Study: oil industry spending equals state general fund spending

Posted: Tuesday, January 23, 2001

JUNEAU (AP) -- Alaskans have always looked at the oil flowing from the state's frigid ground as liquid money -- now they can be sure. A new study commissioned by two industry groups found that Big Oil spends about as much money in Alaska each year as the state's government spends from its general fund -- more than $2 billion.

The study commissioned by the Alaska Oil and Gas Association and The Alliance, a group of oilfield service companies, used payroll and purchasing information from 13 producers, transporters and refiners of oil. Such information isn't generally public and the study doesn't break the money down by company, but it does give some new insight into how much money is spent and where it goes.

Those 13 companies employed 4,532 people and paid $422 million in payroll in 1999, a year of cutbacks and low oil prices, according to the study. In the same year, the companies spent $1.7 billion on various goods and services in the state. Together, that's $2.1 billion, about the amount the state spent during the same year from the general fund, which comes mostly from oil royalties and taxes.

''One surprise is how significant the impact is on the private sector,'' said Brian Rogers of Information Insights, the Fairbanks consulting firm that conducted the study. ''During the worst year in a decade for the industry it's equal to the state's spending.''

The companies in the study include some of the biggest names in the industry, including BP, Chevron, ExxonMobil, Phillips Petroleum and Unocal.

Spending last year and this year -- when oil prices were substantially higher -- will likely reach $2.5 billion annually, Rogers said.

''I probably wouldn't have guessed that it would have been quite that large,'' said state Rep. John Davies, D-Fairbanks. ''It's certainly not a surprise that it's a significant number.''

Oil has been Alaska's economic lifeblood for decades. Oil taxes and royalties make up most of the state's general fund revenue, and instead of paying taxes, each resident gets an annual dividend from the massive Alaska Permanent Fund -- a savings account for some of the oil royalties.

But declining production from the big North Slope oil fields has slowed the flow of liquid money in recent years, prompting oil-company cutbacks and fears that the industry will dwindle, dragging the state's economy with it.

The report was presented Tuesday to members of the Alaska Legislature, who hope to stave off that decline by persuading the oil industry to build a natural gas pipeline from Alaska's North Slope to the Lower 48.

''I think the oil industry in Alaska is in pretty good health,'' Davies said. ''In the short term I'm not too concerned about that. My main focus right now is on how we can get the gas pipeline built.''

Most of the $1.7 billion in spending went to a relatively small number of companies geared to provide the services oil companies need. The names of the companies weren't disclosed, but just five companies received $467 million in 1999 -- more than 28 percent of the total, according to the report. Three-quarters of the money went to 61 companies that received $5 million or more apiece.

The biggest chunk of the money -- $735 million -- was spent to pay oilfield contractors, while most of the rest went for construction, transportation and other services.

The report also highlighted the industry's high pay compared to the state average. The average worker at one of the 13 companies earned $7,754 a month or about $93,000 a year, 2.8 times higher than the statewide average of about $33,576 a year.

''Oil and gas wages have always been in a different class than almost all the other sectors and all the other industries,'' said Neal Fried, an economist with the state Department of Labor and Workforce Development.

Another surprise the study found was the industry's economic impact in various areas of the state, particularly the Matanuska-Susitna Borough, Rogers said. While Anchorage is an administrative center for the industry, there is little oil and gas activity in the nearby Mat-Su.

By using the payroll data, the study found 353 Mat-Su residents employed by six of the 13 companies who work elsewhere, mostly in Anchorage. Those workers were paid $36 million in 1999. The study estimates oil company purchases created jobs for another 2,105 residents of the area and another $84 million in payroll. When all those residents cash their checks, the report estimates, the resulting economic activity creates another 1,558 jobs and another $38 million in payroll.

In other areas, the study found:

--In Anchorage, the 13 companies employed 2,376 people with $239 in payroll and spent another $845 million on goods and services in the local economy.

--In the Fairbanks North Star Borough, the industry employed 565 people and spent $40 million in payroll. Also, the companies spent $190 million on goods and services.

--In the Kenai Peninsula Borough, oil companies employed 674 people with $63 million in payroll. The companies also bought $215 million worth of local goods and services.

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