In Alaska, it’s exploitation by deductions from oil
by Joe Paskvan, Fairbanks
originally published 10/22/20 Fairbanks Daily News-Miner
The shameless character of oil executives is world class. They are so used to exploiting governments and people that they just don’t see themselves as they truly are: exploiters. The apex of corporate welfare and entitlement mentality are executives demanding deductions be paid by Alaska’s legacy fields for expenses not incurred on those legacy fields and not even on land owned by Alaska.
In Alaska under current Senate Bill 21, the industry doesn’t calculate what it owes Alaska based upon its actual costs for a specific field’s operation. SB21 allows deductions unconnected to the field from which the oil is produced.
You will hear and read about oil’s lust for SB21’s deductions in phrases such as, “reduced timely availability of cash by hundreds of millions per year.” Obtuse and executive words which mean Big Oil gets the money and “how dare” anyone challenge them. Those words describe an attitude that manifests arrogance and an entitlement mentality, while seeking corporate welfare on the backs of Alaskans.
How about a conservative approach by Alaska to the hundreds of millions of dollars per year taken from Alaska just from SB21 deductions unrelated to our legacy fields? There are a number of choices capitalism provides to a business that claims it needs money. First, borrow it and pay market interest until you pay it back. Second, issue stock for that money — an ownership percentage to the money supplier in the company’s future profits. Third, form a joint venture and provide your partner an equity interest in the specific development. Norway entered into joint ventures to build its “permanent” fund to over $1 trillion. But oil executives want free money, and they want to take it from Alaska and, therefore, Alaskans. They want SB21’s corporate welfare, and they reject capitalism.
Ballot Measure 1 protects Alaska. Alaska’s Fair Share Act requires ringfencing. Ringfencing is simple — deductions must be related to a specific field. Not complex! It’s simple! Vote yes on Ballot Measure 1 to protect Alaska.
But as horrible, bad, crazy, dreadful, and wrong as the current SB21 system is by providing deductions for expenses not connected with a specific field, it gets worse.
The National Petroleum Reserve-Alaska is owned by the federal government. The federal government controls the royalty on the land and subsurface it owns. Alaska does not control the royalty from NPR-A or any other land owned by the federal government. Federal law controls where federal royalties go.
Alaska’s 50% of the federal royalty is controlled by federal law, which requires Alaska to transfer that money to the few local communities close to the NPR-A developments. “This [royalty] revenue is deposited into the NPR-A special revenue fund and restricted for specific uses. . . to compensate for impacts resulting from development on those lands.” (RSB Fall 2019 pages 20 & 34.) So 99% of Alaskans won’t see a dime, ever.
No royalty revenue from NPR-A resources is available to reduce Alaska’s budget deficit.
Alaska then gets cheated by SB21’s deductions, which are allowed for NPR-A expenses. The oil executives operating our legacy fields — Prudhoe Bay, Kuparuk, and Alpine — deduct from our legacy fields’ revenue spending on land not owned by Alaska. Those deductions increase Alaska’s deficit by lowering revenue to Alaska by about $250 million to $300 million per year for at least eight years. Alaska’s budget deficit increases yearly by each one of those hundreds of millions of dollars lost through deductions incurred upon land not owned by Alaska. Under SB21, the next decade would increase Alaska’s budget deficit by $2 billion to $3 billion just by these deductions from NPR-A. Alaska needs the Fair Share Act to protect our legacy fields.
The phrase “reduced timely availability of cash” is the oil industry taking hundreds of millions per year from Alaska, just from NPR-A deductions unrelated to Alaska’s legacy fields. It should sound like exploitation, and a scam, because it is!
The phrase covers up oil’s corporate welfare and its entitlement mentality while they harm Alaska.
Oil executives demand that Alaska gives away SB21 expense deductions in the hundreds of millions of dollars per year without providing Alaska 1) interest on a loan or 2) company stock or 3) a joint venture agreement. Oil executives know Alaska’s deficit increases yearly by the exact amount they take. Oil executives know Alaska gets no royalty from NPR-A developments on federal owned land.
The oil executives want more than $2 billion in free money from Alaska. That’s why they have spent $12 million on ads to mislead you that they are entitled to it.
The only way to respond to their exploitation and entitlement is to vote yes on Ballot Measure 1, yes for Alaska’s Fair Share.
Joe Paskvan is retired after almost 40 years as an attorney in private practice. He is a former state senator who served as chairman of the Senate Resources Committee. He lives in Fairbanks.