New Laws, New Regs, New Oil: Captain Zero’s Busted Flush

Alex DeMarban over at Alaska Dispatch  has an article busting open the dirty little secret of Governor Sean “Captain Zero” Parnell’s ill-conceived tax break for Big Oil. But he only covers part of the problems Captain Zero’s law has created.

SB 21, Captain Zero’s billion-dollar giveaway to Exxon Mobil, Conoco Phillips and BP, is bad enough. Under the pretense of putting more oil in the Trans-Alaska Pipeline, Captain Zero awarded billions of no-strings-attached dollars in tax breaks to Big Oil. As an economic inducement strategy, it’s pure idiocy.

But the bill is also fundamentally flawed and, as you might expect, Big Oil is already positioning itself to take advantage of the Captain’s and the Republican–dominated Legislature’s shoddy drafting. Go ahead; try to read it. WC dares you.

Under SB 21, the biggest tax breaks for Big Oil come from “new oil,” defined as oil produced from somewhere other than existing fields. But the term has no clear meaning in modern oil field development. For example, if a tapped-out existing reservoir is made to produce more oil through new technology, is that “new oil” and entitled to a much lower effective tax rate? Or is it “old oil” from an existing field, and entitled to no tax break at all? If a producer drills new wells at the margin of an existing field and produces more oil, is that “new oil” entitled to lower taxes or “old oil” entitled to no break at all?

And then there’s the whole other issue of how you measure the “new oil.” Do you put an expensive meter on each and every well? Big Oil screams bloody murder; they are expensive, both in acquisition costs and maintenance. Who reads them? Who pays for them?

When the Legislature creates this kind of mess, it’s left to administrative agencies to write regulations to make sense of all of the inconsistencies and ambiguities. They call it “rule-making,” but under Alaska practices, the rules aren’t made by the government. No, they are “negotiated” with, in this case, Big Oil. And, frankly, the state negotiators are out-gunned. The regulations need to be in place sufficiently in advance of January 1, 2014 to allow implementation. Good luck with that.

It’s actually event worse than that. If oil prices were to fall far enough, and oil companies were to take sufficient advantage of Captain Zero’s shoddy investment tax credits, the amount given as credits could exceed the revenue the State receives under SB 21. That’s right. The State could end up writing checks to Big Oil, rather than the other way around. Admittedly, that’s unlikely: the same factors that would results in lower oil prices should lead to lower levels of oil exploration. You know, supply and demand. But as an example of absolutely shoddy draftsmanship, it’s hard to imagine anything worse.

Apart from the silly idea of having the fox negotiate with the chickens, Big Oil is already threatening not to look for “new oil” if the Alaska Department of Revenue insists on writing regulations that have any teeth. After all, the threat has worked very, very well for Big Oil to this point. Why not trot it out and use it again? There’s every reason to expect Captain Zero to fold again, give Big Oil whatever it wants, and then hope for the best.

All of this was completely foreseeable, and is just another reason why the referendum to repeal SB 21 deserves your vote. The goal of SB 21, the cause of Captain Zero’s panic attacks, was supposed to be getting more oil in the Trans-Alaska Pipeline. SB 21 has only the faintest connection to that avowed goal. And the law itself is so messy, so ill-conceived and ill-written, that implementation is a nightmare. Sometimes, if a law is bad enough, a referendum, a mercy-killing by the voters, is the only reasonable course of action.

Vote for the referendum to repeal SB 21.

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