Special Session: Oil Taxes
The Alaska Legislature is in the midst of an historic special session in Juneau to consider raising the petroleum profits tax on the oil industry. Why should Alaskans be concerned?
Oil production is our state’s economic lifeline. Daily oil production in Alaska has plummeted 65% from more than 2 million barrels per day in 1988 to 700,000 barrels today. The Trans-Alaska pipeline is only a third full, and oil production continues to fall. Production and revenue forecasts by the State of Alaska suggest the future decline in production will become even more pronounced without further investment in oil fields that are not yet developed or have not been fully developed.
Higher taxes on the oil industry will not encourage the investment needed to slow the production decline and help ensure a sustainable future for Alaska. A strong business climate with a stable tax environment is vital to steer investment to Alaska, as opposed to opportunities elsewhere.
It is vital that your legislators hear from you. Take a stand and express your opinion:
- Contact your legislators to encourage them to keep taxes in check so Alaska can attract the investment it desperately needs to stabilize oil production and keep Alaska’s private sector economy healthy.
- Write a Letter to the Editor of your local newspaper, generally 200 words or less. Make sure to include your address and daytime phone number so the newspaper can verify that you sent the letter. Express why you think the current oil tax systems needs to stay in place.
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Points to consider for your comments:
- With the oil pipeline two-thirds empty and production continuing to decline, Alaska should be focused on doing whatever is necessary to increase oil production.
- North Slope production is declining six percent annually and huge investment from the industry is needed to keep it from accelerating.
- Developing more oil to keep the pipeline going will require huge investment in exploration to discover new oil fields, investment in existing oil fields to stem the current rate of declining production, and investment in heavy and viscous oil technology. New capital is the key to keeping the pipeline going.
- Up to 70 percent of the new oil yet to be developed on the North Slope may come from existing fields, mostly Prudhoe Bay and Kuparuk, and only 30 percent from new exploration. The existing fields will likely require the bulk of new investment.
- Production could be significantly affected by changes in investment levels, particularly in the large fields. Up to 50 percent of today’s production is based on investments made over the last four years, mainly in drilling.
- Investments, which for Prudhoe Bay alone amount to about $1 billion yearly, are aimed at keeping the decline rate from accelerating. If the investment rate is slowed the decline rates could increase up to 15 percent yearly before too long.
- Assuming a 6 percent decline rate, North Slope oil production will drop to about 350,000 barrels/day in 8 to 10 years. That’s down from about 700,000 barrels/day now. A 350,000 barrels/day rate would pose serious operational challenges for the trans-Alaska oil pipeline.
- The state’s long-term production forecast is very optimistic. Some of the “new” oil in that forecast has yet to be discovered and some of it is in deposits that are not economic to develop at this time. Higher taxes could make some of those projects more problematic, undercutting the state’s forecast.
- Can Alaska really afford to take the risk of discouraging future investment when 50 percent of our production ten years from now will come from “new oil” generated by future investment?
- Increasing taxes today will offer the state a short-term gain, potentially at the expense of future production. Costs have skyrocketed for projects requiring state-of-the-art technology, which include enhanced oil recovery methods, heavy oil development and advanced drilling methods. Such projects might be shelved under a higher tax scenario. Costs must be factored in when looking at long-term North Slope developments.
- Alaska can’t tax its way into prosperity. Every extra dollar of tax is one less dollar of investment. That’s Economics 101.
- Without the political will to create a sensible and balanced long-term fiscal plan for the state, another tax increase on the oil industry will create a reputation that Alaska is a location that is more interested in taxing industry than in growing industry. New taxes outside the framework of a comprehensive fiscal plan reinforces the image that Alaska is addicted to oil money. Consider revenue enhancements only within the confines of a fiscal plan.
- Other industries and businesses across Alaska's economic spectrum are worried higher taxes will further erode our fiscal stability. We run the risk of chilling our fragile investment climate across all resource industries.
- As investment and oil production wane under the weight of heavier taxes, all sectors in the state would experience a significant economic slowdown.
- Alaska fell to 47 out of 50 in a Forbes Magazine ranking of the best states to do business. The Legislature needs to restore fiscal stability and work to improve the business climate in Alaska, which in turn would boost confidence in private sector investment in our state. It’s in the state’s best interest to keep the private sector healthy, given most revenues flowing into the general fund come from private sector activity.
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