Seaton: Vote yes on Ballot Measure 1

Why Vote YES on Ballot Measure 1?

 

There is only one chance to repeal SB 21. New laws can only be repealed at the first general election following passage. SB 21 is unfair to Alaskans. Passage of Ballot Measure One will default to the prior tax system, but a citizen ‘veto’ of SB21 does not create a new tax or prevent acceptable oil tax reform.

People have asked - What is unfair to Alaskans in the new tax law?

If you are an oil company with leases on the North Slope the bill guarantees that if you have a “net operating loss” the State will reimburse you for 45% of your loss through 2016 and 35% thereafter. All expenses of a company without production could be a loss attributable to the lease. If there is another price crash, our profit-tax might generate no revenue but we would owe 35% of every company’s loss. Wouldn’t Alaska small businesses like that kind of deal? Can’t believe it? Check the final House fiscal note http://www.legis.state.ak.us/PDF/28/F/SB0021-14-5-041213-REV-Y.PDF

Should Alaskans want less competition for our oil?

The unspoken agenda of SB 21 was “Basin Control”. Basin Control means an effective monopoly of an entire region where oil or gas occurs. This is possible on Alaska’s North Slope because of the high cost and long lead time of arctic projects. The real story is that the SB 21 tax/incentive structure was designed to give the Big Three oil producers the ability to control nearly all development on the North Slope. ACES incentivized investment in exploration which is why under ACES the number of North Slope oil companies more than doubled. The Big Three quit new exploration and gave up most exploration acreage in the last 15 years. Don’t believe it? Check Petroleum News volume 16 of May 2011. They wanted the incentive system shifted in their favor. SB 21 did that by changing to “rewarding production”, meaning reduced tax for the Big Three.

Can the State increase production simply with the SB 21 tax reduction?

SB 21 tries to change the corporate schedule of development in the big existing fields. However, a BP executive said they might not want to accelerate Prudhoe Bay output because they anticipate needing its light oil to mix with heavy oil when they perfect the technology for recovery of those massive reserves of heavy oil. They cannot pump heavy oil down the pipeline without significant light oil dilution. Reducing taxes does not override the physics of oil.

Will reducing taxes change the competitive strategies to secure new oil?

Multinational oil companies have a 50-year view to participate in many fields, so as some fields decline, new sources are secured. Our Big Three are currently investing in Norway, Russia, and other places that have higher government take (taxes, royalty and fees) than Alaska. Those decisions are based on access to new sources of oil regardless of the cost. It is competition for access to those future basins that drives investment. The same is true for North Dakota shale oil where they compete for every private landowner. The real competition is between companies to secure new supplies of oil, not between the tax rates of countries.

SB 21 takes away Alaskans’ windfall profits at spiking high prices and increases the State risk at low prices or high field costs.

You should ‘veto’ SB 21 because it creates huge State liability for operating losses, recreates basin control monopoly, gives tax breaks for existing production, and does NOT require additional production for the tax breaks.

I encourage a YES vote.

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