Legislature(2011 - 2012)BUTROVICH 205
04/29/2011 10:00 AM Senate JUDICIARY
| Audio | Topic |
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| Start | |
| Aces: an Assessment of Its Effectiveness | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE JUDICIARY STANDING COMMITTEE
April 29, 2011
10:00 a.m.
MEMBERS PRESENT
Senator Hollis French, Chair
Senator Bill Wielechowski, Vice Chair
Senator Joe Paskvan
Senator John Coghill
MEMBERS ABSENT
Senator Lesil McGuire
OTHER LEGISLATORS PRESENT
Senator Dennis Egan
Senator Tom Wagoner
Senator Bettye Davis
Representative Scott Kawasaki
Representative Kerttula
COMMITTEE CALENDAR
PRESENTATION: ACES - AN ASSESSMENT OF ITS EFFECTIVENESS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
SENATOR BILL WIELECHOWSKI
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Delivered a presentation on ACES.
ACTION NARRATIVE
10:00:56 AM
CHAIR HOLLIS FRENCH called the Senate Judiciary Standing
Committee meeting to order at 10:00 a.m. Present at the call to
order were Senators Wielechowski, Paskvan, Coghill, and French.
^ACES: AN ASSESSMENT OF ITS EFFECTIVENESS
ACES: AN ASSESSMENT OF ITS EFFECTIVENESS
10:01:22 AM
CHAIR FRENCH announced the business before the committee would
be to discuss the ACES system and to fully air a side of the
story that hasn't been heard this session, the side from those
who helped to write ACES. It's important for the public to hear
that perspective too. The presentation is being made within the
context of a committee hearing, he said, so that there is a
permanent record for archiving. This will help future
generations of Alaskans that will undoubtedly go through the
same debate of how to fairly evaluate the state's mineral wealth
that is owned in common. Both the Statehood Act and the Alaska
Constitution compel us to think these matters through very
carefully, he stated.
CHAIR FRENCH related that in December 2010 he and Senator
Wielechowski delivered a PowerPoint presentation on ACES to the
Board of Directors for Commonwealth North. Since that time
Senator Wielechowski and his staff expanded the presentation,
thoroughly researching and documenting every point that will be
made today.
Short at-ease from 10:02 a.m. to 10:03 a.m. to set up the
presentation.
SENATOR WIELECHOWSKI thanked Senator French for being the
impetus for the initial presentation and for scheduling this
meeting. It's an important discussion that Alaskans are very
eager to hear.
SENATOR WIELECHOWSKI said he would first provide background
information to provide context for the discussion. He explained
that in 2006 the Legislature reworked the state's outdated
Economic Limit Factor (ELF) tax system that was put in place in
1977. The ELF set a 12.25 percent to 15 percent gross tax rate
on the value of oil coming out of the ground. It also set out a
process of complex adjustments that dropped the tax rate as
production declined. The theory was that it would spur
investment to drop the tax rate as fields became marginal. What
happened was that many marginal and satellite fields were taxed
at zero percent and larger fields like Prudhoe Bay and Kuparuk
had a declining tax structure. In 2003, 14 of 21 fields on the
North Slope were paying a zero percent production tax rate and
by 2006, 15 of 19 North Slope fields were paying a zero percent
production tax rate.
SENATOR WIELECHOWSKI said the state essentially has more than 20
years experience with a zero percent production tax rate. We'll
see whether or not that created more jobs and more investment
and whether or not that stemmed the tide of decline through the
Trans Alaska Pipeline, he said.
10:06:03 AM
Alaska is a comparatively young state and it therefore had the
advantage of looking at what other states had done with their
natural resources. The constitution framers decided to treat the
state's natural resources very differently than states like
North Dakota, Louisiana, and Texas where the private property
owner also owns the subsurface resources. Article VIII, Section
2 of the Alaska Constitution specifically states that "The
legislature shall provide for the utilization, development, and
conservation of all natural resources belonging to the State,
including land and waters, for the maximum benefit of its
people." In about 2005 the consensus was that Alaska was not
receiving the maximum benefit from its resources.
10:07:00 AM
In 2006 the Legislature put in place a new tax structure called
the Petroleum Profits Tax (PPT). This was a major development
because it was the first time that the State of Alaska taxed net
profits rather than gross earnings. However, concerns lingered
that tax deductions were too generous and that the state still
wasn't getting maximum benefit for its resources.
10:07:55 AM
To address these concerns the Legislature met in special session
in 2007 to reconsider the PPT. To ensure that Alaskans received
maximum benefit for their resources, the PPT was replaced by
Alaska's Clear and Equitable Share (ACES). There were two major
points for passing this legislation. First was to encourage the
oil companies to reinvest the huge amounts of money they were
making in this state rather than taking Alaska profits and
investing in places like Libya, Venezuela, and Ecuador, all of
which had higher tax rates.
ACES provides extremely generous tax credits and deductions on
reinvestment which makes the tax rate significantly lower. If a
company chooses to invest somewhere else, Alaska receives the
maximum benefit for its resource by taxing a fair share.
10:09:14 AM
SENATOR WIELECHOWSKI explained that he and his staff examined
ACES using eight different measures. The facts speak to the
system's effectiveness and whether or not it needs to be
changed. He clarified that most of the charts in the
presentation were prepared by the Department of Revenue (DOR),
the Department of Natural Resources (DNR) or some other
department within the executive branch.
Measure 1 looks at how ACES has affected the revenues that
Alaskans receive for their oil.
A bar graph that the Alaska Department of Revenue developed
shows the FY07 - FY11 (projected) revenue the state earned under
ACES alongside the estimates of what the state would have earned
under PPT and ELF. The graph illustrates that the state
generated about $15 billion more under ACES than it would have
under ELF. Most of that money is in savings today.
The increased revenue made it possible for the state to invest
in infrastructure, create more jobs, fund critical state
services, and dampen the effect of the worldwide recession in
the state. It also allowed the Legislature to pay back a $5.5
billion loan to the Constitutional Budget Reserve that was used
to cover prior budget shortfalls. While many states are facing
bankruptcy, Alaska has nearly $15 billion in savings. This is
the largest state savings account in the nation. The state will
have a surplus of several billion dollars this year and the
expectation is for a surplus again next year.
10:11:48 AM
Measure 2 looks at how Alaska's tax rates compare to other
jurisdictions and whether or not they are competitive.
SENATOR WIELECHOWSKI noted that some critics say that ACES has
tax rates as high as 90 percent, but according to the Parnell
Administration the average production tax rate since PPT and
ACES passed has been about 32 percent. That's before generous
tax credits are factored in.
An Alaska Department of Revenue chart shows that in FY09 when
oil was about $70 per barrel, the average nominal tax rate for
ACES was about 30 percent. In FY10 the tax rate was about 32
percent and in FY08 when oil was $147 per barrel, taxes were
about 42 percent.
10:13:16 AM
Calculating the tax rate under [ACES] is very simple, Senator
Wielechowski said. No production taxes are paid until there's a
profit. The cost to get a barrel of oil out of the ground and to
market is about $26; the base tax rate is 25 percent and .4
percent progressivity tax is added for every dollar of profit
over $30/barrel. For example, when oil is $56 per barrel the tax
rate is 25 percent; when oil is $57 per barrel there's a $1
profit/barrel and the tax rate is 25.4 percent; and when oil is
$58 per barrel there's a $2 profit/barrel and the tax rate is
25.8 percent.
SENATOR WIELECHOWSKI stated that Governor Parnell's proposal to
lower taxes would result in the loss of an estimated $8.2
billion over the next five years. Less conservative estimates
put the loss closer to $2 billion per year. A line graph that
the Alaska Department of Revenue presented to the Senate
Resources Committee shows the effective (actual) tax rate under
ACES compared to the effective tax rates under the Governor's
proposals for current fields and for new fields. When oil is
$100 per barrel the actual tax rate under ACES is about 27.5
percent; at $110 per barrel the effective tax rate is about 32.5
percent. Under the Governor's proposal in HB 110, the actual tax
rate would drop to about 17.5 percent for current fields and to
about 12 percent for new fields. This significant drop would
cost the state billions of dollars. He noted that some believe
that the effective tax rates are as much as 5 percent lower than
this.
10:16:00 AM
CHAIR FRENCH welcomed Representative Beth Kerttula to the
hearing.
SENATOR WIELECHOWSKI said to address the claim that Alaska isn't
competitive, the next step was to look at how Alaska tax rates
compare to other jurisdictions worldwide. A bar graph that
Chevron developed showing the changes in government take from
2002 to 2006 helps to make this comparison. Palin Administration
experts presented this slide during the ACES debate in 2007. It
is titled "Capturing 'Fair Share'." The countries listed have
neither the highest nor the lowest tax rates in the world.
They're simply governments that have changed their take between
2002 and 2006. Libya changed its take from about 81 percent to
about 95 percent; Venezuela changed its take from about 85
percent to about 94 percent; Algeria, China, Kazakhstan, and
Russia, increased the take to 90 plus percent; and Angola
increased the take to 80 some percent. ConocoPhillips, BP, and
Exxon invest in all these countries. In fact, virtually every
country listed is competing for Alaska oil company dollars. Data
that's not included in the chart is Iraq's 98 percent tax rate
and the UK's new tiered system that ranges from 61 percent to 82
percent. The Gulf of Mexico is another interesting example
because it shows an approximate 52 percent government take. What
isn't counted in the U.S. Gulf of Mexico data, including the
Outer Continental Shelf, is the significant cost for the
acquisition of the leases - the signature bonuses. During the
ACES debate oil expert Dana Johnson concluded that when the
signature bonus costs are factored in for the GOM and the OCS,
this number actually increases to about 77 percent. It's a
significant increase.
For example, in the Chukchi and Beaufort seas a significant
amount of land was leased out several years ago for $3 billion
and Great Bear bought a 500,000 acre lease on the North Slope
for $9 million. This is compared to Texas and other Lower 48
states where companies oftentimes pay $10,000 per acre. For
similar acreage in the Lower 48, Great Bear's lease would have
cost $5 billion so when that is factored in the overall take is
much higher.
Many people would like to compare Alaska to Texas, Oklahoma, and
North Dakota, but it's not an apples-to-apples comparison. In
fact, the Parnell consultants Gaffney, Cline & Associates,
testified before Senate Resources Committee a month or two ago
and that it wasn't appropriate to compare Alaska to the Lower 48
states. It was more appropriate, the consultants said, to
compare Alaska to Norway that has a 78 percent to 81 percent
effective government take or to the UK that has a tiered 61
percent to 81 percent government take.
It's not valid to compare Alaska to North Dakota and Texas
because it doesn't take into account the higher lease costs or
the 25 percent or more royalty rates paid to private landowners.
Furthermore, they're not sovereign states; private landowners
own the property.
10:22:20 AM
SENATOR WIELECHOWSKI noted that some have said that Alaska is
one of the worst places in the world to do business. But the
Frasier Institute Global Petroleum Survey, which the Parnell
Administration frequently cited, does not rank Alaska in the
bottom twelve worst places to do business in the world. The
Alaskan oil companies BP, ConocoPhillips, and Exxon currently do
or recently have done business with eight of the 12 countries
that have the worst fiscal terms in the world. These are
Bolivia, Venezuela, Russia, Libya, Kazakhstan, Algeria, Iraq,
Ecuador, and Argentina. Repsol, a large Spanish oil company that
recently came to Alaska, is currently doing business in Bolivia.
These are Alaska's competitors and dollars have been flowing
from the oil company majors to these countries in recent years.
It would be significant for Alaska to give up $8.2 billion over
five years or up to $2 billion per year. The Constitutional
Budget Reserve, which is the states rainy day savings account,
would be depleted very quickly; there would be future deficits;
spending on infrastructure and job-creating capital projects
would be drastically reduced; there would be cuts to revenue
sharing and operating budgets with associated job and service
losses and increased local property taxes.
SENATOR WIELECHOWSKI said he points this out because the State
of Alaska in recent years has provided the Municipality of
Anchorage about $18 million in municipal revenue sharing, $100
million in retirement relief, and hundreds of millions in
capital budget projects. The municipal revenue sharing and
retirement relief alone saves each property tax payer over
$1,000 per year. Property owners in Fairbanks would see
significant increases as well.
The Parnell Administration hopes that industry will invest more
in the state if taxes are reduced, but there is no assurance of
increased investment or job creation. That raises the question
of whether it's a reasonable gamble.
10:24:58 AM
Measure 3 looks at whether investment has decreased or increased
since ACES passed.
SENATOR WIELECHOWSKI said that advertisements on the radio,
television, and in the newspaper claim that no one is investing
in Alaska, but that's contrary to the facts. In the last several
months the Alaska Department of Natural Resources stated in an
ad in the Petroleum News that:
Alaska is successfully encouraging investment from
companies that are new to the state, with the number
of petroleum companies doing business in the state
almost doubling from 2006 to 2008.
The ad further stated that, "Legacy producers on the North Slope
are investing in their own assets, leaving room for new
players…" The State of Alaska is telling the Petroleum News
community that Alaska is open for business, which is good,
Senator Wielechowski stated.
10:26:04 AM
CHAIR FRENCH welcomed Senator Tom Wagoner to the hearing.
SENATOR WIELECHOWSKI stated that capital expenditures have
increased consistently to all-time highs each year since the
passage of ACES. Capital expenditures are predominantly
drilling, seismic, and production and other types of costs that
produce oil. He displayed a chart of capital expenditures from
2001 to 2010 with the price of oil superimposed. It clearly
shows that capital expenditures continued to tic upwards after
ACES passed in 2007. But what's interesting is that when there
was a zero percent tax rate on 14 of 19 North Slope fields and
oil was at historic highs worldwide, capital investment actually
declined.
The Alaska Department of Revenue, Revenue Source Books for Fall
2007, Fall 2008, Fall 2009, and Fall 2010 show that both
operating expenditures and capital expenditures have increased
since ACES went into effect. Total CAPEX/OPEX increased from
$3.6 billion in FY07 to $4.6 billion in FY10. The total
CAPEX/OPEX forecast for FY11 is $5.125 billion and the forecast
for FY12 is $5.495 billion. The oil companies supply the Alaska
Department of Revenue with the forecast numbers, he said, they
aren't pulled out of the air.
10:28:24 AM
CHAIR FRENCH welcomed Senator Bettye Davis to the hearing.
SENATOR WIELECHOWSKI said a question that's consistently come up
is if the increased investments on the North Slope are due to
maintenance. The Alaska Department of Revenue looked at the
issue and on February 4, 2010 supplied the following statements
to the Legislature:
CAPEX - Capital expenditures ("CAPEX") on pipeline
repairs at Prudhoe Bay increased after corrosion
incidents in 2006. However, the majority of growth in
capital expenditures since 2007 is attributable to
drilling, seismic and other production related
projects.
OPEX - Since 2007, the proportion of total operating
expenditures ("OPEX") related to major repairs does
not appear to be the key driver in the growth of total
operating expenditures.
SENATOR WIELECHOWSKI pointed out that many factors, including
the economy, affect decisions to spend money. In 2008 there was
a financial meltdown; oil prices plummeted and investment was
down worldwide. In 2009, ConocoPhillips announced plans to lay
off four percent of its workforce and cut capital spending by
12.6 percent. The CEO made it clear that the company was
positioning itself to live within its means. As BP Alaska's
President recently acknowledged, taxes are just one factor in
determining whether or not to spend money. For example, there's
a lack of activity in Cook Inlet despite the USGS report of huge
oil and gas reserves, a zero percent tax rate in that area, and
Senator Wagner's recent legislation to incentivize a jack up
rig. Obviously, it's not just about taxes, there are many other
factors.
10:31:54 AM
Measure 4 looks at how ACES has affected exploration and
development.
SENATOR WIELECHOWSKI restated that ACES encourages new
investment by providing tax credits and deductions for
exploration and development. Parnell Administration consultants
have said that these are among the most generous in the world.
In fact, the state has paid out more than $2 billion in tax
credits since ACES passed
The North Slope has been described as one of the crown jewels of
the world and the success rate for a well in this prolific
hydrocarbon basin can be 90 some percent. Information from the
Alaska Oil and Gas Conservation Commission shows that there have
been many new development wells on the North Slope since 2006.
These are wells that have a high probability of extracting oil.
In 2006, when the state was just slipping out of the zero
percent tax rate, 137 wells were drilled and in 2010, 164 wells
were drilled. This was the highest number in five years.
SENATOR WIELECHOWSKI said that ConocoPhillips has testified that
the company expects 90 percent of future oil in Alaska to come
from existing units - Prudhoe Bay, Kuparuk, and Alpine, so new
exploration from the majors isn't likely. However, since ACES
passed there has been activity from smaller companies. The
Director of the Office of Management and Budget testified before
the House Finance Committee on January 19, 2011 that, "The good
news is we are seeing a lot of increase in oil exploration."
This was just a week before the Governor introduced the oil tax
bills, HB 110 and SB 49. The data shows that applications for
exploration tax credits and the amount of qualifying
expenditures have generally increased since 2006, hitting an
all-time high in 2009 under ACES.
10:34:21 AM
Measure 5 looks at how ACES has affected jobs in the oil and gas
industry.
SENATOR WIELECHOWSKI stated that employment in the oil and gas
industry has increased since ACES passed. According to the
Alaska Department of Labor & Workforce Development, these jobs
pay on average $14,000 per month. ACES passed in 2007 and
Alaska's oil and gas industry employment numbers were just over
11,000. In 2011 that number is 12,800, just 100 jobs short of
the 2009 all-time high and up 700 from the same time period last
year. By comparison, jobs on the North Slope declined from just
under 10,000 to 8,000 between 2002 and 2004 when oil prices were
increasing to record highs and 15 of the 19 fields on the North
Slope were paying zero percent tax under the ELF.
SENATOR WIELECHOWSKI pointed out that some people have argued
that jobs were down between 2002 and 2004 because jobs were down
everywhere and companies weren't investing, but statistics from
the Alaska Department of Labor and Workforce Development,
Research and Analysis Section and the U.S. Bureau of Labor
Statistics from February 18, 2010 don't support that argument. A
line chart that compares U.S. and Alaska monthly oil industry
employment between January 2000 and [December] 2009 shows that
jobs were increasing in the Lower 48 beginning in 2003, but they
were decreasing in Alaska. Employment numbers in Alaska started
to increase when the ELF was replaced and continued to go up
after ACES passed. In [mid 2008] job numbers plummeted in the
Lower 48, but Alaska didn't see that steep decline; ACES was in
place.
Another contentious issue centers on who is getting the new
jobs. Concerned Alaskans have testified that they've lost their
jobs and companies have expressed concern about laying people
off. In fact, the Alaska Department of Labor and Workforce
Development has said that unemployment claims for Alaska
resident oil and gas workers increased 160 percent from 796 in
2006 to 2,058 in 2010. But the most recent oil and gas
employment report, which is for 2009, shows that about 50
percent of all new oil and gas hires were non-residents.
10:37:47 AM
Measure 6 looks at how ACES has affected industry interest in
Alaska.
SENATOR WIELECHOWSKI stated that since the passage of ACES
Alaska has seen a significant increase in the number of
companies doing business in the state. One of the most recent
lease sales was in October 2010. Great Bear, a new company to
Alaska, bid on more than 500,000 acres and paid more than $9
million in bonus bids. This small company has studied the fields
and believes there are significant shale oil resources on the
North Slope. He noted that Senator Joe Paskvan has done a lot of
work on this. Great Bear testified that the company could put up
to 1 million barrels of oil per day into the pipeline in the
next decade. It's still good if they're half right, he said.
The statement that companies aren't coming to Alaska to do
business isn't supported by the facts, Senator Wielechowski
stated. In 2006, 19 companies filed annual tax returns. This was
the first year that tax filings were made under the net profit
tax. In 2007, the number grew to 26; in 2008, it grew to 36; and
in 2009, 39 companies filed tax returns in Alaska.
There is other good news. In early March the large Spanish oil
company, Repsol, announced plans to begin exploring in Alaska
next winter. It hopes to spend at least $768 million under a
"broad-reaching exploration and development program." Repsol is
a large investor in Libya and is looking to broaden its reach
into more stable areas. The North Slope is particularly
promising because it has proven to be oil-rich and it carries
low exploratory risk.
SENATOR WIELECHOWSKI said ACES is particularly attractive to
"independent" oil companies. The executive vice president of
Savant Alaska LLC stated in an article in the December 2009
Alaska Business Monthly that, "… a lot of the prospects that are
readily drillable are not large enough for the majors to chase,
but for us, they are intriguing." Mr. Vigil went on to say that
"One of the big things is to let independent oil and gas
companies know that Alaska is open for business and a big
incentive is the ACES legislation."
SENATOR WIELECHOWSKI said that those who claim that Alaska's
share of profits is too high generally gloss over the fact that
the state actually pays for much of the cost of exploration and
development activities. In 2010 the Parnell Administration
prepared examples of credits and deductions that a new entrant
would receive under ACES.
ƒA new entrant with no current production pursues an
exploration project requiring $200 million in investment.
ƒCompany receives a 20 percent - 40 percent investment
credit (depending on location), worth $40 million - $80
million.
SENATOR WIELECHOWSKI noted that to receive a 40 percent
investment credit the project must be more than three miles
outside an existing unit. The 20 percent credit would apply to a
project within an existing unit. Most new entrants would
probably get the 40 percent credit because they wouldn't be
within an existing unit.
ƒCompany also receives an additional 25 percent credit for
its "tax loss" or "net operating loss (NOL)," worth up to
$50 million.
ƒThe total credits of $90 million - $130 million can be:
ƒDirectly recouped in cash from the state.
ƒTransferred to a person that does pay tax, so
that the transferee pays $90 million - $130
million for the exploration; the company pays $70
million - $110 million.
ƒEither way, the state pays $90 million - $130 million for
the exploration; company pays $70 million - $110 million.
ƒIf the exploration effort fails, the state never recoups
this money.
The state bears the risk for failure as does the new entrant.
A slide prepared by the Alaska Department of Revenue in 2010
shows that if there is an exploration dry hole for a new
entrant, the state picks up 65 percent of the cost, the federal
share is 12 percent and the new entrant pays 23 percent. The
terms are even more generous if an existing producer has an
unsuccessful development project. In that event the state picks
up 76 percent of the cost, the federal share is 8 percent, and
the company picks up 15 percent of the cost. Given the level of
state investment, it's appropriate that Alaskans share in the
profits. The State of Alaska is the largest investor on the
North Slope and it should reap some of the rewards.
10:42:53 AM
Measure 7 looks at how ACES has affected company profits.
SENATOR WIELECHOWSKI said profits are strong. The ConocoPhillips
consolidated income statements show that earnings and production
net income for 2008 was $2.3 billion for Alaska and $2.7 billion
for the Lower 48. In 2009 E&P net income was $1.5 billion for
Alaska and $-37 million for the Lower 48 and in 2010 it was $1.7
billion for Alaska and $1.0 billion for the Lower 48. In the
first quarter of 2011 ConocoPhillips showed a $548 million
profit from Alaska. Exxon doesn't break out Alaska but its
profit was $11 billion in the first quarter. BP's profits are
probably a little less than ConocoPhillips.
An article in the August 16, 2009 Petroleum News pointed out
that Alaska oil and gas production comprises about 12 percent of
ConocoPhillips' worldwide output. In the first quarter of 2009
the company earned $240 million from its Alaska operations, or
29 percent of its worldwide exploration and production income.
ConocoPhillips has acknowledged that the Alaska production tax
credits are a significant component in the company's profits. In
the second quarter of 2009, more than 55 percent, or $404
million, of ConocoPhillips' $725 million in E&P worldwide
earnings came from its Alaska business.
Senator Wielechowski said he calculated the Alaska oil and gas
production for the current quarter at about 13 percent of the
worldwide output and about 28 percent of the worldwide
exploration and production income.
On March 23, 2011 ConocoPhillips executives told a group of
analysts that Alaska has "strong cash margins" and "very good
rates of return." One of the issues during the ACES debates was
how to figure out the rate of return an oil company receives
when investing on the North Slope. To that end, the Palin
Administration hired Gaffney, Cline & Associates and they were
asked to stress-test the model for $80 oil with a CAPEX
multiplier of 300 percent. They estimated the rate of return to
be 123 percent.
10:46:11 AM
Measure 8 looks at how ACES has affected oil and gas production
levels.
SENATOR WIELECHOWSKI stated that oil production on the North
Slope has declined steadily since the late 80s. Production
declined under ELF and continued to decline under ACES. The
Alaska Department of Revenue developed a graph showing
production volume for North Slope fields between FY78 and FY08
and it confirms the significant declines. A subsequent chart
lists the year by year production declines. Since 1989 the
decline has averaged about 5.2 percent.
Unfortunately, Senator Wielechowski said, production decline is
a natural event as an oil field matures. When the Parnell
Administration prepared the fall forecast last year, it
estimated that the throughput decline would decrease to about 2
percent per year. That forecast does not factor in either the
Repsol announcement or the Great Bear announcement so there is
optimism about stemming the decline and putting more oil in the
pipeline.
The Alaska Department of Revenue in February 2010 prepared a
chart of a typical production profile for fields worldwide. It
mirrors what has been seen in Alaska. In general, production
increases initially, reaches a peak, and then declines. The rate
of decline typically levels off in later years.
SENATOR WIELECHOWSKI said that an ongoing question is if the
Trans-Alaska Pipeline is going to shut down, but oil company
testimony should lay that concern to rest. In 2006, PB Alaska
told the U.S. Securities and Exchange Commission it expected
continued production in Prudhoe Bay until 2065. In a recent
superior court trial, BP Alaska, ConocoPhillips and ExxonMobil
testified before Judge Gleason that TAPS would likely operate
until 2042. The companies presented evidence that TAPS could
function with throughput as low as 200,000 barrels per day.
Heaters might be necessary. Furthermore, a superior court judge
recently determined that TAPS would operate at least through
2047. He also determined that there is so much oil wealth on the
North Slope that a pipeline would probably be built today if
there wasn't one already.
10:48:42 AM
SENATOR WIELECHOWSKI stated that as recently as 2010 the Parnell
Administration told the Legislature that ACES doesn't appear to
have a negative effect on the oil and gas industry. In fact, the
Alaska Department of Revenue on February 4, 2010 concluded:
In general, the information does not indicate that
changes in the tax system have had a direct negative
impact on industry activity in the state.
In fact, the data would indicate that the investment
incentive provisions of ACES are contributing to
increased levels of expenditure.
A quote from the December 20, 2009 Petroleum News stated the
following:
Parnell also said that he has already discussed ACES
with 10 oil companies. Of those, he said, "four to
five" thought the tax system was "just fine," while
"two or three" thanked the state for the tax credit
program, and two companies wanted to see ACES changed.
SENATOR WIELECHOWSKI pointed out that the 80 percent positive
response to the tax regime is consistent with what the Frasier
Institute found. That group surveyed 645 oil company executives
worldwide and found that 40 percent said that Alaska's oil tax
fiscal terms encourage production and 34 percent said Alaska's
oil tax regime does not deter investment. Just 9 percent of the
645 executives said Alaska oil taxes are a strong deterrent.
10:50:06 AM
SENATOR WIELECHOWSKI summarized that Alaska experimented for 20
years to see if a zero percent tax rate encouraged investment
and created more jobs for Alaskans. Under ELF most fields were
paying zero percent production taxes; jobs declined, investment
declined, and production declined. Under ACES investment and
jobs are at all-time highs; the number of companies doing
business in Alaska has doubled and profits are strong.
10:50:34 AM
CHAIR FRENCH thanked Senator Wielechowski for the comprehensive
presentation and welcomed the public to send criticisms to
either his office or Senator Wielechowski's office. This is an
important part of the debate and the facts should be straight,
he stated, but it's important for Alaskans to hear this side of
the story.
10:51:15 AM
There being no further business to come before the committee,
Chair French adjourned the meeting at 10:51 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| ACES PowerPoint April 28 2011.pdf |
SJUD 4/29/2011 10:00:00 AM |
ACES presentation |