Oil boom bypassed Alaska because of ACES

By Harmon Hall

As every business person knows, Alaska can be a tough place to do business.
Much of what makes it such a challenge here is out of our control: high costs, distant markets, harsh weather, small workforce. What we can control is how we treat our businesses – and that’s why it’s so important to vote NO on 1, Aug. 19.
To attract investment, businesses need a stable, fair tax structure. The bigger the investment, the greater the need for fiscal certainty. That’s particularly important for Alaska because our world-class resources require world-class investment to get them out of the ground.
A tax that takes as much as 90 percent of a company’s profit and is subject to wild swings on a monthly basis is not business-friendly, which is where Alaska was under our old oil tax called ACES. Because of ACES, Alaska missed out on the oil boom that swept through the rest of the nation.
In 1989, Alaska’s oil production accounted for 25 percent of U.S. production. Today that number has slipped to 7 percent even though Alaska’s oil and natural gas deposits account for almost 30 percent of the nation’s energy reserves. The reason is ACES.
When rising oil prices and new technologies kick started the drilling explosion around the world, investment in Alaska remained flat. Under ACES, Alaska fell from producing more crude oil than all other states except for Texas to number four after Texas, North Dakota and California.
Every oil and gas-producing state except Alaska has increased production during the great energy renaissance that has swept the nation: North Dakota up 58 percent, Texas up 36 percent, Colorado up 25 percent, Alaska North Slope down 6.6 percent.
One has only to look a bit north to see how important tax policy is to investment decisions. Hilcorp increased Cook Inlet oil production by more than 35 percent and gas by about 25 percent, thanks to tax policy. Had Cook Inlet been treated like the North Slope, it is doubtful that Hilcorp or Apache or the others would have invested the hundreds of millions it took to turn production around.
Here’s the real irony. Alaska’s leading economist, Dr. Scott Goldsmith, has studied the old tax and the new one. His conclusions:

• The so-called $2 billion “giveaway” is a myth.
• Alaska is better off under the new tax at current oil prices.
• $4 billion of additional investment will produce 55,000 barrels of new oil/day and create about 100,000 jobs over 20 years.

Thus far the industry has announced plans to increase North Slope investment by about $8 billion. That’s great news for Alaska because oil accounts for 90 percent of all general fund revenues. Oil pays for schools, roads and public safety. In fact, of the $9,100 in state aid for every public school student, $8,170 comes from oil.
Alaska is the only state that has neither a state sales tax nor personal income tax, thanks to oil revenues. Its corporate tax is moderate on all industries except for oil, which is why a recent poll of small business owners overwhelmingly supported a NO vote on 1.
There are some who say that tax policy doesn’t matter and that the industry will bear any cost to develop the energy this nation and the world needs.
They are wrong, which is why Alaska needs to vote NO on 1.

Harmon Hall is a local Homer businessman, community supporter and volunteer.

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Posted by on Jun 24th, 2014 and filed under Point of View. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

3 Responses for “Oil boom bypassed Alaska because of ACES”

  1. Ray Metcalfe says:

    The author of the above nonsense has just demonstrated how little he knows about international oil markets and how Alaska compares.. A couple years ago ConocoPhillips agreed to produce oil in Iraq for costs plus a net profit of $4, and BP… agreed to costs plus $2.. BP will make $4 million dollars per day for producing 2.9 million barrels per day in Iraq. In Alaska BP, Exxon, and ConocoPhillips, will make $14.5 million per day for producing 500,000 barrels per day.. I’m not making this stuff up. We Alaskans have been duped into paying seven times as much as other countries pay for production services Iraq’s. contract information can be found at… http://im.ft-static.com/content/images/b09af87a-2522-11df-a189-00144feab49a.swfAs.. Go there look for yourself. See how many countries compete for the opportunity to make $2 to $4 for producing a barrel of oil. We Alaskans are paying those with the monopolistic strangle hold on the Prudhoe Basin 100% of their expenses plus $28 to $32 per barrel to do the same thing. Your legislators aren’t blind to this. It is irrational to vote to pay our producers even more unless one has a hidden incentive that has nothing to do their obligation to look out for the best interests of their constituents. My name is Ray Metcalfe. I am the chairman of Stop The Giveaway, Vote Yes on Prop One, http://stopthegiveaway-voteyesonprop1.org/wp/a-message-from-ray-metcalfe/.

  2. Steve Cinelli says:

    Ray Metcalfe,
    If Alaska is so profitable then why are the oil companies foregoing vast profits and letting production decline? Do you suppose they are in the business of losing money?

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