Overview

  • Alaska is unique – it derives the majority of its economic livelihood from natural resource development, particularly oil production.

  • ISER recently concluded that in 2007 over half of Alaska’s jobs can be traced in some way to oil development – That is 187,000 jobs.
  • However, the spin-off benefits extend to virtually all Alaska households, communities, and businesses.
  • These spinoffs have helped other parts of the economy prosper and add more jobs.
  • In its March 2011 study, Commonwealth North concluded that one-third of Alaska’s jobs are related to oil development and production in Alaska including: petroleum, finance, infrastructure, trade, construction, self-employed sectors, state and local government.

The Scale of the Problem | Cause of the Decline | The Factors to Consider | The Answer | Summary | FAQ

 The Scale of the Problem

Source: Fall 2010 Department of Revenue Sources Book

  • Oil production across the state has been significantly decreasing for decades.
    • At its peak, Alaska’s North Slope was producing 2.3 MM barrels of oil every day – now it takes nearly four days to produce as much.
      • From 2001-2006, Alaska North Slope oil production declined 16% (163,000 barrels per day)
      • From 2006-2010, Alaska North Slope oil production declined an additional 25% (217,000 barrels per day)

Back to Top

 Cause of the Decline

How Do We Compete?

Alaska needs policies that result in an increase in oil production and offer competitive advantages to attract investment.

  • When oil is in the $60-$80 per barrel range, our oil tax system is competitive.
  • When oil is $100 per barrel and above, as it is now and is likely to remain in the near future, we are an outlier, in other words we have the highest tax rates in North America at high prices. As a result, we are losing investment to North Dakota, Louisiana, Texas, Wyoming, Alberta, and around the world.
    • Companies invest capital where they are likely to produce with the least expense and greatest profit. Our current system of taxation must be improved – we are missing out on opportunities to attract energy companies to Alaska; they are CHOOSING to go elsewhere.

Back to Top

 Factors to Consider

  • We have oil – billions of barrels of it both discovered and undiscovered. 
    • More than 5 billion barrels of discovered oil resources are estimated to exist
    • Geologists with the U.S. Geological Survey (USGS) estimate we have another 3-6 billion barrels in undiscovered resources on State lands
    • Federal areas, including the OCS, are estimated to contain more than 30 billion barrels of undiscovered resources
    • The above resources include only conventional oil – unconventional resources like shale are currently under evaluation by USGS and will be presented next year – likely many billions more barrels
  • We have oil – we just aren’t attracting the capital we need to find and develop it.
  • While we are fighting for access to federal lands (OCS / NPR-A / ANWR), we must be as competitive as we can on State lands to attract more of that investment.
    • The federal government controls 60% of land in Alaska
  • We must act during this legislative session to restructure ACES to clear paths of opportunity for job creation and more production through TAPS.
  • Do we want to grow jobs and our economy by making our state more competitive in the production of our rich resources, or do we want to maintain the status quo?
    • The status quo is not acceptable

Back to Top

 The Answer: Lower Taxes, More Opportunity

Undeniable fact: The more we tax companies for producing a commodity, the less they will produce here, and the more they will produce elsewhere.

Governor Parnell’s proposal to lower oil taxes would:

  1. Provide tax credits for drilling technically challenged wells in the legacy fields.
    • PURPOSE: Drilling in Alaska is more expensive than other jurisdictions – providing a larger credit for well costs helps put us on a level field with other investment climates.
    • BENEFIT: When companies keep their capital in Alaska, it creates additional payroll for Alaskans’ pockets. Only companies who invest in Alaska receive benefits.
  2. Provide a lower base tax rate for new fields.
    • PURPOSE: For those companies taking bigger risks and exploring outside of existing fields, we propose a lower base tax rate. If little exploration has occurred in 40 years in these areas, we can jump start hundreds of new wells and provide thousands of new jobs.

    • BENEFIT: With this provision, we can provide significant, new economic development in parts of Alaska that have not benefitted from energy production. We currently receive nothing from these fields, so anything we create is new revenue. One new well creates dozens to even hundreds of jobs in the area.
  3. Providing an overall cap on production taxes and restructuring progressivity with a conventional bracket system.
    • PURPOSE: The existing tax system progressively increases the percentage of taxes that oil companies pay when the price of oil increases and, as currently structured, reaches back to profits at lower levels. We must improve the investment climate in Alaska so we can compete with energy development opportunities in North Dakota, Montana, Texas, South Dakota, Wyoming, Louisiana, Canada, and around the world.
    • BENEFIT: By leveling out the progressivity and capping the production taxes, we can position Alaska to compete for billions in energy investment over the next three decades.

Back to Top

 Summary

Public officials are elected to increase Alaskans’ opportunities and act in their best interests. Sitting back and overseeing a consistent decline in oil production, and the related decline in revenue to the State, is not acceptable.

We must act, thoughtfully and wisely, for Alaska’s benefit and for our future.

Let’s improve the investment climate and spur job creation and energy production. Support the Governor’s proposal to reduce oil taxes and grow economic opportunity.

Back to Top

 Frequently Asked Questions

QUESTION: What is the history of oil tax systems in Alaska?
ANSWER: Over the last five years, Alaska transitioned from a gross tax structure to a net tax structure under the Petroleum Profits Tax (PPT). PPT was discontinued when Alaska’s Clear and Equitable Share (ACES) went into effect in 2007 following a special session. Governor Parnell’s proposal makes adjustments to the current ACES oil tax system.

QUESTION: How will Governor Parnell’s proposal impact State revenue?
ANSWER: Estimates of the Governor’s proposals range from $1 billion to $2 billion per year initially, which will decrease when production increases due to the new incentives. With private sector reinvestment due to the improved investment climate, the impact will decrease, and over time the State will receive higher revenue than from the previous tax system.

QUESTION: How do we know that energy companies will invest their savings in Alaska?
ANSWER: Energy companies make billion dollar, global investment decisions based on competitiveness and predictability. They will produce energy where it makes the most financial sense to do so. We know this because reducing oil taxes has worked in Alberta, Canada. Additionally, what the Governor has proposed has three provisions. Two of the provisions – tax credits for additional wells in legacy fields and a reduced base tax rate for exploration outside of existing fields – require investment and job creation in order to receive tax benefits.

Progressivity is where most of the debate is. At $60 per barrel, Alaska’s tax regime is competitive, but at higher prices, Alaska’s tax take (due to progressivity calculations) is significantly higher than the other oil provinces. This leads companies to invest their profits in other areas first.