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Alaska Taxes

8-19-14 Today Alaskan Voters Determine Their Future!

19 August 2014 5:34am

Primary Election Day In Alaska

A Historic Day Whereupon Alaskan Voters Will Determine the Future Of Their State and Their Country!

by

Dave Harbour

​(Responses to commentary)

Alaska: Where A Deal Is A Deal?

Last Spring we wrote a four part series, here, on Alaska's oil tax history going back to forty years.  We also explored Alaska's current status as a competitive investment climate and coined a phrase: "In Alaska, Is A Deal A Deal?", and variations on that theme.

In one column, below, we explored the concept of a competitive investment climate/tax policy in an ideal world, which, on this Primary Election Day, might interest our gentle readers.


So, question: rather than just be relegated to the critics' peanut gallery, what would we be inclined to do were we to have absolute power?

Answer: We would sell oil and gas leases in the private market for the highest price.

We would loudly proclaim that, "in reliable Alaska, a deal is a deal and we put great value on protecting our reputation".  

While our constitution gives us the sovereign power of taxation, we are loathe to use that power selfishly, negatively or in ways that diminish our integrity as a respected, sovereign state.

We would endeavor to never change the tax/royalty/regulatory rules of the game affecting an investment for at least 20 years--except to moderate the impact of those burdens in response to logic and our competitive position with respect to competing markets.  

We would control the nearly insatiable appetite for increased spending beyond our means, knowing that run-away spending could force us to raise tax burdens and decrease our competitive ability to attract investment.

We would not impose any unnecessary costs (i.e. "must haves") on energy projects that diminished the maximum monetary returns; we would then be free to consider use of those maximum returns for social or capital needs of our citizens.

In this way, we would seek to not add an unnecessary and burdensome straw to the back of a project that needed every possible advantage to compete in the world energy marketplace.  

We would not risk adding one single incremental project cost that could kill a project.  

We would not flirt with disaster.

And that, Dear Reader, would lead us to become a place in the world where investors have confidence that, "a deal is a deal".  -dh

Today is a historic Alaska Primary Election Day whereupon voters will decide their own future and, more importantly, the future of their children. 

Our position has always been that high Alaska oil taxes may increase short term gains for this generation but cause a withdrawal of investment at the expense of our children’s generation.

We have written extensively on this subject (i.e. see sidebar links).  We have concluded that for this and future generations our goal should be a reliable and competitive investment climate that produces maximum natural resource and employment returns for this and future generations. 

But there are those who would skim as much as possible from our natural resource potential today no matter what ill effect that might have on future Alaskans.

Today, voters will decide whether to repeal SB 21, a reform bill passed a year and a half ago.  That bill reforms many of the most objectionable aspects of an oil & gas production tax increase passed after little debate by the Legislature and applied RETROACTIVELY nearly a decade ago.  We’ve seen over the past year of reform, how investment to keep the Alaska economic lifeline (i.e. the Trans Alaska Pipeline System {TAPS}) functional has been increasing.

Now, put yourself in the place of a legislator who supported SB 21.

It must be very hard for a politician to avoid temptation. 

Temptation to bow to constituent demands for subsidy.

Temptation to bow to business and campaign supporters for tax moderation.

Temptation to bow to economic realities and a sense of, “doing the right thing”.

Fairbanks Senator “Click” Bishop is an example of a fellow caught between a rock and a hard place.

Some of his union constituents want to repeal reform which could siphon more money into government and public utility unions that could expect to profit from taking maximum oil tax money now in spite of any effect that might have on the future.

Some of his union constituents depending on business generated jobs support reform and the effort to “Vote No On One”, the slogan for pro-SB 21 reform advocates.

Some of Bishop’s constituents are directly depending on oil company investment and jobs while some are involved with Interior Alaska, subsidized utility projects requiring huge expenditures of capital dollars from a diminishing state treasury.

So, what does Bishop do?  He supports SB 21…conditionally.  In this August 17 Op-Ed he assured his local readers that he voted for tax reform but didn’t trust investors and would make them pay dearly if they didn’t invest what he expected, though his expectation is undefined.

He says, “Here’s how my concerns were reported on the night I voted in favor of SB 21: "Bishop was cautiously optimistic the cuts would result in a change on the North Slope, but was adamant that he needs to see a ‘marked investment’ of billions of dollars per year if the industry hopes to hold onto SB 21’s changes. 'Do I trust the oil industry? No, they haven’t proven it to me yet,’ he said. ‘I’m just putting them on notice, right here and right now. They got one free pass with me tonight, and if I don’t see increased production, I’ll be the first one to file a bill to put it back on them, end of story.’ When asked when he would make that determination, he said three years."'

*     *    *

“But”, Bishop continued, “I want to stress -- the burden of proof is not on me or any other Alaskan -- it's on the industry. I want to see increased spending and I want to see increased production. So, I am on the record, just as I was on the record during my campaign and my time in the Legislature. I will take this leap of faith, but if it's not producing the promised results within three years, I will lead the charge to change it.”

“I will also note that if we have to return to ACES or something like it because the producers have not produced, I will be leading the charge for that too, including a claw-back provision to return those dollars to Alaska,” he concluded.

In short, Bishop is like other public officials who kowtow to the public in the quest for reelection by demonizing investors.  It is unfortunate that even if today's effort to repeal tax reform fails, and even if resulting industry investment is massive, the Senator's hostility will remain a matter of public record and a matter of investor concern.

We might have been more understanding had the good Senator opposed SB 21 and courageously stood by his guns or supported and defended reform because he believed the policy best for Alaska--for certain well-articulated reasons.

But Bishop's “on-the-one-hand/on-the-other-hand” rhetoric makes him appear to be unstudied, incapable of decision and far short of the wisdom required of one elected to analyze and act decisively on complex matters affecting the lives of all Alaskans, if not all Americans.  We have seen Bishop in action, like him and appreciate his best of intentions.  We don't mean to pick on the man but his attitude attracts critique.  Why would you support reform for the very investors whom you attack and threaten?

Bishop’s psychology is not unique.  In his defense, he probably does faithfully follow the diverse pressures of constituents.  He has likely chosen to be a “follower of constituent concerns” rather than a, “leader of Alaska”.  That approach might be best calculated for popularity and reelection but falls short of true leadership, diplomacy and business acumen.

Where does this leave Alaska on this historic, Primary Election Day?

We believe that should Ballot Proposition #1 fail (i.e. thus reaffirming passage of SB 21), Alaska will continue to see its investment climate attract more investment.  That investment will lengthen the life of TAPS and thus best secure economic prosperity for this and future Alaska generations.

Should Proposition #1 pass (i.e. thus repealing SB 21 and tax reform), we believe the event will be followed by investor statements indicating, “disappointment” that a well-studied plan by the Legislature and Governor to improve Alaska’s investment climate has failed through operation of a voters initiative.

We believe that under either scenario, the citizens of Alaska and the nation have big challenges to overcome.

  1.  Scenario: Initiative Fails.  Celebration will and should be muted.  Oil tax reform will continue forward.  More investment can be expected.  But investors will remain cautious for several reasons:
    1. The subjective, demanding and hostile attitude of, “invest to my satisfaction”, projected by Senator “Click” Bishop and a large percentage of other Alaskans will be calculated when future investment decisions are discounted for political variables.  Yes, tax reform is safe for the time being, but a large block of voters and elected officials remain hostile to investors—and they know it.
    2. Investors have just witnessed how Alaska’s voter initiative process can emasculate the carefully developed policy of elected officials.  While the initiative may fail today, the process remains alive and well for another day—and investors know it.
    3. With reaffirmation of tax reform, expectations will be high for the oil producers to, “make the gas pipeline/LNG project reality”.  The big producer investors have always said that a durable, reliable “fiscal regime” is required before investors commit $40 to $60 billion into marketing the 35 Tcf + of  Alaska North Slope natural gas reserves.  A decade ago, Governor Frank Murkowski developed an agreement with producers that provided ‘fiscal certainty’ for their big gas pipeline investment in return for a production tax increase.  The Legislature balked and, instead, gave investors no fiscal certainty but rope-a-doped them a tax increase that is the subject of today’s SB 21 tax reform repeal ballot question.  In short, once today is done, the North Slope producers’ gas pipeline project will be under increased scrutiny, accompanied by residual hostile attitudes which surfaced during the SB 21 debate process.  Investors, therefore, know that while production tax reform is real (at least for the time being), new challenges await them.
    4. If Alaskan leaders do not restrain their appetite for continuing, increased spending the pressure will soon build to again increase oil taxes—and, investors know that, too.
  2. Scenario: Initiative Passes.  Governor Sean Parnell (NGP Sean Parnell, No On One, Production Tax, ACES, reform, sb 21, Photo by Dave HarbourPhoto), some legislators, business leaders and oil companies will express varying degrees of disappointment.  Expect to see somewhat restrained comments by oil company taxpayers.  After all, they will once again be living under one of the worst investment climates in the free world—and their assets and operations will still fall under dominion of an unreliable taxing sovereign with regulatory muscle to boot.
    1. We believe investors will throttle back on LNG gas project planning or put the project on hold.  They will, however, be careful about their public responses knowing Alaska is capable of mobilizing further hurtful voters’ initiatives, including a natural gas ‘reserves tax’.
    2. Alaskans can expect to see some projects now being constructed, abandoned.
    3. Real estate investors will be hard hit, beginning this coming fall and winter, as producer companies engage in reductions in force and terminate or downgrade scores or hundreds of service agreements with Alaskan contractors.  New “big box” retail investors will be facing a dangerous, demographic slide.  Nonprofit organizations heavily dependent on general business donations can expect to see a dry desert appearing before their eyes, with few oases of private financial support in view, other than the occasional mirage.  Hoped for new oil and gas investment will fade away, adversely affecting the state and municipal budgets depending on income from the (i.e. discriminatory, since no other business pays it) special oil and gas property tax.
    4. Less oil, than with tax reform, will be transported down TAPS.   This will lead to an earlier shutdown, removal and restoration of the great oil conduit, than would have occurred with tax reform.  This will cause increased prices for oil shippers and their customers at Alaska refineries and on the U.S. West Coast.   The end of TAPS will end oil and gas exploration and development on the Alaska North Slope for, at least, the remainder of our generation.
    5. Finally, one has to ask: If SB 21 is repealed and the negative investment climate produces an outmigration of citizens, will massive state subsidies still be spent to produce the multitude of new energy projects now on the drawing board—in preparation for a growing population.  If so, it is likely that much of that spending will be wasted.  If not, many state employees and their contractors will also experience reductions in force.

Finally, whether the initiative passes or fails, Alaska will still have to contend with two very big challenges:

  1.  Alaska will still face the overreaching, hostile and anti-development actions of a federal government that controls most of the land in Alaska directly, and all of the state, Native and other private lands indirectly.
  2. Alaska will still have to resolve whether it wishes to encourage investors with a truly positive attitude.  Or, will we continue to reflect a small-town, suspicious and hostile attitude toward the very investors whose perseverance and treasure produced for Alaska and her citizens a 50-year age of prosperity?

Tomorrow we’ll know.  Today will be history.


Responses to above commentary:

  • Dave,
     
    My comments from the other side of Pacific (i.e. one of our Australian readers.  -dh).
     
    From a country which is normally considered more collectivist than the U.S. I find the implicit belief of the “high taxers” (including Commisar Palin) to be surprising, but like all socialists everywhere, they believe: "the economy just happens and all of its output belongs to the State other than the bit we chose to leave to you.”    A "Yes" vote will kill the Alaska LNG Project - perhaps forever (though the Producers will be too polite to say so) - and that’s a $50B project!
     
    Cheers,
    N.
  • Our email alert drawing attention to this commentary was entitled: "This Primary Election Day Will Change Alaska's History".  Our first response came from highly respected Alaskan leader, A.G.C., who replied, "Hopefully for the better, but I doubt it."
  • Dave, really good job on the editorial today.  I think you have fairly depicted either outcome, which I fervently hope is a no vote. Looking forward to seeing what you write tomorrow…  -N
  • Thanks, Dave; I voted on Saturday.  -K.E.
  • Looking at the Vote Yes on One Campaign I see the same tunnel vision that I experience on the highways every day. A driver only looks forward in the lane he occupies and comes up behind another driver, tailgating, thinking this will make the trip faster. When this doesn’t happen the driver swerves into another lane without looking to both sides and rear to see what danger may lurk. Many accidents and near accidents occur because of this behavior.  Voting Yes is exactly the same where the voter only looks at the immediate rewards and not the risks and damage to others their actions may bring. The trickle-down effect from discouraging investors will be a severe blow to Alaska’s future.

I urge all Alaskans to Vote NO on One to keep the Alaska economy moving forward now and in the future.

Ken Bauer, Operations & Sales Manager

Spill Shield Inc.

2000 W International Airport Road, D-2

Anchorage, Alaska  99502


 

 

 

 

 

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8-1-14

01 August 2014 1:37pm

Fairbanks News Miner, by Matt Buxton.  With less than three weeks before voters decide the fate of an oil tax system the industry has spent millions to defend, ExxonMobil invited a group of reporters to visit North Slope’s Point Thomson gas field.  Reporters from the Fairbanks Daily News-Miner and Anchorage-based media outlets took an ExxonMobil flight on Thursday to tour what is said to be one of the busiest places of development on the North Slope.

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7-31-14 Jansen wants "vibrant long-term economic future" for Alaska

31 July 2014 7:44am

Jim Jansen, No On One, ACES, Alaska oil tax reform, SB 21, Photo by Dave HarbourADN OpEd by Jim Jansen (NGP Photo).  Alaskans have a choice on August 19. We can retain a competitive tax structure, compete in the market for oil investment and have a vibrant long-term economic future, or we can continue to over-tax the petroleum industry, suck on the oil lollipop until it’s gone and let the future be damned.​


Dingman Would Sacrifice Short Term Cash Cow For Long Term, "Environment of Economic Stability"

ADN Column by Mike Dingman (NGP Mike Dingman, Alaska Oil Tax Reform, SB 21, adn, No On One, Photo by Dave HarbourPhoto).  After all of the talk of the past oil tax systems, the fluctuating price of oil, the world market, the domestic market, heavy oil, offshore oil, progressivity along with a litany of confusing acronyms, we are left with one, very important fundamental question -- do we want our oil tax system to be a short-term cash cow or do we want to create an environment of economic stability on the oil patch and ensure high-paying jobs for Alaskans.


 

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7-29-14 SB 21 Tax Reform Legislation Prompts ConocoPhillips - Doyon Alaska North Slope Project

29 July 2014 8:48am

SB 21 Tax Reform Legislation Prompts ConocoPhillips - Doyon Alaska North Slope Project
 
(Does oil tax reform improve chances for an Alaska North Slope LNG Project?  Governor Sean Parnell thinks so.)

Canada Also Finds That Oil Incentives Work: Calgary Herald by Dan Healing

Rick Rogers Agrees: "No On One"

Rick Rogers, Resource Development Council for Alaska, RDC, SB 21, ACES, Proposition 1, No On One, Dave Harbour PhotoADN Op-Ed by Rick Rogers (NGP Photo).  In reading Bill Walker’s (NGP Photo-below) Bill Walker, No On One, Candidate For Governor, SB 21, ACES, Proposition 1, No On One, Dave Harbour Photorecent column on why he would be voting yes in the August primary election referendum to repeal oil tax reform, it was hard to understand how he could come to that conclusion if he stepped back and critically examined his very own statements about the ACES tax structure.

...he, in reality, made the case to keep oil tax reform intact and vote no.

(More here....)

ConocoPhillips Alaska announced yesterday that it has signed a contract with Doyon Drilling to build a new rotary drilling rig for the Kuparuk River Unit on Alaska’s North Slope. This is the first new-build rotary rig that ConocoPhillips has added to Kuparuk’s rig fleet since 2000. 

...Doyon 142 will employ about 100 people directly and support hundreds of indirect jobs. Currently, 
Aaron Schutt, Doyon Drilling, Alpine, rig, Alaska North Slope, ConocoPhillips, Dave Harbour Photo, SB 21ConocoPhillips has six development rigs working on the North Slope and one in the Beluga River Unit in Cook 
Inlet. 

“The contract for the rig is long-term and is one example of how Senate Bill 21 (MAPA, or the More Alaska 
Production Act) is making a positive impact on Alaska’s economy. This opportunity is good for Doyon, its 
shareholders and Alaska,” stated Doyon President and CEO, Aaron Schutt (NGP Photo above). 

In addition to the rigs, since the passage of SB 21 Trond-Erik Johansen, ConocoPhillips, SB 21, Alpine, Rig, Rotary, Doyon Drilling, oil tax reform, No On One, Proposition One, Photo by Dave HarbourConocoPhillips has also announced plans to pursue three 
new projects on the North Slope. ...“Contracting for a new rig is another step we are taking to increase production on the North Slope,” said Trond-Erik Johansen, president of ConocoPhillips Alaska (NGP Photo). “SB 21 has improved the business climate in Alaska, and we are investing in projects that add production, increase state revenues, increase contributions to the Permanent Fund and create jobs and business opportunities for Alaskans.” 

(More here....)

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7-24-14 Keeping Oil Tax Reform Sustains Alaska

24 July 2014 2:03am

Alaska Dispatch by Jonathan Katchen.  Much of the discussion surrounding our oil taxes is driven by emotion and ideology instead of facts. Most Alaskans want a vibrant oil industry that generates good paying jobs, keeps the oil flowing for years to come and provides Alaskans with a fair share of revenue. Here’s why voting to repeal SB 21 will jeopardize these goals.

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7-11-14 Native Leaders Support SB 21 - Is Enbridge Alaska's Newest Pipeline Sweetheart?

11 July 2014 6:50am

Did You Read It Here First?  Last Night The Globe & Mail Posted News Involving A Relationship Between One of Canada's Greatest Pipeline Companies And The Alaska Gasline Development Corporation.


Globe & Mail by Shawn McCarthy.  

Enbridge Inc. is turning its eyes north to Alaska, entering talks with the state to build an $8-billion (U.S.) natural gas pipeline there if a competing project falters.

The Calgary energy company and the state-owned Alaska Gas Development Corp. (AGDC) “are undertaking substantive and exclusive discussion” which would see Enbridge become the builder and operator for the 1,163-kilometre pipeline. It would carry natural gas from the North Slope to Fairbanks and other communities in southern Alaska.

ADN Opinion Editorial, by Rex A. Rock Sr. (NGP Photo), Aaron Schutt, Sophie Minich, Helvi Sandvik, Jason Metrokin, Gail Schubert.  

Rex Rock, SB 21, ASRC, Alaska Native Corporation, Photo by Dave HarbourMany Alaskans may wonder why six of the largest Native corporations have united behind the effort to defeat Ballot Measure 1. Those who know little about us might assume it’s because some of the coalition members have business interests aligned with the oil industry. But that is too simple an answer. We did not enter into this conversation lightly.

As First Alaskans, our people have learned for generations to use and protect the resources that surround us. We have learned that to provide for future generations – for tomorrow’s children to have the same opportunities we enjoy – hard decisions must be made today.

We have listened carefully to the debate surrounding tax reform and weighed its benefits and drawbacks. We have also allowed ourselves the time to determine if the oil industry’s promises of increased investment were genuine. Some of our businesses are in the oil industry and some are not. What we have seen is an increase in investment into our oil industry, aimed at getting new oil in the pipeline. While that may be good for some of our businesses, it is good for all Alaskans. Our corporations collectively employ thousands of Alaskans and our employees support small Alaska businesses and the overall economy. New investments increase our opportunity to put new oil in the pipeline. Extending the life of our oil fields translates into continued contributions to our state treasury and the services the state provides to Alaskans for the long-term.

More....

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