Captain Zero’s Opinion: Clearing the Fog
Our very own Governor Sean “Captain Zero” Parnell has an opinion piece in Sunday’s Fairbanks Daily News Miner. Well, more accurately someone in the Governor’s office was tasked with spinning the facts at Captain Zero’s direction. The piece demonstrates again that you can put the oil industry lobbyist in the Governor’s mansion, but it doesn’t stop Captain Zero from lobbying. WC will analyze the Captain’s essay, as a service to readers.
As North Slope oil production declines, Alaskans’ opportunities diminish. Where once we measured trans-Alaska pipeline system throughput in millions of barrels per day, this next year, North Slope production will average 538,000 barrels per day. In just three years, production has declined by 100,000 barrels per day. This means fewer job opportunities and less money for schools and public safety for Alaskans.
Captain Zero, no one disputes that oil production is declining. No one sensible disagrees with the premise that it would be spiffy to have more revenue from the industry. The disagreement is over how to do that. Handing $2 billion a year to Big Oil isn’t going to accomplish that desirable goal.
Turning around this decline will not happen overnight, and it will not be easy. It will take billions of dollars in new investment every year to stabilize production, and billions more if we want to increase throughput in TAPS. That means new capital spending by Alaska’s legacy producers, as well as by new entrants to the state.
White noise. Meaningless blather. And you forgot to mention the additional billions to renovate and repair the aging North Slope infrastructure, which, you may recall, has failed catastrophically several times already.
From Houston to Wall Street — and around the globe — energy companies and investors know that below the ground, Alaska has few rivals. Where we run into trouble is above ground.
No. That’s not where we run into trouble. We run into trouble when you simply give money to oil producers, without any requirement that it be linked to additional product in the pipeline. Captain Zero is a lawyer. He passed the Alaska Bar Exam. He knows that a corporation’s duty is to its shareholders. Lower taxes mean bigger dividends. Not more oil production.
To encourage these companies to make new investments, my administration has tackled permitting issues, stepped up our marketing efforts, and attracted new companies to Alaska.
It’s great that new companies are drilling on the Slope. But they have fewer resources and are willing to take bigger chances. And they may be less prepared. Remember Respol? It took them ten days to get a blow out under control. And you brag about relaxing the permitting process? Or how about Shell Oil’s unending series of debacles? You think Shell deserves less scrutiny? More crude in the Tube is a goal, but it is not the only goal. When the oil is all gone – and the supply is finite, after all – WC would like Alaska’s environment to be relatively undamaged.
But for every company that comes to Alaska excited about the vast hydrocarbon resources remaining on the North Slope, many others simply turn and put their money elsewhere; they are creating growth and prosperity in places like Alberta, North Dakota and the North Sea. Alaska has dropped behind North Dakota in production and drifted below California this past fall.
Now you are mixing old technologies – traditional drilling methods – with new technologies, specifically hydraulic fracturing, “fracking.” Not every oil field lends itself to fracking. We’re still finding out if the North Slope fields do. And we don’t know the tradeoffs for fracking. We know there are pockets of natural gas at relatively shallow depths, just ask Respol. And you are mixing oil fields with different access requirements with Alaska’s more remote fields. You can’t repeal the laws of economics. More oil in, to use your examples, North Dakota and California, means more supply, which if there were constant demand means lower prices. The added development costs on the North Slope are the result of remoteness, harsh environment and long supply chains.
Every company that has either come to Alaska or walked away cites our oil tax system as problematic, particularly the high government tax when oil prices are high like they’ve been these last few years.
ACES shares the bonus that Big Oil gets for higher prices. But there wasn’t any consensus among the many experts the Legislature heard from last session that ACES was an obstacle to North Slope development, or at least WC didn’t hear any such consensus. But that’s not really the question, is it? The question is whether any tax break is linked tightly enough to the goal of more crude in the Tube.
I have been encouraged by the consensus that has emerged over the past year. Where two years ago, some legislators denied there was a problem, today there seems to be agreement that Alaska’s tax system is out of balance when prices are high, and that something needs to be done.
No. No one denies the problem of declining production. What the legislators have done is question whether you were taking the right approach. And criticizing your alarmist distortions of the minimum volume the pipeline could transport. And the inability of your chosen administration members who appeared before the Legislature to answer even the simplest questions. Those issues represent three of the four reasons ACES hasn’t already been reformed.
Evidence of this was seen at the end of the last legislative session, when legislators from both parties studied and acted on different pieces of tax reform.
Really? Then why did you withdraw your reform bill during the special session, just as the House and the Senate were getting close to a deal? If you were “encouraged,” why did you jerk the rug out from under neath the special session? WC is unable to reconcile your claim now with your actions then. The fourth reason we don’t have a changed tax structure is you unilaterally stopped in the middle of the special session.
Although we may disagree at times on the details of tax reform, most Alaskans agree that something needs to be done. By building on that consensus and focusing on the opportunity before us, I am convinced we can come together collaboratively and move Alaska forward this year.
More white noise and meaningless blather. So far Captain Zero’s idea of collaboration was to pack the Redistricting Committee with Republicans. Not a generally accepted meaning.
That is why I directed my administration to develop a new proposal for tax reform that builds on the work of the Legislature and our administration over the past two years.
I have told my team that any tax reform proposal must adhere to the following principles: First, tax reform must be fair to Alaskans. Second, it must encourage new production. Third, it must be simple, so that it restores balance to the system. Fourth, it must be durable for the long term.
The first “principle” is enshrined in the Alaska Constitution and, in the case of nonrenewable resources like oil and gas, requires us to maximize the revenue. ACES is doing a pretty good job of that. The second principle is the real issue; you seem to think giving away $2 billion, no strings attached, will achieve that. No economist does. No lawyer not paid by Big Oil thinks so. We’ll see what the “new proposal” says, but mark WC as skeptical. The third principle is a non sequitur. “Simple” isn’t possible where resource extraction and economics meet multinational corporations. And the fourth principle was, of course, the goal of ACES. You know, “stability,” that was what the pundits told us Big Oil craved. Heh.
I am asking Alaskans to come together around these core principles and build on the emerging consensus that something needs to be done.
And WC is asking Captain Zero to realize that absent specific extraction targets, reducing the taxes will only be successful in reducing revenue to the State of Alaska. And to the extent there is an emerging consensus, WC thinks it’s recognition that the proposals rolled out in the last legislative session were really, really stupid ideas.
If we work with these guiding principles in mind, we can maximize the benefit of Alaskans’ oil for Alaskans. By doing so this year, we will bring new jobs and new investment, we will begin to reverse the decline, and ultimately, we can unlock Alaska’s vast opportunities for future generations of Alaskans.
Yeah, cue the french horns. Look, Big Oil is making truly obscene profits at the recent prices of Alaska crude. Alaska is just as entitled to make money on its nonrenewable resources. We don’t need another Kennecott copper, where the resource was taken and Alaska got precious little.
WC’s ideal tax structure, if you really believe it has to be changed, would reduce the rate of taxation by a half a percent or so for every 25,000 barrels of crude through the pipeline above throughput of 600,000 barrels a day, up to a ceiling at some sustainable level of extraction, determined by independent experts. Combined with a firm, specific commitment to repair and rehabilitate the infrastructure. Glosses might include special, one time credits for attempts at fracking. If independent experts conclude it can be done safely.
We have the Respol example and the series of Shell blooper highlight reels to remind us to be careful. Scaling back the requirements for permitting is another really bad idea.
But to this point, Captain, you’re just making noise. The noise doesn’t matter. It doesn’t help. It’s the proposal you say you are developing. WC is at a loss to know what it’s not in front of us now. It might help that consensus thing you keep talking about.