We all agree we need more oil in the pipeline. The Governor believes the way to do that is by giving billions in tax breaks with no requirements for increased production. I fundamentally disagree. In fact, we tried that philosophy for decades in Alaska, and it led to declines in production of about 5.2% per year – and it cost us hundreds of billions in lost revenue. I don’t believe the answer is to go back to that failed policy. Here are my ideas.
Alaska’s oil production continues to decline as North Slope fields mature. To stem this decline, Alaskans should reward those companies that successfully increase their North Slope production. This will help extend the life of the Trans-Alaska Pipeline, create more jobs for Alaskans, and provide additional state revenue to pay for essential public services.
I do not support giving billions in tax breaks with no strings attached, as is currently being proposed by the Governor. This is bad policy. Instead, let’s provide tax breaks to companies that increase their oil production from one year to the next. Let’s also provide incentives for new fields that produce new oil – if companies make the investments in new fields, they will get tax breaks.
Alaska’s production tax rate climbs as oil prices increase. This could result in an excessive production tax rate if oil prices were to shoot up over $200/barrel, reducing the incentive for new investment.
Cap the tax rate at a reasonable level to ensure a fair return to oil producers and Alaskans.
At low oil prices (e.g., under $40/barrel), Alaska gets zero production tax, depriving Alaskans of a fair share of the benefits of producing their oil and gas.
Re-institute a 10% tax on the gross as a minimum tax to ensure ACES is durable in a low price environment. This was part of the original ACES bill and balances our willingness to cut progressivity in a high price environment.
One way to address declining oil production is to ensure that oil and gas leases go to those companies that will develop the state’s resources in a timely and aggressive fashion.
Revise Alaska’s oil and gas leasing laws to require companies seeking to lease oil-rich lands from Alaskans to provide the state with a plan of development for those lands, so they do not sit idle, while companies invest their resources elsewhere.
When oil companies sign leases containing valuable oil and gas, they agree to produce that oil and gas if a reasonably prudent operator would, considering both the interests of the state and the company. Yet in many cases vast tracts of land capable of producing substantial returns for the state and producers go undeveloped, while investments are made elsewhere. Alaska cannot allow its resources to be warehoused indefinitely.
Require the State to annually review state oil and gas leases to determine where additional development is reasonably economic and then to aggressively enforce lease terms to ensure that projects which are mutually beneficial for the state and leases proceed expeditiously.
Some of the smaller independent oil companies have said that securing capital for new development projects in today’s investment climate is challenging. One way to ensure that development is not held up as a result is to enable the state to become a direct partner with industry in moving projects forward.
Authorize the State to make direct investment in development projects, if justified by economic analyses. This strategy is successfully used in many other oil producing areas.