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Northern Gas Pipelines is your public service 1-stop-shop for Alaska and Canadian Arctic energy commentary, news, history, projects and people. It is informal and rich with new information, updated daily. Here is the most timely and complete Arctic gas pipeline and northern energy archive available anywhere—used by media, academia, government and industry officials throughout the world. Northern Gas Pipelines may be the oldest Alaska blog; we invite readers to suggest others existing before 2001.

 

Alaska Taxes

3-17-14 Is Alaska Flirting...?

17 March 2014 4:53am

Is Alaska Flirting With The Last Gas Pipe Straw?

Competition Perspectives: Part IV (Part IPart IIPart III)

by 

Dave Harbour

We had written a very long commentary which tried to shed light on the effect of currently discussed issues on Alaska investment climate competitiveness.  We then delved into the effect various pending decisions could have on prospects for an economically feasible gas pipeline.

And we concluded that, as in Canada's MGM case, investors would do the best they could until the day a straw "broke the camel's back," resulting in an unhappy press conference that catches everyone off guard.

Acknowledging to ourselves today that the whole political structure of Alaska is focused on resolving gas pipeline issues, we decided to not add our voice to the suite of cacophonous debates.  After all, the symphony of special interests will sing and toot for their own ends no matter what we may think.   

Instead, we will offer to readers who may find them interesting, rationale applying to current sub issues of the gas pipeline debates:

1.  Efforts to force use of gas pipeline project labor agreements (PLAs), by LAW, will have at least several major effects:

  • Even if investors were to want PLAs, forcing them to use PLAs by law makes their bargaining position with unions weak.  To get the best deal for shareholders and the lowest transportation costs for consumers and the highest royalty and tax returns for government requires the investors to secure the most reasonable and competitive possible employee costs  (i.e. which we are told could approach a third of the $45-65 billion project cost).  If unions which will negotiate PLAs with investors, know there will be no pipeline without PLAs they can hold out for exorbitant hourly rates and benefits.  Indeed, their negotiations could push the project into a competitive wilderness from which no viable project would emerge.
  • PLAs will not, as advocates claim, further the hiring of Alaskans.  Virtually all competent and qualified oil & gas  backgrounded Alaskans in this lightly populated state are now employed.  It would be in the interest of investors to hire as many long time, qualified Alaskans as possible.  Having a several year boom-time of pipeline jobs will -- as with the Trans Alaska Pipeline System (TAPS) in the 1970s -- suck much qualified talent away from existing Alaska employers forcing them to hire 1) less qualified Alaskans, and/or 2) immigrants to Alaska.  After construction, the long term, qualified Alaskans who left normal, private sector jobs will be faced with taking less attractive jobs in the normal market or moving away from the state to oil and gas projects that demand more experienced talent.  The real beneficiaries of government-forced prevailing wage/PLAs are unions that can expand membership, collect dues and use that wealth, in part, to support their favorite political candidates.  Accordingly, lawmakers should be wary about interfering too much with the invisible hand of economics and free enterprise less they reap unintended -- rather than utopic -- results.  In political debate, union apologists, claim that a union negotiated PLA still allows non-union companies to bid on pipeline work.  While true, the larger effect is to raise the hourly wage scale of employees to an artificial, negotiated level above competitive market rates which both union and non-union employers would have to pay.  It certainly does "even the playing field" between union and non-union companies, making it no more advantageous to hire competitive non-union than union contractors.

2.  "Pay-offs".  We have warned over the years that the singular focus of "monetizing Alaskan resources" is in the constitutional best interest of Alaskans.  With maximum monetary value derived from natural resources, the legislature and governor can then allocate the money to public uses.  However, special interest advocates claim that the gas resource must --by law -- provide more than monetary benefit to Alaska.  Some rural politicians have even said they would only support current gasline legislation if their remote communities receive a direct benefit of the pipeline.  Monetizing Alaska's gas to help the state continue delivering programs throughout Alaska is not enough.  This is where politicians encounter a thousand rabbit trails, seducing them into tempting areas far removed from simply monetizing the gas.  For example:

  • Alaska communities not near gas pipeline facilities will argue for funding socialized energy programs in their areas.  
  • Some might ask for propane to be split off from the gas stream and provided to them via subsidized projects.  
  • Some will ask for subsidized LNG/barge distribution projects to serve coastal communities.  
  • Some will want subsidized LNG storage and local distribution facilities, because their cost will be exorbitant.
  • The pipeline project involves a state agency (i.e. Alaska Gasline Development Corporation {AGDC}).  That will usher in other challenges, including both subtle and bold requests from public officials, friends, family and private influence leaders to provide employment, contracts and other favors involving public funds.  Without a formal audit procedure, public monies and project performance are at risk.
  • Then, there will be those who will politically harass investors (i.e. oil and gas companies) to subsidize the cost of natural gas, LNG and propane to their communities in return for not molesting them with tax bills during legislative sessions or tax referenda at any time.
  • Many of these unanticipated burdens accompanying state participation in a private project can not only lower state income but also increase state operating costs.

Our Gentle readers can see why we decided against publishing a longer treatise on this matter today, as the Alaska Senate and then the House approach decisions on Alaska gas pipeline Senate Bill 138.  There is much more that could be said, but it could only add to an impression that we are "just being negative", rather than what we believe we actually are: optimistic by nature, but realistic.

Even after reading this summary of current challenges, we believe reasonable minds will conclude that the weight of government interference in a private enterprise project inversely affects the project's efficiency and competitiveness. 

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".

(We invite comments!)


Today's gas pipeline related energy links from the Office of the Federal Coordinator:

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3-13-14 Is Alaska Flirting With The Last Gas Pipe Straw?

14 March 2014 2:59am

Is Alaska Flirting With The Last Gas Pipe Straw?

Competition Perspectives: Part IV (Part IPart IIPart III)

by 

Dave Harbour

​(Read More)


John Hofmeister, energy policy, Shell, Oxford Club, Photo by Dave Harbour

Our friend, John Hofmeister (NGP Photo), former Shell President, offered this "quotable quote" on the energy situation during his interview with the Oxford Club's Energy and Infrastructure Strategist Dave Fessler:

 

Please Consider Testifying TodayFriday, March 14 on HB 77: Improve Alaska's Permitting Efficiency (We at NGP believe this is one rather small but important way citizens can improve Alaska's investment climate--rather than our usual challenge to fight off additional investment climate attacks!  -dh)

Our friends at the Fairbanks Chamber of Commerce are encouraging citizens to testify in support of  House Bill 77 during the Senate Resources Committee meeting tomorrow. The Chamber's Board of Directors has adopted, as one of the Chamber's 2014 legislative priorities, to increase responsible resource development through the permitting process.  (Read More Here)

"...if we keep the current level of government, where we have the executive branch with 13 agencies governing energy, plus the White House, 26 Congressional committees and subcommittees in Congress, both the Senate and the House, 800 federal judges, 50 states, 50 state governors, 50 state legislatures, 50 state court systems. Then you get to the municipalities and the counties of the country. You have thousands and thousands of governmental units that are fragmenting what it is that the energy industry is trying to do to bring molecules and electrons to the American people for their use. And that governance is so fragmented it can't work."


Is Alaska Flirting With The Last Gas Pipe Straw?

Competition Perspectives: Part IV (Part IPart IIPart III)

by 

Dave Harbour

Earlier this week, the folks at Alaska Public Media reminded us that the republican-led Legislature is dealing with another dimension of gas pipeline competition, an added cost: legislated labor rates.

More coming...!

 


Please Consider Testifying TODAY, Friday, March 14 on HB 77: Improve Alaska's Permitting Efficiency (We at NGP believe this is one rather small but important way citizens can improve Alaska's investment climate--rather than our usual challenge to fight off additional investment climate attacks!  -dh)

Our friends at the Fairbanks Chamber of Commerce are encouraging citizens to testify in support of  House Bill 77 during the Senate Resources Committee meeting tomorrow. The Chamber's Board of Directors has adopted, as one of the Chamber's 2014 legislative priorities, to increase responsible resource development through the permitting process.

Friday, March 14

Senate Resources - 3:30pm

CSHB 77 - Land Use/Disp/Exchanges; Water Rights 

PUBLIC TESTIMONY

Fairbanks Legislative Information Office
1292 Sadler Way, Suite 308
*You must go to your local LIO to testify
 
Comments will be limited to 2 minutes. 
 
You can also send your comments to Senator Cathy Giessel, Chair of the Senate Resources Committee. 
 
OVERVIEW: CSHB 77 is an omnibus bill that seeks to improve the Department of Natural Resources (DNR) timeliness and efficiency in issuing land and water use authorizations. The bill focuses on agency process and does not seek changes in environmental standards or laws protecting fish and wildlife habitat. Nor does the bill make changes to the law governing water rights.

The CS includes changes that limit DNR's authority to issue a general permit, define the process for issuing a general permit to include public comment, allows individuals, tribes and others to be able to apply for water reservations, but clarifies that the certificate will be issued to an appropriate state agency rather than a person. In times of declining budgets, general permits are an appropriate tool to efficiently authorize routine activities such as mooring buoys. 

The bill allows "persons" to apply for instream flow reservations, but if granted the in stream flow certificates are held by a State agency. CSHB 77 solves the problems with the current system, which focuses on who gets paperwork in first. For large projects that are multiple years in the planning, the decision on how to withdraw water, protect the fish, and promote economic development should be made with all the data, and with an understanding of all the environmental and social effects. It should not be based on who gets their paperwork in first. But, recent court decisions and environmental groups' legal claims are making it a paperwork race.

DNR has received over 300 applications for an instream flow reservation. The vast majority are from public agencies. In contrast to the almost 300 agency applications, the state has received 34 applications from other groups. Of the 34 applications, over 85% were from groups opposed to a development project. Their purpose is at least partially to use the application to change or stop the agency permitting process.

Decisions about these projects should be made by Alaskans through their government - not by environmental groups, nor even by individual Alaskans. CSHB 77 solves the problem with the current instream flow permitting system with minimal changes, and does not affect public notice or any other part of the process.

Talking Points to Consider in your Testimony: 

  • This bill will help cut the red tape and put Alaskans back to work.    
  • The bill improves efficiencies in the issuance of General Permits, diminishes the chronic backlog in permitting, results in cost savings to the state, while protecting the environment.    
  • CSHB77 diminishes the ability of ENGOs to abuse the system and stop projects.  
  • This bill will help cut the red tape and put Alaskans back to work.   
  • CSHB77 implements changes that will provide certainty and timely response to Alaskans that obtain permits, while maintaining efficiently run state agencies.  In these times of trimming the state budget, ensuring that state agencies are able to efficiently issue and manage permits, thus keeping down the cost and time expended, is crucial    
  • CSHB77 provides for the issuance of general permits, so that minor projects can be permitted practically.  Section 1 of HB77 makes it clear there is a requirement for public notice and provides opportunity for public input on any general permit.  General permits would cover activities that are already authorized for permit under existing statute.  General permits are not unprecedented; in fact, they are widely used by federal agencies.    
  • CSHB77 requires that appeals to sales, leases, and land disposals can be done only by those who are directly and negatively impacted by the decision.  This brings accountability to the appeals process, ensuring that appeals must be brought only when a directly involved stakeholder is adversely affected by a decision, rather than a special interest attempting to block permits    
  • Thanks to special appropriations by the legislature, DNR is making positive progress on a tremendous permit application backlog.  Extra funding helps address the backlog symptom, but efficiency measures in CSHB77 help address the cause of the backlog.
  • CSHB77 ensures that Alaska's water resources are managed by those who are best equipped to do so - agency staff with science-based expertise.

Additional Information & Talking Points:  

Categories:

3-10-14

10 March 2014 11:25am

Fairbanks News Miner/AP.  Allowing municipalities in on natural gas pipeline negotiations would be as “impracticable as having 60 legislators sitting at the table,” Gov. Sean Parnell (NGP Photo) wrote to four local governments concerned about property tax deals the state could cut with producers.  Municipalities, including the Fairbanks North Star Borough, have raised concerns about agreements the state penned with North Slope producers and TransCanada that could allow the gasline to make payments based on throughput in lieu of traditional property taxes.

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3-4-14 Palin Predicted Ukraine - Romney Advocated Stand Against Russia

04 March 2014 6:44am

BP

BP today announced its intention to establish a separate business to manage its onshore oil and gas assets in the US Lower 48.


See today's Globe & Mail piece on Asian LNG competition for price


 

Comment: Yesterday we noted that two legislators are planning for a new oil revenue stream should voters adopt an August Primary Ballot proposition to repeal oil tax reform.  

That revenue stream will be based on a new policy emphasis on state investment and equity into oil and gas exploration and development projects.  These are the same minority legislators who are leading an effort to repeal the SB21 oil tax reform bill passed by a majority of the House and Senate, and signed by the Governor, less than a year ago.

We can now see a strategy rising from the mist: repeal of tax reform will have to be replaced by something that produces revenue.  Since repeal of reform will deflect investment, an unhappy but obvious policy replacement would be to socialize/nationalize natural resource industries...starting with the small step of massive equity investment of public funds and employment of state employees to oversee the profitability of the investments.  

What could possibly go wrong?

Today, we hear in a Fairbanks News Miner editorial, that certain Mayors who reap large and mostly passive benefits from the oil and gas statewide property tax, are mounting an effort to investigate impact on their revenues from an agreement between the state and gas pipeline parties regarding the fiscal regime enabling a gas pipeline project to proceed.

Charlotte Brower, Mayor, North Slope Borough, property tax, ACES, tax reform, oil, Photo by Dave HarbourWe again note that Alaska North Slope Mayor Charlotte Brower (NGP Photo) has gone on record in support of oil tax reform.

Certain gubernatorial candidates oppose both oil tax reform and the fiscal terms surrounding a gas pipeline project.

The current governor supports both tax reform and the proposed gas pipeline fiscal regime.

While there seems to be alignment among major gas pipeline and oil tax stakeholders, lack of political alignment from other, vocal influence leaders could well cause oil tax reform to disappear after August, soon to be replaced by new statewide leadership and a new world of natural resource control by bureaucrats and government ownership of the 'means of production'.

Should this be the outcome, we can envision great impact, as well, on Alaska's entire investment climate, not merely limited to natural resource investors.  -dh

Sarah Palin, governor, alaska, russia, ukraine, Photo by Dave Harbour

Comment:  Fox News interviewed former Alaska Governor Sarah Palin (NGP Photo) today.  

During the interview, we learned that Candidate Obama opposed Candidate Romney's conviction that Russia posed a global threat to peace.  

The program also produced a video of Candidate Sarah Palin, earlier warning that just as Russia invaded Georgia it could as easily invade Ukraine.  

Throughout the interview, Palin emphasized the importance of approving the Keystone XL pipeline and developing domestic energy resources with Administration support--rather than Administration opposition.  

Our faithful readers know that we have been hard on Palin for her Alaska oil tax and gas pipeline policies nearly a decade ago...but in this interview we found ourselves appreciating her message, which we paraphrase: "Develop America's resources aggressively and responsibly now, Mr. Obama, or watch our standing in the world and support for our allies diminish along with our national security and economic recovery."

John Norman, Commissioner, AOGCC, IOGCC, Alaska Oil And Gas Conservation Commission, Photo by Dave HarbourWe also note from the current issue of  Petroleum News, that "Commissioner John Norman (NGP Photo) retired from the Alaska Oil and Gas Conservation Commission at the end of January. Norman, an attorney, had been the public member of the commission for 10 years. He was named to the commission by former Gov. Frank Murkowski in 2004, replacing Sarah Palin as the public mem....​"  (We are reminded once again of what a small world it is as we congratulate Governor Palin on her stand for domestic energy production and her replacement, Commissioner Norman, for a lifetime of service to the state and nation.    -dh


Wall Street Journal by James Freeman  

WARREN BUFFETT, CLIMATE-CHANGE DENIER 

Warren Buffett, Dave Harbour, NARUC, Photo by Dave Harbour, climate change, global warmingThe billionaire chairman of Berkshire Hathaway (Photo, Buffett with NGP Publisher) is on some kind of roll. Yesterday we told you about his warning on public pension funds in his annual letter to shareholders. Now, he's puncturing deeply-held liberal myths about global warming. Mr. Buffett tells CNBC that extreme weather events are not becoming more common, and that climate change is not altering his company's calculations when insuring against catastrophic weather events. "The public has the impression that because there's been so much talk about climate that events of the last 10 years from an insured standpoint and climate have been unusual," he said. "The answer is they haven't."   (We commented on the subject of climate change two days ago, invoking Aristotle's Golden Mean ideal; and we challenged both sides of the debate).  -dh


Comment and link: We earlier commented on LNG competition.

Here, Peter Tertzakian of the Globe and Mail gives further insight on the softening LNG market for British Columbia exports.  Are not some of Canada's LNG export concerns ones that we Alaskans share.  In both Alaska's land Canada's cases, LNG market demand and competition are exacerbated by local political interests striving to obtain for themselves and their constituencies all possible benefits --  even if the end result is achieving 100% success in gaining benefits for projects that became embroiled and then doomed in a sea of local and national political struggles.

To quote our reference at the Globe and MailJapanese benchmark prices for LNG in Asia have been exceptionally high since the Fukushima nuclear disaster, almost exactly three years ago. Concurrently, domestic Canadian natural gas prices have been anomalously low. The resulting “differential” between the two was $15.70 (U.S.) for one million British thermal units (MMBtu) at its widest in July, 2012. It’s been that massive price gap, or arbitrage, that triggered the buy-low-sell-high opportunity to build LNG export facilities in North America, including 14 projects off the west coast of B.C.

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3-3-14 Democrats Propose More Government Oil Industry Ownership

03 March 2014 3:10pm

Tim Bradner at Nikiski LNG Terminal, democrats propose new oil ownership scheme, Photo by Dave HarbourPeninsula Clarion (Morris News Service/Alaska Journal of Commerce), by Tim Bradner (NGP Photo, at Nikiski LNG Terminal).  

Minority Democrats in the Legislature unveiled their vision of an oil tax system should voters this summer roll back the tax structure lawmakers approved last year.

.   .   .

Bill Wielechowski, alaska senate, oil equity ownership, democrat plan, photo by Dave harbour“There are (state) entities around the world that own a share of their oil industry (through state oil companies) and I have confidence that we have the ability to do this,” said Sen. Bill Wielechowski (NGP Photo).

.     .     .

Les Gara, Alaska legislature, oil tax, ACES, oil equity ownership, Photo by Dave Harbour“The governor’s giveaway is a pathway to poverty,” said Rep. Les Gara, (NGP Photo), said in the press conference “He throws two billion dollars out of an airplane and hopes it lands in the piggy bank....”

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2-25-14 "Alaska, where a deal is a deal?"

25 February 2014 11:24am

Today, we learned that the Board of Directors of Bristol Bay Native Corporation has urged shareholders to support Alaska's tax reform bill, SB21 and vote against repeal in the August primary election.  (Website).  -dh

Globe & Mail.  Spanish oil major Repsol SA says its board of directors has approved a definitive $5-billion (U.S.) settlement from Argentina.  Repsol is a new Alaska North Slope company which, after the Argentina adventure, are seeking a more productive experience in the far North.  As we wrote in October, the jury is still out on Repsol's Alaska venture, though we remain hopeful.  -dh


AP.  A bill aimed at advancing a liquefied natural gas project in Alaska has moved from the Senate Resources Committee.

 

Leslie Wien Hajdukovich: A Lifelong Fairbanksan Explains Why She Opposes Efforts To Repeal SB21, Alaska's New Oil Tax Reform Law.

 

 


Part II: Has Alaska Become A Place Where A Deal Is A Deal?

(See Competition Perspectives: Parts IIIIII, and IV

With a third of Alaska's economy based on oil, with oil production declining, and with the entire state economy over a third dependent on oil, repealing Alaska's new tax reform law poses a clear and present danger.

See More Tax History: "Don't Forget The Mackenzie Delta"

by 

Dave Harbour

Earlier this month in Part I, we asked if "Alaska has become a place where a deal is a deal."

The most recent evidence that in Alaska, a "deal may not be a deal", can be found by reviewing this month's Alaska Supreme Court decision affirming a lower court's decision to uphold a new assessment methodology, thus increasng the property taxes applying to oil company property in Alaska.  

We sympathize with the court about the difficulty of adjudicating property value among distinguished litigants--even when a taxing method is not at issue.

But when a court supports a change in the rules of the game, it makes investors less likely to be attracted to that jurisdiction.

The Journal of Legal Issues and Cases in Business, penned by one of Alaska's, most distinguished, retired Senior Economists, Roger Marks (NPG Photo) identifies this problem: "In 2005 the state changed the assessment method from an income approach to a cost approach.

"Under the income approach assessed value was based on production depreciation. Under the cost approach value was based on replacement cost new less straight-line depreciation.
 
"When the assessment means was changed there was no adjustment for past depreciation.
This inconsistency in depreciation treatment caused assets to be depreciated more than once over time, with the result being a double taxation of the property."
 
In fairness, we note that Marks was one of the oil companies' "expert witnesses".  

Used to be that a handshake was sufficient between honorable Alaskans to confirm a deal.

Old timers tell us that in the 40s and 50s and even to the mid 60s, Alaska used to be a place where you didn't need to lock your doors at night--even in the cities.

If you trusted your house to be secure in the evening, you surely trusted the word of friends and other fellow Alaskans.

Then came the great Prudhoe Bay discovery in the winter of 1967-68.  Our leaders then could have raised oil and gas taxes to a level they thought to be consistent with the Constitution's admonition to obtain the maximum benefit of resource development for citizens.  The rule in place, they could then have reasonably conducted the 1969 lease sale.  The oil company bidders could then have bid with the more reasonable certainty of knowing the rules would not likely change after investments had been made.

Instead, Alaska became greedy, we believe, having lived through those times.  Folks started locking their doors.  In the twelve years following the 1969 lease sale, the governor and legislature increased industry taxes dramatically, about a dozen times in that many years--after the lease sale had locked in company investment decisions.  Then followed a period of dramatically increased cost estimates caused by increasing environmental, legal, political, labor and tax burdens.

Yes, Prudhoe Bay was big and could sustain a lot of abusive tax attacks.  But when they bid, the companies did so contemplating the risks known at the time.  Then they found in short order that the rules of the game would be changing before, during and after vast new investments in Alaska occurred.

This commentary does not quibble with whether or not any of the decisions made were 'right' or 'wrong'.

We do conclude without much fear of contradiction that by changing the rules of the game so often and so dramatically after it was too late for investors to reevaluate, Alaska was beginning to develop for itself a reputation with early signs of tarnish.

Then after a decade of changing rules, Governor Hammond and both the Republican and Democratic leadership of the House and Senate convened a press conference -- 33 years ago next month -- to signal that a landmark bill had passed which created for Alaska -- in general -- a "Fair Share" of resource development revenue.

Frank Murkowski, Governor, Alaska, Gas Pipeline, Photo by Dave HarbourA rather peaceful investment climate ensued for a generation -- until the early 2000s when Governor Frank Murkowski (NGP Photo) attempted with good intent to bargain to give gas pipeline investors fiscal certainty in return for increased oil company production taxes.  The companies, in good faith agreed.  The legislature honored part of the bargain by increasing their taxes but neglected to provide the necessary fiscal certainty to permit the creation of a viable gas pipeline project.  The companies were rope-a-doped after two decades of improved relationships that even survived the desperate oil price drops of the late 1980s.

Sarah Palin, Governor Alaska, ACES, Oil Taxes, Photo by Dave HarbourGovernor Sarah Palin (NGP Photo) replaced Murkowski in the next election of 2006 and, with legislative acquiescence, increased industry taxes which were applied with no real or feigned pretense of good intent.  To add insult to injury Murkowski's tax increase was increased further and applied retroactively.

Last spring, the legislature and governor acted to more reasonably reform the state's production tax and immediately thereafter, legislative foes, environmental groups and others initiated a voters referendum designed to repeal the new law, (SB21).  Now, as we said in Part I, investors await the outcome of Alaska's August 19 primary election.  If SB21 is affirmed by a majority voting "NO" to repeal, Alaska will have improved its investment climate reputation.

Our astute readers will also note that a mid year primary election is often lightly attended, usually by those who are determined to support or oppose a particular candidate or ballot proposition.  In this case, in addition to primary candidates, voters will be adopting or rejecting very controversial propositions to advance widespread marijuana use in Alaska, to increase and provide a cost of living increase for the minimum wage in the state and an environmental initiative to block mining development. 

Mathematicians and odds makers among us agree on one thing: a determined voter base of those supporting drugs, labor increases and anti-development forces could, in general, be more likely to vote to repeal an improved corporate investment climate than to keep the new oil tax reform law in place.  (Note: these three propositions were moved to the November 2014 ballot, somewhat lowering the chances that oil tax repeal legislation will be repealed on August 19.  -dh) ​

Accordingly, those opposed to all the initiatives will need to mount a big and unusually creative campaign if they are to stimulate a turnout of pro-free enterprise supporters and have a hope of balancing the scales.  

So picture this.  In Alaska's late summer a great tug of war will occur with big stakes.  In the middle, we have a great chasm.  On the left is an army of environmentalist activists, some labor union activists, and marijuana proponents and their supporters pulling, sweating, grunting, polling, going door-to-door, advertising, and writing letters to the editor for all they're worth.  On the right side of the chasm, pulling the rope in the other direction are those opposed to drug use, anti-business tactics and policies that repel investment and natural resource development.  

One set of policies will be pulled into the chasm.  

If the left side is pulled down, Alaska's reputation as a good place to live, work and play might be on the way to repair--except that there would be always the threat of another, similar referendum, year after year.

If the business side goes down, we'll know that in Alaska, a deal is for sure not a deal--until further notice!

In that case, expect dramatic reductions in investment, significant out-migration, decreasing oil production, less employment, fewer government services, lower real estate prices and overall economic malaise.  Alaska would, in this fix, be more likely to become a ward of the federal government than living up to its former reputation as the Last Frontier, the Pioneering State.

And, finally, just as natural-resource-rich Alaska retreats from resource development, Russia, Canada and other Arctic nations are aggressively seeking to develop their far North resources and exploit the Northwest Passage while protecting and expanding their Arctic sovereignty.  

Reforming Alaska's tax policies that have put it behind California in production, therefore, is not a local issue, but an international event that affects the security and economies and people of both the United States and Canada.   (Commentary updated slightly, 8-19-14.  -dh)

Opinion Editorial: A Lifelong Fairbanksan Opposes Efforts To Repeal SB21

by

Leslie Wien Hajdukovich​

Leslie Wien Hajdukovich, Fairbanks, Lifelong, School BoardAlaska’s oil and gas industry has been the biggest driver in our state’s economy for 50 years. Responsible development of our oil and gas reserves has fueled our schools, roads, airports, government, our grocery stores, coffee huts and car dealerships. As a fifth generation Alaskan, I am thankful for an industry that allows me, and my family the opportunity to live in Alaska.

As an active member of the Fairbanks community, I have served on the Fairbanks school board for six years, three as president, and in other volunteer capacities that have benefitted our youth. It is important to me that every child in Alaska receive a quality education – an education that prepares them for the work force, and for future employment in our great state. Upon being elected to the school board, I quickly learned that our school district’s funding is heavily dependent upon the success of the oil and gas industry in Alaska.

Last October, I was asked to be a statewide co-chair for the effort to defeat the oil tax referendum that is on the ballot this August. I felt it too important an issue to say no. Over the last three months, I have become informed and carefully studied the issues around new oil tax reform. I have a clear understanding of why oil tax reform is good for Alaska.

The state budget shortfall is not due to oil tax reform, but rather to declining oil production in our state and falling oil prices. Oil prices are not something we can control in Alaska, however we can influence decisions that affect production. That is exactly what new oil tax reform does. Because of provisions in the new law, the outlook for Alaska is much brighter in the long term. With oil tax reform, state revenues from oil will be more balanced, predictable and beneficial to our state.

Since new oil tax reform passed, oil companies in Alaska have announced billions of dollars in new investment. In just one example, ConocoPhillips has announced a 54 percent increase in investment in Alaska over 2013, and most of that increase is due to the change in the tax structure. This investment is tied to new exploration and increasing oil production. The Trans-Alaska Pipeline has tremendous value to Alaskans, but only if it has oil flowing through it. Right now, it is flowing at one quarter of its peak capacity and still declining. Oil tax reform is about taking the steps necessary to add more oil to the pipeline.

As a Fairbanksan, I have high hopes that a gas line is in our future. We need the financial relief of heating our homes, businesses and institutions with cheaper and cleaner burning gas. Investment in North Slope oil actually increases our chances of gas exploration and a gas line. They go hand in hand.

One thing I’ve learned over the last few months is that new oil tax reform offers great opportunity for Alaskans, not only by boosting our economy, but offering a long-term, sustainable funding source for our state coffers. It promises our children and grandchildren a brighter future.  This is the right tax reform at the right time. I encourage Alaskan voters to get informed, and to please Vote No on 1 this August.


Leslie Wien Hajdukovich is a lifelong Fairbanksan and her family’s history in Alaska spans over 100 years. Her Grandmother Ada Wien was a delegate to the Alaska Statehood Constitutional Convention.    


BBNC Opposes Ballot Measure 1

FOR IMMEDIATE RELEASE

February 25, 2014

Contact: Jason Metrokin, President & CEO, jmetrokin@bbnc.net or

Scott Torrison, Sr. Vice President & COO, storrison@bbnc.net or (907) 278-3602

Bristol Bay Native Corporation Opposes Ballot Measure 1

On Friday, Feb. 21, the Bristol Bay Native Corporation (BBNC) Board of Directors passed a resolution opposing Ballot Measure 1, which is a veto referendum seeking to repeal the Alaska Legislature’s oil tax bill passed during the 2013 session. Ballot Measure 1 seeks to repeal Senate Bill 21, also known as the Oil and Gas Production Tax, which modified the state’s oil tax regime in a manner designed to increase oil and gas exploration, development and production, and stimulate greater investment in Alaska. Ballot Measure 1 will appear on the August 19, 2014 primary ballot in Alaska.

BBNC has made significant investments in the Alaska oilfield services industry through its subsidiary companies Kakivik Asset Management, CCI Industrial Services and Peak Oilfield Service Company. These subsidiaries provide substantial benefits to BBNC shareholders in the form of employment, wages, and profits that contribute to dividends. The operations also provide over 1,000 high paying jobs primarily to Alaskans. The continued growth and success of these subsidiaries, as well as Alaska in general, is dependent upon a fiscal environment that encourages investment and economic growth in the Alaska oilfield services industry.

In the past year, under the current Oil and Gas Production Tax, BBNC has seen a dramatic increase in oilfield activity. BBNC is concerned that if Ballot Measure 1 were to pass, and Alaska returns to the prior tax structure, it will result in decreased oil and gas investment activity in the state; this would have an immediate and negative impact on BBNC’s subsidiaries and its shareholders, as well as the state of Alaska as a whole.

BBNC’s prudent support of Alaska’s oil and gas industry aligns with its balanced approach to the development of state resources. “Alaska’s oil and gas sector provides our shareholders with significant employment opportunities and makes major contributions to our ability to pay dividends,” said BBNC President and CEO Jason Metrokin. “BBNC strongly supports the industry that makes it possible to provide such benefits to its shareholders and opposes Ballot Measure 1.”

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Bristol Bay Native Corporation (BBNC) is a responsible Alaska Native investment corporation dedicated to the mission of “Enriching Our Native Way of Life.” Established through the Alaska Native Claims Settlement Act of 1971, BBNC works to ensure the continuation of the life and culture of its over 9,400 shareholders – the Eskimo, Indian and Aleut Natives of Southwest Alaska’s Bristol Bay region.

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