Sweet promises, veiled threats could produce faulty deal

Voices of the State

Posted: Tuesday, April 25, 2006

Before Gov. Murkowski left for Europe, he came to the Wasilla Chamber and dangled promises of big money, more jobs and the trans-Canada natural gas line to pitch his oil tax proposal.

Meanwhile, oil companies have rolled out another round of the usual threats. “We might leave, slow investments or reduce contributions to Alaska charities if we don’t get what we want.”


Alaskans, and even some legislators, have dared to question the governor’s oil tax proposal. Alaskans are demanding comparisons with the proposed All-Alaska gas line and other potentially better oil and gas tax structures.

While the governor talks about an extra $1 billion, it’s probably more than $2 billion too low at $60 oil. More money does not mean the amount is either fair or enough. It would also determine whether a fair share of oil money would go to permanent fund dividends.

Another huge problem is the lowball 20 percent oil tax is still linked to a gas line contract that remains secret. There is no honest way to evaluate whether the promised riches are better than other possible deals.

In addition to serious problems on the Canadian side of the border, oil companies have not committed to actually build a gas pipeline even if the governor’s deal is approved. Generous and unnecessary exploration credits would further reduce revenue to Alaska.

If we really want to link oil tax policy with future developments, let’s create a renewable energy development fund for our vast wind, water and hydrogen resources. Otherwise, de-link oil and gas taxes.

Oil companies continuously attempt to get greater profits by cajoling and threatening governments across the world. Donald Trump might say, “It’s nothing personal, it’s just business.”

That is how Alaska has been pushed since 1977. Alaska allowed oil companies to take more profit from our oil than most other oil-producing regions across the world.

Now is a good time for Alaska to demand its fair share of profits.

If Alaska and oil companies are truly partners, we deserve at least half the profits after the federal share is taken out. That’s roughly 35 percent in the context of current discussions. Alaska still wouldn’t be one of the higher-taxing governments in the world (including federal tax).

If oil prices continue to rise, Alaska would lose ground with the proposed 20 percent fixed tax percentage. The 50/50 share would assure equality and simplify calculations regardless of price. Oil companies could write off some increased state taxes from federal taxes.

Most of the world’s big oil fields have been found, and oil companies want to develop oil they now control. America’s second-largest oil field after Prudhoe Bay is the mostly untouched heavy oil at nearby West Sak. Regardless of oil company spin, Alaska’s current and future oil fields continue to be highly profitable in one of the world’s safest places to drill.

Would oil companies really leave if the Legislature raised the oil taxes to 35 percent instead of Murkowski’s proposed 20 percent? Probably not. Other oil companies could easily replace any that might leave.

Alaska could cut out the “multinational middle man” and subcontract directly to the same oil field service companies that work for ExxonMobil, ConocoPhillips or BP. Such huge profits could push our permanent fund dividends to $5,000 instead of $2,000. We could fund good schools, roads, health care and revenue-sharing for local communities.

Either way, Alaska is simply too profitable to ignore.

The governor claims higher taxes now will reduce investment later. Where is the proof? What guarantees oil companies will invest more later if we lower taxes now? Nothing. In fact, there is evidence that past legislation intended to stimulate future oil investments has not worked.

Oil and gas are nonrenewable resources. If we fail to get a fair tax when the resource is being produced, chances are slim we will get anything later.

Who looks out for Alaskans’ interests, as the common owners of our natural resources? Only Alaskans and their ability to make sure legislators understand we want open, honest comparisons to ensure a fair deal regardless of what the governor may claim.

Both Arco and BP threatened not to develop fields in 1989 when they were opposing the ELF tax. The tax passed and they went quietly back to work on their respective fields. Legislators are more likely to call the bluff on this deal when they are hearing from their constituents.

We need legislators as watchdogs, not lapdogs. What is at stake is who will control Alaska for the next 30 or 40 years, Alaskans or multinational oil companies?

Alaskans successfully stopped BP’s “best deal” attempt to take over Arco Alaska in 1999. North Slope competition continues today instead of a BP monopoly.

Informed and active Alaskans can once again make it clear to legislators that “no deal” is still better than a bad deal.

Jim Sykes lives near Palmer and is a former director of the Alaska Public Interest Research Group and Oilwatch Alaska.

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