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Petroleum Economist Dissects ACES - ADN OCS Editorial - Economist Raises Red Flag - International Energy Economists Host Energy Debate

Alaska's Oil and Gas Production Tax Severely Limits Upside Profit Potential Published: Oil and Gas Financial Journal, Sep 1, 2010 - Roger Marks, Consulting Petroleum Economist, Anchorage, Alaska (NGP Photo) Alaska's oil (and gas) production (or severance) tax, called "ACES" (Alaska's Clear and Equitable Share), was enacted in 2007 (effective July 1 of that year). The tax has a base tax rate of 25% on the net value of oil, the value after all exploration, development, production, operating, and transportation costs are deducted.   There is also a progressivity element (calculated monthly) that is added to the base tax rate. Progressivity is the practice of increasing the tax rate as income increases. In ACES the tax rate rises as per barrel net value increases, and is applied to the total net value. Progressivity starts as per barrel net value rises above $30/bbl. (At current [summer 2010] costs [about $25/bbl] this is equal to about a $55/bbl US West Coast Alaska North Slope [ANS] crude oil market price.) Progressivity rises at a rate of 0.4% for every per barrel dollar of net value above $30. Above $92.50/bbl in net value the progressivity rate increase drops to 0.1%/dollar of net value....   Marks concludes, "Many proposals have been floated within Alaska to address the effects of high marginal rates. However, most simply reduce the slope of the progressivity curve or create additional credits; few actually correct the underlying problem.  (.pdf) (Comment:  A year ago, the Frasier Institute Global Petroleum Survey said, "Alaska is essentially a third world government."     Yesterday, in the Anchorage Daily News, Economist David Reaume said, "The U.S. economy, the world economy and, yes, the Alaska economy are perched on a knife edge. No one knows whether to expect rapid inflation, destructive deflation or continued malaise. So what should you do? What should policy makers do?     Last week Kevin O. Meyers (NGP Photo-l), ConocoPhillips' Senior Vice President - Exploration & Production, Americas spoke to the 23 Annual Alaska Export Celebration in Anchorage.  He said the "coming attractions" for the oil industry are Australia and the Asian Pacific--not Alaska.  He said Alaska is a, "fiscal ticking time bomb."   At a recent political gathering, we asked Governor Sean Parnell (NGP Photo-r) about gaining control of both spending and oil industry taxation.  He spoke about his effort to provide some moderation of industry taxes during the last legislative session and touted his Administration's low, initial budget proposal given to the Legislature.  He said that needed changes would in large part depend on the composition of legislators he would face after the new year.  One senses that the majority of current legislators are now open to an improved tax and spending regime--even though a majority originally voted for the ACES legislation in 2007... along with successively higher operating budgets at a time when Alaska's 90% oil dependent general fund revenue is sliding by 6% a year.    Alaska battles on with the Federal government to achieve reasonable, regulatory oversight of federally controlled resources here.  But Alaska has control of spending and tax policies that more directly affect attitudes about investing in state-controlled resources.  It is good for the Governor and Legislature to fight the Obama Administration's attempt to kill Alaskan resource development with its significant array of laws, regulations and executive orders that seem all bent on doing Alaska's economy in.   But it is also essential that the Governor and Legislature take responsibility for steering the ship of state toward a more friendly investment climate.  By "friendly", one could reasonably conclude that our tax structure should be somewhere near the low median for Alaska to be competitive with fellow oil and gas producing nations--especially in this age of ubiquitous 'shale gas'.     Likewise, Alaska's benefit packages for welfare recipients and other subsidy beneficiaries should be lowered.  Alaska should not pay subsidies when citizens rise to 2 or 3 or 4 times ABOVE the poverty level.  "Necessary" subsidies should kick in AT the poverty level.  Alaskan subsidies and welfare benefits should not be greater than benefits offered by other states, lest Alaska become an even brighter beacon attracting immigration of those for whom work is less important than large benefit payments combined with the Alaska Permanent Fund.     We suggest it is time for Alaska to wake up, get competitive and shrink the size of its government grown gravy train.   -dh)     The ADN Opined on Importance of OCS to Alaska


The Anchorage Chapter of the International Association of Energy Economics (IAEE) and University of Alaska Anchorage (UAA) will co-sponsor a free public forum on the future of offshore drilling in Alaska on Wed., Sept. 22 at 7 p.m. in UAA's Wendy Williamson Auditorium. The focus on the forum will be navigating the risk/reward spectrum. The purpose of the forum will be to present a variety of perspectives to the public, and to conduct a deliberative discussion surrounding the benefits and risks of Arctic drilling within the contexts of:   · addressing oil spills in an ice environment; · risk mitigation (prevention, paying for spill damages); and · benefits of Alaska offshore development.   Panelists will include: · David Ramseur (NGP Photo-l), Chief of Staff to Senator Mark Begich · Mayor Edward Itta (NGP Photo-r), North Slope Borough · Pete Slaiby (NGP Photo-below), General Manager, Shell Oil Alaska Co. · John Schoen, Senior Scientist, Alaska Audubon Society     The forum will be moderated by Michael Carey, host of Anchorage Edition and Running on KAKM public television, and guest columnist for the Anchorage Daily News.   The IAEE is an organization of corporate, government, academic, and scientific economists dedicated solely to the education of the public on energy economic issues.  Parking will be free in the lot east of the Wendy Williamson Auditorium and west of the Professional Services Building (formerly Building 'K'). For a campus map go to http://www.uaa.alaska.edu/map/.  For information, contact Roger Marks at 907-250-1197 or rogmarks@gmail.com

Dave Harbour, Publisher, Northern Gas Pipeline

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