Kara Moriarty is a flack for the oil and gas industry.1 Her wages are paid by ExxonMobile and British Petroleum, among others, through the Alaska Oil and Gas Association. You know, the folks who pay royalty and property taxes on North Slope production. So when Kara Moriarty says current tax levels are just fine, a sensible Alaskan should look pretty closely. That very assertion suggests otherwise.
WC raises this issue because Ms. Moriarty had an opinion piece in the Anchorage Daily News recently that urges the Alaska Legislature to leave the current tax structure just as it is. Given the dire financial situation facing Alaska, the importance of revenue, and the source of the assertion, WC suggests we parse Ms. Moriarty’s claim, which is a kind of laundry list of logical fallacies, omitted facts and false claims.
Can we talk about post hoc ergo propter hoc for a minute? That’s lawyer-Latin for “after this, therefore because of this”. It’s a logical fallacy that states “Since event Y followed event X, event Y must have been caused by event X.” Stated as a syllogism,
A occurred, then B occurred.
=> Therefore, A caused B.
Ms. Moriarty notes that after Alaska changed its oil tax royalty structure – the extremely controversial SB 21 – volumes of oil in the Trans-Alaska Pipeline (TAPS) increased.2 But correlation, the occurrence of those sequential events, doesn’t imply causation. When a rooster crows in the morning, it doesn’t cause the sun to rise.
Increases in oil production, on the North Slope of Alaska, are an immensely complex subject, driven by the price of crude oil and the future price of crude oil, changes in technology, discovery of new fields, politics and much more. WC suggests that the increases in North Slope production were driven by the adoption of new fracking technologies on the North Slope, the discovery of some new fields, increases in the price of crude oil from the rock-bottom numbers ten years ago, improvements (and performance of deferred maintenance) in infrastructure and other factors.3 Ms. Moriarty commits the post hoc fallacy by implying that SB 21 increased throughput. There’s absolutely no evidence of that.
Ms. Moriarty makes much of recently increased throughput in TAPS. She states:
In the fall of 2012, the state forecasted that North Slope production in fiscal year 2018 would average 443,000 barrels per day. Thanks to that significant investment focused on more production, North Slope production actually produced 518,000 barrels per day for fiscal 2018, an increase of 75,000 barrels per day over what had been predicted. More production means more revenue for the Permanent Fund and key essential services — a win for all of us.
The reality is different. If we look instead at more recent projections, instead of ones from 2012, total production actually fell well below projections. According to the industry-enthusiast Alaska Journal of Commerce reports:
North Slope crude oil and natural gas liquids production for fiscal year 2019 averaged 496,197 barrels per day through February, according to the state Department of Revenue. That is 5.8 percent below the average daily production forecast produced by the Department of Natural Resources of 526,800 barrels for all of fiscal 2019, which began last July 1.
The delta between actual and forecasted production is notable because overall 2019 North Slope production was supposed to increase from the final fiscal 2018 average of 521,398 barrels per day. Instead, the 496,197 barrels per day of production since the start of July is also well below the year-to-date average for 2018, which was 516,870 barrels per day at the end of February 2018.
Ms. Moriarty’s claim is a combination of cherry-picked facts and outright misrepresentation. In fact, under SB 21 state royalty revenue fell well below projections, even with higher crude oil prices than projected. It’s not at all clear that net of all the tax credits and lower tax rates Alaska granted Big Oil, the State has even recovered its investment, let alone netted any new revenue.
Ms. Moriarty also asserts:
We understand oil tax policy is complex and hard for even seasoned experts to understand. But the key takeaway is that our current tax structure is performing. It helped stop the accelerated oil production decline, encouraged new investments in Alaska and re-established the state as a competitive oil basin.
Now maybe it’s just WC, but that pretty condescending. “Don’t trouble yourselves trying to understand this.” It’s not complicated at all. Certainly less complicated than cutting through Big Oil’s web of obfuscation. There are three primary variables: cost of production, sales price and tax on production.
Profit = Crude oil price – cost of production/transport – taxes
If North Slope fracking has made production less expensive, or crude oil prices go up, then taxes cuts for big oil are irrelevant to total production. Sure, lower taxes make the profits even bigger, but Alaska wants Big oil’s profits to be large enough to keep them interested but not so much that Alaska doesn’t get its fair share of a non-renewable resource. As for Ms. Moriarty’s appeal to Alaskan’s pride – “we now rank sixth among the U.S. states. We must remain competitive, or we will slip even further behind.” – pride doesn’t pay the rent. Or balance the budget.
Nothing in Ms. Moriarty’s defense of Big Oil’s giant tax break makes sense for Alaska. The more you study it, the more you look in to the unspoken assumptions, the more flimsy the rationale. Before Alaskans kill the University of Alaska and terminate ferry service, the current tax regime on Big Oil absolutely should be scrutinized, no matter what a paid flack for Big Oil may say.
Correction: WC had mistakenly stated ConocoPhilips was a member of the Alaska Oil and Gas Association. It’s not. That’s corrected. Thanks to D.C. for the heads-up.
- She’s also a relative of a colleague of WC. Not that it’s any particular distinction. But it is a possible conflict of interest so it should be disclosed. Conflicts of interest should always be disclosed, right? ↩
- WC notes that a sensible society, one that cared about its middle- and long-term survival, would view increased oil production with alarm. Especially a society in the subarctic, which is already being hit hard with the consequences of anthropogenic climate change. But that issue is beyond the scope of this blog post. ↩
- Heck, if you want to indulge in conspiratorial thinking, you could argue that Big Oil extorted the tax reductions as a condition to keeping the oil pipeline (partially) filled. But there are enough conspiracies around without inventing another. WC will trust Big Oil to chase profits. ↩