:31 pm
An observation from educator/philosopher William James came to mind as I watched Robin Brena lecture the House Resources Committee on Feb. 3 on his version of reality.
“There’s nothing so absurd that if you repeat it often enough, people will believe it,” James wrote.
Well, Brena repeated the words “fair share” 40 times during his two-hour, 71-slide presentation.
In Brena’s mind, “fair share” means fixing Alaska’s fiscal mess by jacking up taxes on the oil industry and changing our tax policy for the seventh time in 12 years. He forgets that our own commissioner of Revenue, Randy Hoffbeck, has repeatedly said that the state is collecting more money under our current tax policy called SB 21 than we would have under the old one, called ACES.
To quote him: “SB 21 brings in substantially more revenue to the State at low prices.”
Forget that the oil flow through the pipeline actually increased in 2016 for the first time in more than 14 years.
Forget that our current tax policy lured new explorers which made two of the world’s largest oil discoveries in decades. And ConocoPhillips which continues its string of discoveries in an area other companies gave up on years ago.
Forget that the industry invested more than $5 billion in Alaska at a time they were hemorrhaging dollars. As BP recently testified, “In 2016, we lost over a million dollars each day in Alaska.”
Forget the advice of ExxonMobil Tax Counsel Dan Seckers who said, “The need for Alaska to maintain a competitive fiscal regime that encourages critical, ongoing and long-term investment is by far one of the most important issues you face.”
Forget what companies like Hilcorp have meant for our state. This independent company almost single-handedly doubled oil production in Cook Inlet and turned a natural gas deficit into a surplus. Now they’ve found a formula to develop Liberty, one of the largest potential sources of new light oil production on the North Slope, with an estimated 80 million to 130 million barrels of recoverable oil.
Hilcorp has invested more than $1 billion in Alaska but they, too, want and need certainty. As they said, “If the Alaska Legislature makes yet another tax policy change this year, we will adjust our investment spending in Alaska accordingly.”
Mr. Brena, why do you continue to mislead Alaskans by implying that our production taxes are the only state tax on the oil industry? You ignore the fact that in addition to production taxes, the industry pays Alaska 12.5 percent of revenue in royalties, 9.4 percent of profits in state income taxes, and local property and federal income taxes.
You suggest that revenue be split one-third for Alaska, one-third for the producers and one-third for the federal government. You ignore the fact that oil companies would pay 100 percent of the expenses out of their one-third, after assuming 100 percent of the business risks.
Please quit trying to mislead us and quit trying to drive away the industries that determine our economic future.
And why do you ignore the Alaska Department of Revenue data that clearly shows that under the current tax policy, Alaska takes in more revenue than the producers at all oil price levels? Alaska receives substantial revenue, even when the companies are breaking even or losing money. Our current tax policy is already fair to Alaska, perhaps too fair.
Our state is built on oil and is fueled by oil. Why would we declare war?
How are we going to foster a growing economy for our kids and grandkids when you advocate for continually raising oil taxes and regulations, which result in less long -term capital being committed to oil production?
How are we going to ensure the industry keeps investing $3 billion to 4 billion per year to keep our legacy fields producing at sustainable levels?
How do we keep attracting high paying jobs that have been the key to our increased standard of living and strong economic growth for 40-plus years?
How will we fund state government when oil production dives because we cannot attract the capital investment we need because we continually change the tax burden?
The oil industry supports a third of our economy. We need to keep it healthy, and that Mr. Brena, is much more complex than your hollow mantra of “fair share.”
Rick Broyles is the secretary-treasurer of Teamsters Local 959 and a founding member of KEEP Alaska Competitive.
Posted Friday, February 10, 2017 - 11:47 am
In his opinion piece published in the Alaska Journal of Commerce on Feb. 8, Mr. Karl Johnstone, presumably from his home in Arizona, gave a eulogy at the graveside of Cook Inlet commercial salmon fishing. Actually, the industry is alive and well and helping Alaskans get through these economic hard times.
Mr. Johnstone uses the same old tired, outdated arguments: there is not enough salmon in Cook Inlet for all users; Cook Inlet salmon can’t compete with farmed salmon, sportfisheries are so much more valuable than commercial fisheries; etc.
He cites an economic report about angler spending that was conducted prior to the national recession in 2008 and the recent king salmon decline and compares the numbers to the very lowest possible measure of commercial harvest value in Cook Inlet on a bad year.
Johnstone claims that Alaska salmon can’t compete with farmed salmon. Twenty years ago that was a problem but the industry adapted and now wild Alaska salmon have a solid market niche and Cook Inlet sockeye is a very premium, sought-after product in America.
The worst economic lie that he and his pals have been promoting is that the sport industry and personal use fisheries could actually grow large enough to replace the value of the commercial industry to our state.
It can’t happen.
There is no way that the available, renewable, surplus salmon in Cook Inlet could be harvested without commercial fishing, even if you lined every inch of every beach with personal use dipnets.
In-river sport fishing capacity is already maxed-out. For each of the past six years the Kenai River has had overescapements. All of the dipnetters and anglers in the river could not harvest the (average annual) half-million excess sockeye that swam through.
When properly managed, Cook Inlet is the fourth-largest commercial salmon fishery in the state. With good management, there are enough salmon in Cook Inlet for everyone. And we need the economic benefit for all the users, especially now.
Big, beautiful Cook Inlet commercial sockeye salmon are a keystone component of the Southcentral Alaska seafood industry. The latest economic study of this industry (McDowell Group, 2015), based on 2013 data, found that 8,130 full-time equivalent jobs were provided and $1.2 billion was generated in total economic output annually.
Mr. Johnstone has finally “outed” himself here as an opponent of commercial fishing. His strong prejudice against commercial fishing was always very evident during his years as a member, and then as the chairman, of the Alaska Board of Fisheries.
During Mr. Johnstone’s time on the Board, the viability of the commercial salmon fishing industry in Cook Inlet was systematically undermined while the interests of the guided sportfishing industry were actively promoted.
Mr. Johnstone’s work on the Board of Fisheries resulted in a myriad of arbitrary, unscientific restrictions on commercial fishing that have made it impossible for ADF&G to manage the fishery properly.
Overescapements into the Kenai River are one direct consequence of this. Those excess fish that were not needed for spawning, and were not caught in-river by PU or sport fishers, were worth over $70 million to the commercial industry.
If Mr. Johnstone gets what he wants — the end of commercial fishing in Cook Inlet — he’ll wreck the salmon resource and the local and regional economy. There’s a reason he is no longer on the Board of Fisheries.
Catherine Cassidy of Kasilof has worked in the Cook Inlet commercial fish industry for 29 years and is a drift gillnet permit holder.
Posted Wednesday, February 08, 2017 - 3:29 pm
The Alaska of today is not the Alaska of statehood. The 49th state has grown and changed radically. The economy of the state is wholly different, and yet Alaska salmon management continues to be treated as if we just became a state.
Almost all major fisheries in the state have, for decades, been managed on the premise that commercial catches are always the highest and best use of Alaska salmon resources. This is especially true in Upper Cook Inlet.
This premise ignores the changes that have occurred. In 1976, 191,000 sportfishing licenses of all types — resident and non-resident — were sold in Alaska. Non-residents accounted for only 47,000 of them. By 2015, non-resident license sales alone had topped 278,000, a six-fold increase.
Sport, both by residents and nonresidents, and dipnet fisheries on the Kenai Peninsula are now big business. With Alaska’s economy fading, we can no longer ignore the economics of angler and personal use caught fish.
University of Alaska Anchorage economist Gunnar Knapp suggested in a 2009 report to a Cook Inlet Salmon Task Force, that, with caveats, “the economic contribution of sport fishing may have been as much as four and a half times that of commercial fishing.”
Alaska can ship Cook Inlet salmon south in coolers sent by tourists and residents and make hundreds of millions of dollars or the state can continue to move the fish out of the state unseen as commercial catch and make tens of millions of dollars. One can argue at length the exact value of the sport and commercial fisheries in the Upper Cook Inlet. The facts that are not debatable are these:
The sport and dipnet fisheries in Upper Cook Inlet are newer businesses that continue to show growth and the potential for even greater participation. At the same time, Upper Cook inlet commercial fishing is declining in value.
In 1964 there were few sportfishing businesses on the Kenai Peninsula and scattered across the Matanuska-Susistna Borough. There were few homes on the banks of the Kenai River. And it was unusual to see more than a handful of anglers.
Today there is over $500 million of assessed valuation of homes on the river and tens of thousands of anglers users using the river, not to mention the over one hundred thousand dipnetters and their family members.
An eight-year-old study by Steve Colt and Tobias Schwoerer of the UAA Institute of Social and Economic Research tagged angler spending, both resident and non-residents, in the Susitna Valley alone at something between $63 million and $163 million in 2007.
“This spending generated between 900 and 1,900 jobs and between $31 million and $64 million of personal income for people who work in the Borough,” they added. “Mat-Su sport fishing activity also generated between $6 million and $15 million in state and local taxes.”
The Kenai tax value that year — with the Kenai supporting the state’s largest sport fisheries — was at least equal and probably greater. Total economic impact from angler spending in Upper Cook Inlet can be measured in the hundreds of million dollars.
On the other hand, the ex-vessel value (prices paid to the fishers) in the Upper Cook Inlet commercial salmon harvest, in 2007, was pegged at $23.4 million.
Total economic impact was higher, but a fraction compared to the impact from angler spending.
The new businesses that are Alaska’s economic future, along with the average Alaska angler and dip netter, get treated like ugly stepsisters while the focus remains on trying to prolong the life of the aged and fading sibling for as long as possible even though the benefits to the Alaska family are destined to steadily decline.
Alaska salmon are today small players in a global market where salmon farms, like it or not, dictate price. The Norwegians produced a record 1.3 million tonnes of farmed salmon in 2015; Canadians, 1.2 million tonnes.
The Chileans with help from Mitsubishi are continuing to grow their production and, so too are the Scots. And these farms aren’t producing pink salmon for cans. They’re producing Atlantic salmon for filets that compete directly with Upper Cook Inlet salmon in the marketplace.
As Alaskans, we can all agree wild salmon is better than any farmed product. But price dictates in the market. It is clear that Alaska sockeye salmon prices have been going down.
Commercial prices have flatlined. Unfortunately, one cannot rule out the possibility that prices will continue downward as aquaculture operations follow a 50-year trend and become ever more efficient. The Worldwatch Institute, an influential NGO, is now calling aquaculture “the most hopeful trend in the world’s increasingly troubled food system.’’
The world has changed, and it is changing ever more by the day. We need to keep up!
Alaska has a choice. It can continue to manage in the interest of old, fading businesses at the expense of young business with growth potential, or it can start trying to figure out how to slowly and as painlessly as possible transition the fisheries economy of the Upper Cook Inlet, the state’s most populous region, going forward.
Upper Cook Inlet’s economic past was as the fishery of the few. Its economic future is as the fishery of the many. It’s time for the state to make the first real changes in moving toward that goal.
Not only would this make good economic sense, it is mandated by Alaska’s constitution. That document, which the legislators and Board of fisheries members swear to uphold, requires that Alaska fisheries resources be managed for the “maximum benefit of its people” Out of date priorities for one user group at the expense of one hundred thousand of other Alaskans who depend on the resource is out of step with the constitution and ignores economic realities.
Karl Johnstone is a retired Superior Court Judge and former chair of the Alaska Board of Fisheries.
Posted Wednesday, February 08, 2017 - 3:29 pm
Alaska is at a tipping point and Alaskans have a choice to make: Either keep Alaska competitive and fix our fiscal crisis or continue down a path that ends in a failed economy.
We are co-chairs of the KEEP Alaska Competitive Coalition, a broad-based group of Native corporations, unions, businesses and individual Alaskans who understand that fair and consistent tax policies for our resource industries are essential for Alaska’s economic future.
We are 5,000 members strong. We are not the oil industry and we take no funding from the oil companies.
We are also longtime Alaskans who remember an Alaska before oil. We understand that Alaska is better with oil than without.
The oil industry has paid for up to 90 percent of state general fund spending the past 40 years. Even in these days of low oil prices and low production rates, oil provides 67 percent of the state’s unrestricted revenues and supports one-third of our economy.
Our heavy dependence on oil has given us a great ride, but it’s not sustainable. It’s not economic reality. You can’t take in revenues of about $1.5 billion, spend approximately $4.5 billion per year and continue to do nothing about it.
And, if most of our revenue, and most of our jobs, come from the resource industries, you can’t tax away their incentive to invest and still expect to have a sustainable economy.
The solution to our fiscal crisis is not that hard. We can develop a durable and sustainable fiscal plan by following these methods:
• Continue to cut the cost of state government;
• Reduce the PFD;
• Use a sustainable percentage of value of our Permanent Fund earnings to fund state services;
• If necessary, increase revenue through some combination of taxes, and do it now to maintain stable and competitive taxes for our resource industries.
Alaska has much to be thankful for and on which to build an economic future.
Alaska’s abundant natural resources are the envy of the world.
At today’s production rate, we have more than 40 years of proven oil reserves remaining on the North Slope, and we have much more to discover and develop with the necessary infrastructure on the Slope, the Trans-Alaska Pipeline System and the Valdez Marine Terminal and a road to the oil fields.
The mineral reserves in Alaska are among the biggest in the world. We have the largest wild salmon and pollock stocks on Earth.
Alaska is not only rich in opportunity; it has one of the best labor forces in the country. And most Alaskans want to remain here.
The United States is the most politically secure, economically strong and safest nation in the world.
Why not market these attributes, be competitive and make Alaska the economically vibrant state it can be?
Here’s what we can do:
• Support a solution to Alaska’s fiscal crisis that includes cuts, restructures the Permanent Fund and require new taxes if necessary.
• Urge our legislators not to kill our resource industries with unstable tax policies and overtaxation.
• Tell our legislators to be responsible and find a solution to our fiscal crisis in the current session.
• Talk to our employees, friends, neighbors and others so they understand the urgent need to fix our deficit on a sustainable basis.
Our goal is to support a solution that includes stable tax policies and a balanced fiscal plan.
Jim Jansen is chairman of Lynden. Marc Langland co-founded Northrim Bank and served as its chairman until he retired at the end of 2015.
Posted Wednesday, February 01, 2017 - 12:08 pm
Dating back to before statehood, Alaskans know that overfishing is a bad thing.
Stopping overfishing of salmon and regaining control of the resource was in fact one of the driving forces in the effort to become a state.
What we know about sustainability of our vast fisheries resources is worth applying to yet another debate over another immense asset — our oil — and the means by which that resource is taxed.
Get ready for more proclamations from Democrats, soft Republicans and the friends of Gov. Bill Walker about receiving “our fair share” of the resource through taxation and the debunked claims that the 2013 oil tax reform was a “giveaway” to industry.
The “Alaska model,” as it has come to be known, holds an overarching policy to prevent overfishing and though the enshrinement of sustained yield in the state constitution it has largely been a success.
The reason is simple: while there may be short-term economic benefits to harvesting nearly every fish in the sea, the long-term effect will be to destroy the resource. Some of the fish must be allowed to reproduce to sustain populations in perpetuity.
It isn’t a difficult concept to understand, but when it comes to the oil industry there is a large segment of the population and their politicians who don’t get it.
True, oil, unlike fish, is not a renewable resource. But capital is.
Certainly it is tempting to want to collect every dollar possible from the oil business through taxation, but doing so robs the companies of the investment capital they require to expand existing fields and to discover new ones. In the long run, overtaxing will wreck the economic engine of Alaska in the same way that overfishing decimated the salmon resource.
The cashable tax credits whose origin in policy date back to the 2006 Petroleum Profits Tax have received the bulk of the attention for the deficit-stricken state budget as the tab is running to nearly $1 billion by the end of next fiscal year.
Dealing with the credits is a cash flow problem, however, and the more troubling effort is what is likely to come from either the governor or the new House majority to increase the tax on production.
The leaders of the new House majority and the governor opposed the 2013 production tax reforms and campaigned for the repeal and return to the previous system known as ACES in 2014.
Those critics of the current policy keep pointing to the low production tax revenue at current prices as proof that the regime is a “disaster,” as Senate gadfly Bill Wielechowski endlessly repeats.
Yet according to Walker’s Revenue Department, under ACES the state would have received zero — yes, zero — production tax revenue in fiscal years 2016 through 2018 and the current policy took in more than ACES would have in fiscal year 2015.
In fact, under ACES the state would receive no production tax revenue until the price climbs north of $63 per barrel.
ACES does collect more revenue at higher prices, but returning to the parallel of overfishing, at what cost?
There is no disputing that production declined by an average of 6 percent per year under ACES while the state share averaged 41 percent.
There is no disputing that ConocoPhillips, the most active explorer on the North Slope since 2000, did not look for oil from 2010-12 despite sky-high prices.
There is no dispute that under oil tax reform, we’ve seen no decline in fiscal year 2014, a slight dip in 2015 amid a record amount of drilling and workovers, followed by the first increase in 14 years in 2016.
What’s amazing about the results of the 2013 reform is that oil companies haven’t even seen the upside of it yet.
They have seen prices collapse to the point where losses have amounted to billions in the upstream segment — ConocoPhillips lost more than $4 billion in 2015 and another $1 billion in the first quarter of 2016 — and they are paying more in taxes at these prices than they would have under ACES.
What the 2013 oil tax reform proved is that allowing companies just the prospect of keeping more of their capital to reinvest is enough of an incentive to spur development and discovery even during a brutal price environment.
Not many would have thought when 2016 began with prices bottoming out at $26 per barrel that the year would end with a production increase and hugely successful North Slope lease sale.
The supporters of oil tax reform were proven right, but the fight isn’t yet over against those who would crush the North Slope through overtaxing the way the canneries nearly did to salmon by overfishing.
Andrew Jensen can be reached at [email protected]
Posted Thursday, January 19, 2017 - 11:37 am
The last-minute decision by President Obama to indefinitely ban any future offshore energy activity in the U.S. Arctic should be reversed by President Trump, soon — within the first 100 days of his term.
Why? Obama's decision was taken with no public comment or consultation ahead of time. Resources worth more than $1 trillion at today's low prices were put off limits to human use.
Large supplies of natural gas, mankind's "bridge fuel" to lower-carbon power, including recent discoveries, were locked away — while Russian Arctic gas, much further away from world markets, continues its march toward production.
Take away development and the effect is to dampen Arctic research, monitoring and infrastructure development — things we need to establish leadership in this newly accessible ocean.
But there's one more reason the ban should not stand: It was probably illegal. The state of Alaska's equities in law were never met. This can be rectified by court decisions if the state challenges it in court — but America's energy future is too important to tie up for years in litigation.
Only a few months ago, I — a pro-production, pro-conservation Republican — would have said that President Obama executed an Arctic policy based on balance. I joined an October Atlantic Council conference where a senior White House official publicly noted that "responsibly developing Arctic oil and gas resources aligns with United States' 'all-of-the-above' approach to developing domestic energy resources."
And yet in the space of eight weeks the White House performed a stunning about-face, first removing the Arctic from the next offshore leasing program, and then delivering the coup-de-grace by killing any prospect of future development. Suddenly the Arctic ecosystem was simply too fragile to even consider domestic energy development, irrespective of past exploration. We had adopted a "drain Russia first" energy policy for the Arctic.
So what changed in the space of those two months? Looking at these decisions, it's hard to reach any other conclusion than that the White House was reacting to the November election.
Under the new reality of President-elect Trump's stunning victory, the administration decided to toss every land mine it could to slow or prevent oil exploration and production in Arctic waters.
It blew up the bridges to the state of Alaska, the Alaska Native community, and to other Arctic nations pursuing offshore development that its own policy had built.
The "leave-it-in-the-ground" crowd had crowded out the "all-of-the-above" policy, and in a manner that was most undemocratic and unfair. Keystone Pipeline got eight years of extended hearings before Obama killed it. Alaskans who had worked out how to explore the Outer Continental Shelf got no public process, not even a tweet.
A detailed analysis of the Outer Continental Shelf Lands Act and its previous applications highlights three primary difficulties with the White House's order; that there's no precedent to show a ban should be permanent, there is nothing to suggest a subsequent White House cannot overturn the decision, and that the administration's application of the rule conflicts with previous uses and several of the act's wider specifications.
The relevant language permitting a moratorium on energy development sits in section 12(a) of the act and states that the president may "withdraw from disposition any of the unleased lands of the outer continental shelf." Crucially the law never suggests that these withdrawals should be considered "permanent" or "irreversible," a point the White House tacitly admitted when it termed the decision an "indefinite" action. That argument is corroborated by past applications of the rule, which in each case have included a specified time limit.
Nor is there anything to suggest that a 12(a) ruling will handcuff subsequent administrations. After President George H.W. Bush implemented a ban on Atlantic and Gulf of Mexico waters, President George W. Bush used the rule to remove restrictions, effective immediately on his order.
Put simply, precedent suggests that if one president has been able to use an executive memorandum to implement a ban, that president's successor should be able to use the same authority to repeal the regulation.
Finally there are numerous issues with the way the administration has applied the regulation.
According to its text, the act was explicitly designed to ensure that the Outer Continental Shelf is "available for expeditious and orderly development." Previous restrictions have reflected this point and protected specific, discrete areas of the continental shelf with special characteristics.
In contrast the Arctic moratorium covers almost the entire Beaufort and Chukchi seas, a combined area of more than 125 million acres. It is hard to argue that President Obama's use of the rule fits with Congress' intent of ensuring access to the continental shelf.
Similarly, the OCSLA also requires that the federal government consult with the governor of any state where restrictions are under consideration. Alaska state officials have already noted that the administration failed to conduct any such discussion with them, a point borne out by Gov. Walker's comment that the decision "marginalizes the voices of those who call the Arctic home."
I hope Alaska sues.
As recent polling has indicated, Alaskans overwhelmingly support offshore energy development in the Arctic, a point the administration appears to have been cognizant off when it neglected to discuss the ban.
President Obama's decision to implement a ban in the Arctic poses several troubling realities. Any attempt to cut carbon should be applied fairly, with public input, with maintaining American energy independence in mind. Technology development, including finding ways to decarbonize hydrocarbons, is the best approach.
But because the Obama administration appears to have actively chosen to re-interpret the intention and application of the original act, its decision is clearly beyond the scope of executive control.
It ignores the spirit of previous rulings, disregards state and regional authority and has no historical parallel. President Trump should overturn it as a priority in his first 100 days in office.
Mead Treadwell served as lieutenant governor of Alaska, 2010-2014, and as chair of the U.S. Arctic Research Commission, 2001-2010.
Posted Wednesday, January 18, 2017 - 12:20 pm
We aren’t hearing much from the opponents of the 2013 oil tax reform lately.
Facts tend to get in the way of rhetorical hyperbole, and it appears that reality has finally caught up with Democrats and Gov. Bill Walker, who collectively agitated for the repeal Senate Bill 21 in a 2014 voter referendum.
Losing that fight didn’t end the debate, however.
Nor did the undisputed evidence from Walker’s own Revenue Department that SB 21 was bringing in more money than the previous system as prices started to slide late in 2014.
Record employment and record drilling on the North Slope in 2015 didn’t stop the noise, either.
The 2016 fiscal year increase in production — the first since 2002 — was barely noted as the news came amid a chaotic end to the session and Walker vetoing some $1.3 billion in spending on June 29, about half of which was cutting the Permanent Fund Dividend to $1,000.
The calendar year also closed with an increase in production, which followed by only a couple weeks the third-best lease sale on the North Slope since the area-wide offerings began in 1998.
Now comes the news that ConocoPhillips has followed the Nanushuk formation now under development by Armstrong Energy and Repsol with one of its own in the same play that holds 300 million barrels of oil that could flow at a rate of 100,000 barrels per day.
The Armstrong-Repsol project in the neighboring Pikka Unit could flow at a rate of 120,000 barrels per day.
Those two projects combined are a bit less than half of the current fiscal year average through the Trans-Alaska Pipeline System of 510,000 barrels per day, and both companies are further exploring their acreage this winter with the belief there’s even more to be found.
Add in ConocoPhillips’ Greater Mooses Tooth 1 and 2 now in construction and permitting, respectively, and that’s another 60,000 barrels per day with GMT-1 to provide half that total beginning late in 2018.
Should the more longshot prospect being explored by Caelus come to fruition with up to 200,000 barrels per day from Smith Bay, we now have developments that nearly equal the current throughput potentially coming online by the early 2020s.
As we ring in the new year with the state expected to lose 7,500 jobs in 2017 and the sharply divided Legislature convening with its last best chance at fixing a $3 billion-budget deficit, it is the oft-maligned oil industry that is providing a lone ray of hope for the Alaska economy.
When the Legislature inevitably takes up oil tax policy this session, it is important to remember who was completely wrong about SB 21. All of the current developments and the 2016 increase in production would have been at risk if the Democrats and Walker had their way in 2014.
Walker, for his part, had a convenient case of amnesia in responding to the ConocoPhillips announcement after he proposed tax increases on the oil industry just last session.
“It demonstrates that Alaska remains an attractive place to do business and look for oil,” Walker said.
Certainly it does “remain” attractive, but that’s no thanks to Walker or Democrats whose preferred policy resulted in continued annual decline and no discoveries.
It is not hard to draw a straight line from the change in policy in 2013 with the increase in activity and possibly the biggest find since Kuparuk on the North Slope with the Nanushuk play.
ConocoPhillips drilled no exploration wells in 2010, 2011 or 2012. It drilled three last year, made a big find and snapped up hundreds of thousands of acres around its discovery in December despite losing billions in 2015 and 2016 as prices cratered.
The only good thing about that was a temporary pause in Sen. Bill Wielechowski’s banal quarterly press releases pointing to ConocoPhillips profits as a reason to jack up its taxes.
“There is a direct correlation between investment and tax policy,” ConocoPhillips Alaska President Joe Marushack said on Jan. 13 as he described the company’s process for allocating capital between Alaska and the rest of its global portfolio.
“If the tax changes, the economics change, the allocation changes,” he said. “It’s very simple.”
So simple even the Democrats and the governor should be able to get it.
Andrew Jensen can be reached at [email protected]
Posted Tuesday, January 17, 2017 - 4:45 pm
Dear Alaska Legislators,
We know each of you wants to do what is best for our state's long-term future. We all want jobs for Alaskans, a healthy economy, a stable state fiscal structure that helps attracts private investment to Alaska, and quality education and public services to serve the needs of our residents.
We are encouraged when we hear legislators talk about Alaska's long-term economic health. But we are discouraged that we are running out of time to accomplish the one goal that must underpin all the others — a stable fiscal structure for our state treasury.
We write you today to once again offer our encouragement, with an emphasis on the urgency of the situation as you prepare for the 2017 legislative session.
We are sharing this with the public because Alaskans need to understand this is a critical time for our state. We've grown wealthy from oil development, and we all hope for decades more of oil and gas production in Alaska.
But the time has come for a diversified revenue stream into the state treasury, and Alaskans must support their legislators in making the hard decisions ahead.
The facts are clear:
• The fiscal 2017 state unrestricted general fund budget is about $4.36 billion.
• Even with higher oil prices of recent weeks, it looks like the FY17 draw on savings to cover the budget will total close to $2.92 billion.
• With that math, the state expects to start the fiscal year 2018 on July 1, 2017, with perhaps $3.7 billion remaining in the Constitutional Budget Reserve.
• Prudent fiscal and cash management requires we keep at least $2 billion in the budget reserve, which means Alaska must make changes to its fiscal structure during the 2017 legislative session.
• If the budget reserve disappears as an option for covering the state's needs, the Permanent Fund earnings reserve becomes the only alternative.
As of Nov. 30, 2016, at approximately $8.8 billion in realized gains, that reserve account looks healthy but is always susceptible to investment volatility, and any unplanned withdrawals could jeopardize the Permanent Fund dividend.
It appears to many Alaskans that nibbling at the edges of the problem in the 2017 legislative session and drawing $2 billion to $3 billion from the budget reserve for one more year would bring the state perilously close to writing unplanned checks out of the Permanent Fund.
It's time for a managed answer, not a default answer, and we urge you to take action and assure you we will support you in that effort.
The options for a long-term fiscal plan are the same ones Alaska has been looking in the past several years. We see four major pieces to any solution:
• An orderly, responsible, managed use of Permanent Fund earnings, including a change in how the dividends are calculated. We cannot spend the same dollar twice, which means a dollar that goes to schools, roads, troopers, the courts and other public services cannot also go to dividends. Legislators are fully aware that choices must be made. If, for example, the Legislature adopted a percent-of-market-value approach to limiting the annual withdrawal from the Permanent Fund, and if that were set at 4.5 percent of the fund's average market value looking back five years, the maximum draw for fiscal 2018 would be about $2.43 billion. And if, for example, you wanted to maintain a $1,000-per-person dividend from that total, that would leave about $1.73 billion for public services.
• An orderly, responsible, managed examination of state spending and potential for further budget reductions in the range of $250 million to $500 million implemented over two to three years to lessen harm to the economy and allow the public, municipalities and businesses time to prepare for reduced services.
• A responsible broad-based tax, such as a modest personal income tax on Alaska's higher income earners and/or a sales tax that would accomplish several goals: 1) Give all Alaskans a personal stake in how state money is spent; 2) Collect income from nonresidents who come to Alaska to work, and go home to spend their money; and 3) Help diversify state revenues from our total dependence on natural resource prices and investment earnings.
• Excise and industry-specific taxes of perhaps $100 million a year on motor fuels, alcohol, tobacco, fisheries and mining.
Here is the math for the current set of options:
$4.36 billion fiscal 2018 state unrestricted general fund budget using fiscal 2017 as the base.
• $1.59 billion in general fund revenues (assuming today's improved oil prices remain)
• $250 million to $500 million in additional budget cuts, including re-examining oil and gas tax credit policy
• $1.73 billion in Permanent Fund earnings, after paying a $1,000 dividend
• $500 million in new revenues (income and/or sales tax, higher excise taxes and industry taxes, including expansion of the corporate income tax to cover LLCs and S Corps.)
That still leaves a $40 million to $290 million shortfall, which we could work to close over the next few years.
By taking action on the major pieces above, we gain some time. Meanwhile, we should not forget that the state needs to deal with the hundreds of millions of dollars we owe to companies for unpaid oil and gas tax credits. We need to resolve that debt if we're to truly solve our fiscal problems.
And we need to remember that, because it will take time to implement any new taxes and to collect on other changes in Alaska's tax structure, we should expect a larger drawdown on our budget reserves in fiscal 2018 as the changes take effect.
The budget reserve, however, can only afford a limited future drawdown, so we need to make the big decisions in 2017 that will extend the life of the reserve to give us the time to put our state on a path to fiscal stability.
There isn't enough time for new oil or triple-digit prices to save us. That's wishful thinking, and we need responsible decisions based on today's reality.
We support you in the challenges ahead, and urge you to make those decisions in 2017. Anything else puts the future of our state at risk.
Ed Rasmuson is a retired banker. Bill Corbus is a former commissioner of the Alaska Department of Revenue. Jeff Cook is an energy consultant. Gail Schubert is CEO of Bering Straits Native Corp. Mike Navarre is mayor of the Kenai Peninsula Borough.
Posted Wednesday, January 11, 2017 - 12:48 pm
Since 2002, the soap opera that has become Alaska’s natural gas pipeline hopes has been never ending. Today, just the Alaska LNG Project 3.5-billion cubic feet pipeline proposal remains, with the Alaska Gas Development Corp. trying to bring the project to fruition under Gov. Bill Walker.
The Dec. 30, 2016 press release from AGDC continues the soap opera with AGDC extolling the “concluded agreements … “with the Producers … that will enhance AGDC’s ability to commercialize Alaska’s North Slope natural gas resources.”
The next two pages have sections labeled “Cautionary Statement” by each “partner” in the project that are basically disclaimers with respect to anything actually happening … ever. Nothing new there.
In the meantime, massive shale play discoveries and discoveries around the world, increasing export capacity in the Lower 48 and the ongoing development of the Kittimat, British Columbia, proposed LNG and oil terminals are further eroding any hope for Alaska to move its natural gas to market.
An increasing project cost that has risen from $24 billion in 2010 to the present $45 billion to $65 billion has further complicated the marketing of North Slope natural gas to a world market — a world market that has contracted due to economic conditions that are not improving.
There is some glimmer on the horizon with the conversion of more coal power plants being converted to natural gas both in the U.S. and abroad, but not enough to give rise to the market prices for LNG that existed prior to the energy crash in 2014.
BP plc recently announced its partnership with Kosmos Energy Ltd. for development of deposits of gas and oil offshore Mauritania and Senegal estimated to comprise with present knowledge 15 trillion cubic feet to 50 trillion cubic feet of natural gas, and 1 billion barrels of oil.
Both ExxonMobil and ConocoPhillips have major oil and gas developments in the Pacific and off Australia that are intended for Asian markets. ConocoPhillips supplies an estimated 14 percent of Japan’s LNG market with natural gas from Qattar.
Probably the biggest blow to the Walker Administration’s dreams of a natural gas pipeline and a serious investment by the producers to increase oil production on the North Slope is the 20 billion barrels of oil and 16 trillion cubic feet of natural gas discoveries announced in November 2016 in the Texas Wolfcamp shale formation.
In 2015, the state of Ohio announced another 5 trillion cubic feet of natural gas discoveries in its Utica shale play. The finds continue in the shale plays.
Meanwhile, in Alaska, two weeks ago, more layoffs on the North Slope.
With a hostile regulatory environment and litigious opposition, how is that our governor and the Legislature think that Alaska can complete with domestic sources of oil and gas?
Where the shale plays are located, the driller can literally make a deal with the farmer who owns the land without government interference or the threat of public interest litigation, and have a drilling platform on-site and working within 30 days of the initial handshake.
In Alaska, that same progress takes at least 10 years or more, given the ever-present threat of public interest litigation by the anti-development Outside environmental interests.
The investment in Alaska to start of activity would be upwards of $100 million and a decade in lost time by the time the drill platform is finally on the property and the first pipe stem begins a long trip downhole.
This is why elephants are preferred in Alaska to smaller field development. This situation must change if Alaska is to compete in a world market.
If Alaska is expected to receive continued oil and gas development in this state with any degree of priority, given the world market and the economic downturn, fiscal certainty is an idea whose time has come.
Otherwise, Alaska can sit and watch while massive foreign and domestic finds receive the money that would, could have gone to Alaska’s fields and prospects.
The producers and new companies in the Alaska oil and gas development have continued to ask the Legislature for “fiscal certainty” before there is any firm contract to move forward with further oil and gas development, including the natural gas pipeline project.
Fiscal certainty is simply a guaranteed, fixed tax and royalty structure that could be negotiated per development. The bar is that Alaska’s Constitution does not allow one administration or Legislature from enacting law that binds a future state government. It is time to remove this impediment.
If Gov. Walker and the Legislature want to keep Alaska in competition for resource development investment, it is time this “we are owed” mindset ends.
Deregulate and reduce taxes in face of the current recession, and stop growing government. Our economy is slowing, there is a worldwide depression; it is time to face reality.
Provide “fiscal certainty,” or watch the money go to other developments outside of Alaska.
Larry Wood is President of Terra Resources, Ltd., a 62-year Alaskan and former Valley Coordinator for the Walker 2010 and 2014 campaigns.
Posted Thursday, January 05, 2017 - 9:59 am
A brutal year in the Alaska oil patch ended on a positive note as calendar year 2016 followed the fiscal year trend with an increase in North Slope production.
Amid the worst price environment since the late 1990s resulting in thousands of layoffs for the oil industry, production grew in the fiscal year ended June 30 and for the calendar year ended Dec. 31.
With an average of about 514,000 barrels per day for the fiscal year and 517,000 for the calendar year, the state’s most recent production forecast for the current fiscal year predicting a drop to 490,000 appears extremely conservative.
After many recent production forecasts have overshot estimates, the state adopted a new, in-house approach that officials acknowledge will result in lower predictions.
Considering the state’s budget woes, erring on the conservative side is certainly not a bad thing. It will also leave room for a pleasant surprise by the end of the fiscal year.
Current North Slope production from July 1 through Jan. 2 is averaging 507,000 barrels per day, far greater than the forecast as the traditional peak production winter months await.
At 490,000 barrels per day, total fiscal year production would amount to nearly 179 million barrels of oil.
At the current production average, the Slope producers have already pumped 94.4 million barrels through Jan. 2.
What that means is that production would have to average 472,287 barrels per day for the rest of the fiscal year to hit the state forecast of 490,000 per day.
While there has no doubt been a pullback in drilling and well workovers from record levels in 2015, there is as of yet no indication that the production will fall by that much from the current daily average.
In the 2016 period from Jan. 2 to the end of the fiscal year on June 30 while prices averaged less than $40 per barrel, North Slope production averaged nearly 527,000 barrels per day.
That means that to hit the state’s production forecast, the daily average would have to drop by about 55,000 barrels per day during the same period of 2017 — a 10.4 percent decline — even though prices have rebounded to better than $50 per barrel since OPEC announced it would cut production back in November.
There is a conspiracy theory out there that the state is intentionally lowballing price and production forecasts to make the state’s fiscal situation appear more dire than it is — and it is dire — in order to make a harder sell for its package of revenue measures and the use of Permanent Fund earnings to plug the budget deficit.
There is no need to go there, but there is a need to push back on those who keep advancing the idea — including Lt. Gov. Byron Mallott — that the state’s days as an oil realm are drawing to a close.
Given the production increases, the third-best lease sale in decades in December and strong prospects under development, the evidence does not back up those who are spinning the end-of-oil narrative.
Gov. Bill Walker has not exactly expressed enthusiasm for prospects by independents Caelus and Armstrong, and his Natural Resources Deputy Commissioner Mark Wiggin reacted to questions about the 2016 production increase not with celebration but with an Eeyorish comment about how we’re not heading back to our peak production days in the late 1980s.
Production increases should be welcomed, not downplayed, and momentum established after the passage of Senate Bill 21 should be sustained rather than stifled.
The North Slope producers gave the state something to feel good about to end the year, and beating the ultra-conservative forecast in the new year would result in a much-needed boost to the bottom line.
Andrew Jensen can be reached at [email protected]
Correction: The original version of this column attributed a statement about not returning to late 1980s production levels to Tax Division Director Ken Alper. The statement is actually attributable to Natural Resources Deputy Commissioner Mark Wiggin.
Posted Wednesday, December 28, 2016 - 12:10 pm
Not unlike an evicted renter who plugs the toilets and punches holes in the drywall in a petulant rage against the homeowner, President Barack Obama appears intent on causing as much damage as possible before he’s finally forced to exit the White House on Jan. 20.
In between pointless musings over whether he’d have beaten Donald Trump in a hypothetical matchup for an unconstitutional third term and scapegoat-seeking for Hillary Clinton’s well-deserved loss on Nov. 8, Obama has been wreaking havoc on American industry and our closest ally in the Middle East as his eight disastrous years come to an end.
Ten days after voters rejected Obama’s preferred successor in favor of his complete opposite, he yanked the Beaufort and Chukchi seas from the five-year outer continental shelf leasing plan as a precursor to his near-complete withdrawal of the areas a month later that he and his green mafia believe can’t be reversed under a President Trump.
He’s ignoring the law and the permitting process in an attempt to shut down the Dakota Access Pipeline while his agencies continue to promulgate ridiculous “midnight” rules in defiance of Congress.
It’s nothing new for Obama, who took the shellackings he was handed in the 2010 and 2014 midterm elections that cost him the House and the Senate, respectively, not as a message to change course but to continue pushing his rejected agenda on an American public that took its revenge by electing Trump and preserving Republican control of the Senate.
Obama’s policies both domestic and foreign have been a disaster, from the unaffordable “Affordable Care Act” to Libya, Syria, Iraq, Iran and the infamously failed “reset” with Russia that sees him leaving office accusing the dictators he once buddied up to of meddling in the election to defeat Clinton.
The free-wheeling and unfiltered Trump has rattled nerves with his tweets about nuclear arms and actions such as taking a phone call from the Taiwan president, prompting the more hyperbolic to claim he’s going to start World War III with a 3 a.m. Twitter rant.
Instead it is Obama who seems determined to leave Trump with a world teetering on the brink of major conflicts as he floats sanctions against the Russians and stabs Israel in the back with a twist of the knife from the can’t-be-gone-soon-enough Secretary of State John Kerry.
Make no mistake, Israel will not abide by or respect the U.N. Security Council resolution declaring its settlements illegal and Jerusalem to be occupied territory, nor any plans Kerry has for laying out a vision for a peaceful solution after eight years of Obama betraying Israel at every turn and bending over while the Iranians pursue a nuclear weapon.
Israel will not allow itself to be threatened, sanctioned or attacked by its enemies, yet Obama has made another of his endless series of miscalculations in the Middle East that make a widespread conflict more likely, not less.
At least Israel knows it will have a staunch ally once again when Trump takes office, and we will see how far he goes to restore the relationship and whether Congress will follow through on calls from some to defund the U.S. contribution to the United Nations budget.
A better idea couldn’t be imagined than that by columnist Charles Krauthammer that Trump should find a way to kick the U.N. out of New York City and turn the building into condos.
At this rate, President Bill Clinton’s staff taking all the “W” keys off the computers and stealing furniture looks downright cute next to the malevolent Obama as he leaves office filled with anger at the American public who elected a man determined to undo his failed legacy.
The “undo list” is getting pretty long, and Jan. 20 can’t get here soon enough.
Andrew Jensen can be reached at [email protected]
Posted Wednesday, December 21, 2016 - 2:35 pm
The next year could be even wilder than 2016, if that’s possible.
In less than a month, Donald Trump will be sworn in as the 45th president of the United States and the Alaska Legislature will convene in Juneau for its last serious crack at addressing the state’s burgeoning budget deficits.
It’s almost appropriate that one of Gov. Bill Walker’s last acts of the year was to kill the Juneau Access Project, because the Legislature has run out of road to kick the can.
The state’s savings won’t last more than another year and we’ll have to wait and see whether the dynamic of a three-way power struggle between the Republican Senate, Democrat House and independent governor forces a solution or only produces gridlock worse than what we’ve witnessed in the last two years.
Still, the ringing in of a new year is supposed to bring optimism and in that spirit here is a wildly optimistic wish list for 2017:
Stop pandering and fix the problem
This goes for both the budget hawks and the tax credit hawks heading to Juneau. To the budget hawks: Stop pretending there are hundreds of millions of dollars still to be cut out of the budget.
No doubt there are cuts that can be still made, and efficiencies to still be found, but none of it will add up to enough to avoid using Permanent Fund earnings, and thus reducing the dividend, or raising additional tax revenue.
There was bipartisan squealing when Walker cut the PFD appropriation by $666 million, but nobody on the right or the left side of the aisle ever put forward a plan to reduce the budget by that much.
Any tax increases, however, should go to the right places in the budget. Raising the fuel tax makes sense if it helps the Department of Transportation budget. The same goes for fish taxes.
To the tax credit hawks (and Walker): Pay the state’s bills. It doesn’t matter where you come down on the credit issue; this money is owed and it has to be paid sooner rather than later.
Democrats, and the Republicans who switched sides, are doing great damage to the state by demagoguing this issue as credits versus PFDs.
By all means, find a way to replace the credit program with something else that will still encourage development such as royalty modification (if they want to forgo future revenue to avoid the up-front development costs), but the state must get right with the companies it owes.
Democrats howl about “Big Oil” benefitting from the credits but in fact it’s “Small Oil” that is getting screwed and being forced to sell off credits to the majors to raise cash, and therefore reducing future state revenue.
The best thing the majority leadership has done is put Reps. Andy Josephson and Geran Tarr as co-chairs of the Resources Committee. They both seem to get that the state has become an unreliable partner to industry, and that whatever changes take place must first do no harm. Paying the bills would be a good place to start rebuilding the state’s reputation.
Tax and regulatory reform
On the federal side of things, we’ll see if noted budget guru House Speaker Paul Ryan has the stuff to finally fix our bloated and onerous tax code.
Corporate tax reform should be a must. Ours is the highest in the world and yet accounts for less than 10 percent of tax receipts.
That’s because corporations do everything they can to minimize their bills, often paying effective rates far less than 35 percent through deductions and exemptions, keeping their overseas profits offshore, or up and moving completely out of the U.S.
For those who complain about the influence of lobbying in D.C., you could probably wipe out half the lobbyists, lawyers and accounts there if you cut the corporate rate to 15 percent and removed all the incentives to game the system.
The same goes for regulatory reform. The bigger the government gets, the more big business gets to take advantage. Dodd-Frank is a prime example of how a regulatory reform kills small players and benefits the big hitters.
A smaller government is less influenced by big money.
The word is the Republicans have a plan in place to repeal it. Whether they have a plan to replace it is less certain.
One easy fix should be on the table, as should one fundamental one.
The easy fix is knocking down the state line barriers to buying coverage. Nobody understands this better than Alaska, where we’re left with just one provider in the individual market because our small population is almost impossible to manage as a risk pool.
Put us in a pool with 300 million other Americans and premiums would drop instantly.
The fundamental fix should be transferring to a system where all individuals own their policy and don’t depend on an employer to provide it.
Nobody loses their car insurance or life insurance or home insurance if they lose or leave a job. A system where you own your health policy and can shop for it in a national marketplace like every other insurance product would go a long way toward finally putting the “Affordable” in the Affordable Care Act.
If the legislators in Juneau and the new Congress and president could pull off this wish list it’s going to be Merry Christmas indeed in 2017.
Posted Friday, December 16, 2016 - 12:12 pm
President-elect Donald Trump reportedly offered defeated Democratic nominee Hillary Clinton five cents on the dollar for the fireworks victory display she canceled at the last moment, but he could save all his money and just watch liberals’ heads explode as he fills his cabinet.
There’s a saying that you can judge someone by the company they keep, which is true, but sometimes it as just as useful to see who are their adversaries.
Consider the latest statement from Greenpeace regarding the choice of Rep. Ryan Zinke, R-Mont., a 23-year veteran of the Navy SEALs, as his choice for Interior Secretary:
“Trump is on record calling climate change a hoax, and his proposed cabinet is filled with climate deniers, oil and gas industry shills, and hateful bigots. Climate-denying Montana congressman Ryan Zinke will fit right in. Zinke never worked for the people of Montana. He works for the fossil industry and coal companies, shilling for coal export terminals in disadvantaged communities in states he does not even represent.”
Gee, Greenpeace, how do you really feel?
It goes on:
“If climate change denial is going to be the official position of the Trump White House, then relentless resistance will be the official position of the American people.”
It’s cute that Greenpeace thinks it speaks for the American people. Cute like how little kids can’t pronounce “spaghetti,” with the only difference that kids eventually grow up (or don’t, if you look at the Play-Doh, coloring books, safe spaces and therapy dogs deployed on college campuses after Trump’s improbable win).
What a year it has been.
Here in Alaska it began with Gov. Bill Walker picking a fight with the producers over the Prudhoe Bay Plan of Development and is coming to a close with the CEO of one of those companies now poised to become the unlikeliest choice for Secretary of State by the unlikeliest president in U.S. history.
Rex Tillerson of ExxonMobil, who famously called Alaska “its own worst enemy” in September 2015, is about as unconventional a choice as Trump could make and although at first impression it was a head-scratcher on second thought there is likely no CEO with more diplomatic experience than Tillerson.
Who is better equipped to deal with the Russian strongmen like Vladimir Putin or the corrupt oil emirs of the Middle East than a man who actually has to do business with them?
An account of Tillerson in Forbes described him as the most “no nonsense” CEO the writer had interviewed in 17 years, as a man who still lists Eagle Scout on his resume and actually lives by the Boy Scout motto.
The left is howling about ExxonMobil’s Russian business interests after just voting for a candidate who whored herself out all over the world trading political favors and influence in exchange for Clinton Foundation donations that kept her, her husband and daughter living a luxurious lifestyle far beyond anything they’ve rightfully earned on merit.
He’s also a major step up from the feckless John F. Kerry, who has gotten rolled time and again like an Atlantic City tourist sitting at the poker table in the famous scene out of “Rounders.”
Put it this way: Nobody is going to look around the table at Tillerson and peg him for the sucker.
Rick Perry at Energy. Zinke at Interior. Rep. Scott Pruitt at EPA.
The media is aghast that Trump is nominating people who have blasted the agencies they are set to lead, which just goes to show they still don’t understand what’s going on any more than they did on Nov. 7.
The federal bureaucracy, which became a weapon under President Barack Obama as he failed to get anything through Congress, needs to be reined in and the people who are most familiar with its worst excesses are best positioned to do it.
The Energy Department doesn’t produce any energy. The EPA stands for Everything’s Prohibited Agency. The Education Department was formed in 1977 and we’re barely in the top 20 of math and science scores among global peers.
We can only hope that the polling that as much as 35 percent of the federal workforce would quit if Trump won was even half accurate. It would be a good start.