You are hereIt's time to fix ACES
It's time to fix ACES
By Paul Laird
Alaska Standard Contributor
Perhaps you remember “Network,” the 1976 Academy Award-winning film … Peter Finch, in the role of an irate TV anchorman, leading a chorus of tens of millions of Americans simultaneously shouting, “I’m mad as hell, and I’m not going to take it anymore.”
If you aren’t mad as hell about what’s been done in Juneau to Alaska’s oil and gas industry the past few years – or at least as concerned as hell – you simply haven’t been paying close enough attention.
One of the main culprits has been “Alaska’s Clear & Equitable Share (ACES),” the oil and gas production tax law enacted in late 2007 and imposed retroactively.
It is neither clear nor equitable, and state government’s “share” has come at the expense of private sector growth – jobs and business opportunities for Alaskans.
ACES was the third and largest production tax increase in a 3-year period – a multibillion-dollar tax hike that gives Alaska the dubious distinction of being the state with the highest taxes on the energy industry and was described by one legislative report as “staggering.”
It increased production taxes by 50% from 2007 and 350% from 2006 based on an $80/barrel market price for oil and includes an aggressive “progressivity” formula that boosts the tax rate as oil prices increase.
Today, capital spending by Alaska’s major oil producers and investors is declining, and a disproportionate share of spending is going toward maintenance projects that do nothing to generate new oil production and provide only temporary jobs.
Hundreds of Alaskans already have lost work, wages and business due to oil industry spending reductions. Thousands more are at risk.
This winter, exploratory drilling will be scarce on the North Slope. It’s the first time in more than 40 years that the state’s most active explorer, ConocoPhillips, won’t be drilling an exploratory well.
North Slope oil production has declined 100,000 barrels a day since 2007, the year ACES was enacted. The pipeline is operating at less than a third of capacity, resulting in operational challenges that will only become more formidable over time.
Indeed, the only sector that appears to be growing because of ACES is state government employment … who would have thought it??? From October 2007 to October 2009, according to State of Alaska data, state government employment increased by more than 1,000.
Yet we’re told that ACES is working just as planned.
You have to wonder how many legislators would have supported ACES if they’d been told its real purpose was to drive away industry investment, put Alaskans in the private sector out of work and deny Alaskan companies business opportunities in order to grow state government. I can only think of a handful.
At current prices of about $80/barrel, the production tax alone is 40% of net revenues, and the total government take – state, federal and local – is 70%.
That means government takes more than two-thirds of the profits from oil production, leaving less than a third for companies that take the risks and create jobs and business opportunities for Alaskans through investment and reinvestment.
At high oil prices, production tax rates can reach 75%, and total government take on each additional $1 in the oil price can exceed 90%. (Big) Brother, can you spare a dime?
This eliminates the upside of investments, gives oil companies little incentive to incur investment risks and puts Alaska at a significant competitive disadvantage with other oil and gas regions where companies can invest.
That’s not all … ACES contains a virtual cornucopia of other counterproductive provisions as well … like unreasonable restrictions on allowable deductions for investments … like giving the Department of Revenue unprecedented discretion in making and applying rules (which, more than two years after its adoption, are still being drafted) ... like punishing production from large fields.
ACES-bots will tell you that taxes are just one of the factors companies consider when making investment decisions.
That’s true. But Alaska can’t make oil prices higher, and we aren’t going to bring Alaska any closer to the markets for our resources. Fiscal policy is the biggest factor that we as Alaskans can influence, and it’s time that we adopt one that says, “Invest here,” rather than “Pay up & shut up.”
ACES may not be working exactly as planned, but it’s certainly working as predicted by its opponents. It’s stifled oil industry investment and snuffed out jobs and business opportunities for Alaskans while fueling growth in state government spending and employment.
ACES is broken. It’s time to fix it.
I live here, this is my home, I am raising my family here not because the oil companires are here, but because this is Alaska. The oil companies will leave soon enough. Think of Alaska as a business that we are all stakeholders, it is beholdened to us that we get maximum return always. That is our responsiblity. The companies are stil going to make big profits here, the oil isn't going anywhere, oil is only going to be worth more later. Maybe we should be conservative and leave it in the ground as an investment in our children and future Alaskans.
I see ads from BP, Conoco-Phillips and "the Alliance" on this site. It becomes a question of which came first? The support for oilcompanies or the ad revenue. Is this support quid-pro quo?
Conoco-Phillips last year made $ 7 billion profits after paying royalties, in Alaska alone. There are other factors in this reduction in investment. Recession, increased oil production in other fields throughout the world etc. Certainly, there are places that are cheeper to explore, Nigeria, Iraq, Columbia, Azerbijan. Go, get it. Fine, but don't expect us to give these larger profits because you think the sky is falling. The owners of the resource may get a larger royalties here than a few other place, but profits are assured, they get a stable government, a ready trained high quality workforce, an intact, but neglected, infrastructure, good quality of life for management for the short time they live here.
I think something is being overlooked in this discussion. It is easy to blame taxes. And, one has to give a minor kudos to Parnell who alluded to a potential decrease in the State's royalty taxes. However, there is more here than just taxes.
One of the primary issues is the state of the national economy. There has to be a market to sustain the exploration and development. That market is in decline due to Obama/Pelosi/Reid's disasterous attempt to rewrite the national economy paradigm. Yeah, GWB had his part in the making of this mess. That situation definitely has an impact on what happens where with any industry, much less oil and gas.
An indicator of the impact of the national economy is Shell's pulling back from oil tar sands recovery expansion from a planned 700,000bpd to 225,000bpd, including putting on hold a potential technology pilot project for insitu recovery. Cost of production is up--and it is here also, a 68% increase in operations costs on the NS from 2001. Therefore, it stands to reason that the oil companies are shifting their focus to portions of world that do not have the regulatory baggage--read nimby/greenie lawsuit--where it is cheaper to operate, even if the return is lower. Exxon and others bid on Iraqi concessions for around $1.40pb.
Shell is going forward with its offshore exploration, something the Parnell Administration seems to be hyping as the new oil rush. State gov't does not get as much directly out that development, but will gain from the jobs and infrastructure in the communities where support bases will be established. Unfortunately, the State is used to "trickle down" economy where the revenue goes to the State directly and is then distributed to the smaller communities. This type of development, as well as mining will start to put the State back in its place and give new economic power to the communities impacted by the resource development--as it should be instead of this socialist state and colonial economy that is Alaska.
Given the reduction in the tar sands expansion on the part of Shell, it appears that AGIA and Denali may have lost a great deal of their appeal to the Canucks. I doubt those big pipe projects will survive. This means that ACES is important to maintaining a bloated State gov't, which also feeds bloated local gov'ts. Reducing ACES is going to be a fight, given declining production on the NS.
Should ACES be reduced? Ireland reduced their taxes and boomed economically. Alberta and Saskatchewan played tug of war with the oil industry when Alberta increased its production royalties, and the oil companies bailed for Saskatchewan. Alberta figured the situation out quickly, and made up for lost drilling by lowering the royalty tax. Lowering taxes and royalties cannot be understated in terms of demonstrated positive impact.
Yet, when Parnell in his State of the State suggested that the State's royalty tax may be reduced, a good conservative pundit howled like a striped ape. Why, we just cannot do that!
The reality is that taxes are only one part of the problem in attracting the oil industry back to the State.
Taxes alone will not bring attention back to Alaska, a redress of regulatory impediments must also happen. Marathon Oil did not complain to the Anchorage Chamber of Commerce about taxes, they complained about the regulatory burden in aquiring the permits to drill new exploratory wells.
Calling for a reduction of ACES is only one aspect of what is needed to create a favorable environment for the oil/gas industry to reinvest in Alaska. A reduction in the royalty tax should also be looked at and weighed. However, the primary focus should be on the regulatory impediments. That's where the delays and the real money is lost to the oil companies and any resource development business trying to do business in Alaska.
In the mean time, we need to elect a governor who can move the State forward in the face of declining oil revenues and that candidate is Bill Walker. The all-Alaska pipeline will provide revenue, jobs and infrastructure that would allow the State to reconsider its policies regarding oil and gas development from a position of not having to knee jerk to demands that may be well intended, but might not have the end result desired.
The Alaskan Constitution mandates the best return on our resorces. That is not always the highest tax that the liberal Democrates can envision. If we tax to the extent that the producers leave there will altimately be no tax and no jobs for residents.
Based on indicators from the oil companies it is time to decrease state oil taxes substantially. It is amazing that we have a resorce state but seem to have trouble giving incentives for those that will produce those resources. In the seventies we were happy with the royalty and since then some in the Legislature and some Governors have gotten more and more greedy. Have they not read the nursery rhyme about the goose that laid the golden egg.
Some in the Legislature would have you believe that they don't have time to reevaluate ACES this year. Nothing else should be discussed until ACES is reevaluated and fixed. I want each in the Senate and House to stand and be counted on this issue so that the voters in Alaska will no who to let go in November.
Not to be trivial, but the goose and the golden egg story was one of Aesop's Fables, not a nursery rhyme.
With all due respect Tom, you can try as you might to divert attention away from Palin/Parnell but the fact remains they (Palin/Parnell) are the ones who proposed the bill and they (Palin/Parnell) are the ones who signed and vigorously defended the bill EVEN after it was modified with a higher taxation rate by the legislature.
I've heard you day in and day out on multiple radio stations try to obfiscate and divert attention away from Palin/Parnells role in this fiasco noting that if only we'd elect Parnell (read Palin/Parnell) to another term because (to use your quote), "he's a constitutional conservative", he would at that point do something to modify or alter ACES. Well let me ask you this Tom; Why the delay...??? I'll tell you why Tom, and you know it as well as anyone- Because he can't afford to alienate Queen Sarah and her minions. The implication being that Parnell will do WHATEVER it takes to get elected and then will suddenly abort (to use a quote of yours again), "the goose that laid the golden egg." You seem to decry politicians for being politicians but ONLY if they have something other than an 'R' in front of their name. For me I'm Conservative First, Republican whatever. Ethics do matter to me. If its right to amend ACES after the election, then its right to amend ACES now. That being said, why the heck hasn't your candidate (Parnell) taken the lead on this? I'll answer that for you Tom: Because Parnell is not a leader. The same way that Palin was not a leader. There is ONLY ONE candidate out there who has been a leader on this issue from day one. That is Ralph Samuels.
In closing I'd like to say one more thing to you Tom; Val has it right, A lot of us Conservatives have grown tired of your incessant defense of Palin/Parnell and for you to now demand that something be done about ACES while at the same time laying all the blame on the legislature, quite frankly is offensive. Instead of propping up a straw icon and a straw man (read Palin/Parnell) you should have been calling into question her/his ethics and conservative credentials from the start. We've never met but I respect you Tom and the work you have done to better this community and your outspokeness but I truely believe that if you continue to support Palin/Parnell, Alaska will surely suffer. I wish you all the best in coming to terms with your vote.
From Nov. 18, 2007 Anchorage Daily News:
WHO'S UP / WHO'S DOWN
"UP -- Legislative Democrats: After years in the political wilderness, arguing Alaska can safely raise taxes on the oil industry, they finally get their way. Curtain call time for Hollis French, Les Gara, Beth Kerttula, Kim Elton, Bill Wielechowski."
Les Gara (D) wrote in 11/2007: ... Governor Palin stated at her press conference, ACES is now a better bill because we all worked, across party lines to create this final product. It was truly a collaborative piece of work, and proof of what can happen when we don’t stick our heels in the mud, but work together to reach common ground. For that, I credit the majority of legislators who voted for the bill, and the Governor, who worked with us on, and supported, many of the changes.
Sarah Palin the tax and spend maverick and her supporters like Tom McGrath and Les Gara.
SarahPAC Contributors:
MCGRATH, THOMAS - ANCHORAGE, AK 99508 03/23/09 $1,000.00
MCGRATH, THOMAS - ANCHORAGE, AK 99508 06/30/09 $1,000.00
The democrats are the problem. Clinton's big economy came from a republican congress. 2000 the nation had a budget surplus. Sure Bush was president, but the congress was controlled by the democrats. the republicans couldn't get a up or down vote on appointees. Now that the democrats controls the congress and the white house, a idiot can see who destroyed the economy. Obama has no problem appointing confessed socialist to nudge the country to another view, that is destructive. The environmental community has successfully shut down resource development. The 30,000 jobs lost to a fish in the most productive farm land in America. For what to be replaced with a solar panel farm. Why? To starve America or PAY OFF Mexico with imports? Including trucking that may or may not be legal on American highways. The fact that the endangered species act is totally abused. This government cannot project with certainly 1 year into the future. Yet the endangered species act can read the tarot cards and predict the future 50 years from now. Go figure! Democrats and their agenda has bastardize the energy bill of the 70's. That bills intent was to GET US OFF FOREGAN OIL. Today we import 70% of our oil from countries that wants to KILL US. The green movement subsidize our enemies, stops resource development, taxes, exports jobs, and tries to usurp Americas power. Democrats makes America week. Success has come from the republicans throughout the history of America. Democrats have been hijacked by the professed progressives, who are communist, like Hillary Clinton and others. Valerie are they progressive? Their ideas are not working. Since this tax Alaska's oil has been in decline, Wheres the jobs? All I see is money for welfare programs. Domesticate a wolf you get a dog dependent on a master. Domesticate humans and you get poverty, ignorance, crime, and a change in our DNA that moves humanity backwards. What is wrong with them, have they been brainwashed by the educating left?
Spot on. It is amazing that Palin is on FOX news saying big government should get out of the way and let the private sector develope its full potential to get the economy back on track, when she aligned herself with dEMOCRATS and was the driving force behind the passage of this horrible tax structure at just the wrong time. It is amazing that Parnell doesn't have the courage to articulate a plan to lower taxes, encourage investment and move this state forward.These people say one thing and do another as they get rich on our backs. When they say they are conservatives, they LIE! They are opportunists and they smell. They are no better than the clowns in Washington.
Let's hope Alaskans won't be fooled again.