Alaskans should demand fair oil value

Relative giveaway of resource irresponsible, unfair to residents in tight fiscal time

Posted: Sunday, April 14, 2002

In 1974, Saudi Arabia established "OPEC terms," a tax equaling 85 percent of the profits the oil companies received from the sale of OPEC oil, plus a 20 percent royalty. (Royalty is oil government keeps.)

In 1998, Phillips paid $250 million for drilling rights in Kazakhstan. Their contract allows Kazakhstan to keep about 83 percent of profits. Phillips keeps 17 percent.

Alaska oil companies keep about 43 percent of profits from the sale of Alaska's oil -- more than two and one half times what they recently accepted in Kazakhstan, where the risk is much higher.

Alaskans owing their political existence to oil companies dominate our Legislature. To balance the budget, they are planning to cut your services and raise your taxes.

According to the International Petroleum Fiscal System Database, an internationally recognized authority on oilfield development, 79 percent is the worldwide average government retention of profits. Oil companies normally keep about 21 percent when developing fields similar to Prudhoe Bay.

Alaska's government currently takes about 33 percent of profits from oil production; the feds take about 24 percent.

Alaska's 33 percent of oil revenues for fiscal year 2001, which totaled about $2.43 billion, was distributed as follows:

General fund -- $1.87 billion;

Alaska Permanent Fund -- $339.3 million;

Municipal property taxes on infrastructure -- $220 million.

If Alaska raised its oil taxes to 55 percent of profits, the total state/federal take would equal the 79 percent worldwide average. Profits remaining for oil companies would equal the 21 percent worldwide average.

Had we, in FY 2001, sold our resources for the average of what oil companies around the world are clearly willing to pay, our oil revenues would have increased by $1.62 billion (from $2.44 billion to $4.06 billion) and Alaska would have a half billion-dollar budget surplus instead of a deficit.

Had our oil tax been what it should have been over the past 25 years, Alaska's permanent fund -- and your dividend -- would likely be three times what they are today.

The place most comparable to Alaska in population and oil production is Kuwait, where oil has given Kuwaitis the wealthiest society on earth. Although Kuwait produces more oil than Alaska today, over the past 25 years Alaska has out-produced Kuwait.

Since the introduction of OPEC terms, Kuwait has amassed a permanent fund 10 times bigger than ours. Each Kuwaiti receives between $10,000 and $16,000 in annual dividends. Kuwait's success took more than the fortitude to confront British Petroleum, its primary developer, with higher taxes on crude. Kuwait then used its newfound wealth to build refineries to refine its crude into finished products.

Kuwait now refines about 800,000 barrels of its crude into value-enhanced products each day and ships them, in its own tankers, to 22 European countries, where Kuwait retails its products through its approximately 7,000 gas stations known as Q-8s.

Failing to use our power of taxation to sell our resources for what they are worth is more than foolish; it sets us apart from the rest of the world as buffoons brainwashed by feel-good ads sponsored by oil companies, which have no products to sell Alaska's consumers. Their only incentive to advertise is to quell voter outrage as they pick our pockets.

There isn't enough money in the pockets of Alaskans to balance the budget. If we don't start managing our resources properly, this state is destined for bankruptcy.

Alaska's state-owned resources are held in trust by our government, to be managed for the benefit of all Alaskans. Any elected official who fails to seek the maximization of Alaska's benefit from the sale of Alaska's resources is in violation of their trust management duties.

If we start managing our resources properly before the oil runs out, we can grow our permanent fund to the size necessary to pay dividends and fund government from its earnings.

The short-term solution to our budget deficit is to immediately demand world market value for our resources. The long-term solution begins with investing in ourselves and ends with the implementation of the budgeting formula known as the "Cremo Plan" (For details, see But it won't happen unless we deliver a clear message: Tax oil not me!

Ray Metcalfe is chairman of the Republican Moderate Party. He can be reached at

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