Notes on Look-Back Slide 2:
Look-Back Slide 2 compares the production taxes with cashable credits considered for the five fiscal years (2015-2019) under SB21 (actual) and under Ballot Measure 1 (modeled by Alper). SB21 resulted in negative production taxes in three of the five years with cashable credits considered. When the price of oil was $72.58 per bbl. in 2015, for example, the net production taxes (including cashable credits) were negative ($246) million under SB21 and would have been a positive $1,142 million under Ballot Measure 1. The five-year average in production taxes with cashable credits considered was negative ($16) million under SB21 and positive $1,133 million under Ballot Measure 1 or a $1,117 million difference.
Look-Back Slide 2 demonstrates that under SB21 the State has paid more out in cashable credits than it received in total production taxes. It also demonstrates that over a range of oil prices and circumstances during the past five years, when back cast using the same DOR data, Ballot Measure 1 would have provided $1.117 billion per year more revenue than SB21.
Cashable credits are considered in this comparison, because, when evaluating the performance of the current tax system, it is important to consider both the amount the State paid and still owes in cashable credits and the amount the State received in production taxes. Although the cashable credit program has expired, the State continues to owe $738 million in cashable credits that it has not been able to pay as the result of the collapse of production taxes under SB21.
On average, Ballot Measure 1 would have resulted in $1.1 billion per year in additional revenue compared with SB21. Roughly two-thirds of the additional revenue is from eliminating the $8 per revenue-barrel credit for the Prudhoe Bay Unit.
Keeping $1.1 billion per year more of our oil wealth in Alaska is the economic equivalent of creating 11,000 new jobs at $100,000 per year. This $1.1 billion per year will also multiply through our economy as the additional revenue is spent within our economy. Typically, the multiplier effect is 5-7 times the new revenue, meaning $1.1 billion would have an economic effect of roughly $6-7 billion in the Alaskan economy.
To your point, these positive economic effects will occur in Alaska regardless of how the additional revenue is spent to reduce the State deficit. The Legislature will ultimately decide how the revenue should be spent, but whether it is spent to better fund PFDs and capital budgets or to save jobs directly in education, the marine highway system, universities, road maintenance, etc., the economic effect will be considerable.
Importantly, this positive economic effect from Ballot Measure 1 will keep $1.1 billion per year in Alaska that would otherwise leave and be spent out of Alaska. Obviously, keeping our share in Alaska is much better for the Alaskan economy than giving away our share and allowing it to be taken out of Alaska.
Let’s look at some of the ways BP and ConocoPhillips have chosen to use the additional profits resulting from SB21. They include pursuing the purchase of distressed assets in the Permian Basin, paying off the costs of the Deepwater Horizon disaster, paying down debt, buying back stock, and increasing stock dividends. SB21 profits are not being invested on the ANS; instead, they are leaving Alaska. Overall capital Investment on the ANS for past four years under SB21 has been the lowest level of capital investment in decades. While companies are free to invest their profits outside of Alaska if they choose, the people of Alaska shouldn’t be giving up their share to subsidize investments being made out of Alaska.
To offer a few specifics, since SB21, ConocoPhillips has made 68% of its world-wide net income from Alaska and only spent 15% of its world-wide capital in Alaska. While our PFDs have been cut to one-third, ConocoPhillips has increased its dividends by 60% in the last two years. While we have spent $18 billion of our savings, ConocoPhillips has paid off over $12 billion in debt and has paid billions more to repurchase its own stock. In fact, ConocoPhillips just announced it is repurchasing $1 billion more of its own stock before the end of this year and is exploring purchasing billions of dollars of distressed assets outside of Alaska. Not only was our share taken from us through SB21, it is also being taken out of Alaska.
While Ballot Measure 1 will help the economy of Alaska a lot, it is also important to note there will be a minimal negative impact from Ballot Measure 1 on the oil and gas industry because (1) Ballot Measure 1 does not apply to new and developing fields with more sensitive economics, and (2) our three major fields are highly-profitable fields that have operated for almost four decades with the demonstrated capacity to attract investment and provide operational jobs under higher production taxes than Ballot Measure 1 establishes. Ballot Measure 1 will actually lower the production taxes for our three major fields compared with the historic average before SB21.
Finally, the recent “study” by American Action Forum (AAF) concerning the loss of jobs in the industry if Ballot Measure 1 is passed is a press release by a “dark money,” anti-tax, political action group that conducted no original research. Alaskan journalist Dermot Cole has posted three articles on the AAF press release on dermotcole.com. In short, the AAF press release is seriously flawed, and the underlying studies it relies upon do not support AAF’s methodology, statements, or conclusions. It improperly (1) applied Ballot Measure 1 to all fields on the ANS when it only applies to our three major fields, (2) assigned a drilling impact to nondrilling operating costs for legacy fields, (3) ignored the benefits of additional production taxes, and (4) reached the opposite conclusions of the underlying studies it relied upon. The underlying studies conclude a state would be worse off lowering production taxes because the costs of production are inelastic to production taxes. This means the State should never have passed SB21, not that the State should keep SB21.
Following are four articles with greater detail of the general issues discussed above for your consideration:
Oil Taxes? What Oil Taxes?
The Fair Share Act Explained
Oil Companies Can Afford to Pay a Fair Share
Ballot Measure 1 Means Jobs