Alaska’s economy is built on oil, and a measure going to the ballot box on November 3rd could have a huge impact on the future of oil in the state. Proponents say large producers aren’t paying their fair share in taxes, but opponents say a tax increase is bad for jobs and puts the economy at risk. We’re discussing the Fair Share Act on the next Talk of Alaska.
HOST: Lori Townsend
- Robin Brena, Chair, Vote Yes for Alaska’s Fair Share
- Scott Jepsen, Vice President of External Affairs, ConocoPhillips, OneAlaska
Related: Read ballot measure one in full here
Lori Townsend: I read the ballot measure; it’s a production tax on three fields. If I’m understanding this correctly, it would be Prudhoe Bay, Kuparuk, Alpine. It’s a 10% tax on the gross value of Alaska crude up to $50 per barrel, with a 1% increase for every $5 bump in the price per barrel up to a cap 15%. If this is an accurate breakdown, what else would this measure do and how does it compare to the current tax structure?
Robin Brena: Well, there’s four major characteristics of the Fair Share Act. The first is it only applies to our largest and most profitable oil fields; it doesn’t apply to newer developing fields. So specifically, it’s the Prudhoe Bay unit, Kuparuk River unit, and the Colville River unit, which people informally referred to as Kuparuk and Alpine. So it only applies to those three fields, which means it doesn’t apply to any new and developing field, any new explorer new field that comes up. There’s nothing being changed with regard to those folks. So that’s the first thing. The second thing is it increases Alaska’s share of revenues from these three major fields. The third thing is is it limits cost deductions from our share of these three major fields to the cost of producing oil from them. And the fourth thing It does is requires the tax filings related to these three major fields to be public and transparent so Alaskans are no longer kept in the dark with regard to how our own oil fields are producing.
LT: Scott, no business wants to see taxes rise, but what specific concerns do you have about this particular measure?
Scott Jepsen: So, you know, the tax measure, if it gets implemented is going to result in a significant tax increase. And that tax increases as Mr. Brena has said, it’s going to be on the three core fields of Prudhoe, Kuparuk and Alpine. When we take a look at where Alaska sits right now, in terms of competitiveness, we’re pretty much in the center of the pack. You know, we take a look at this, just taking a look at you know, overall government share . And in Alaska, we’re about competitive with New Mexico, Texas, North Dakota, Oklahoma. If this tax initiative passes, we’re going to go from seeing about a mid 50%, 55-56% government take up to as much as 69-68%. That’s going to put Alaska, that’s going to put investment pretty much in a non-competitive region for our company and other investors.
You know, Prudhoe Bay, Kuparuk and Alpine are the core fields on the North Slope, over 80% of the oil is produced from these three fields. If you take a billion dollars a year out of these fields, which is kind of the target that the tax campaign said, that’s a billion dollars that’s not going to go towards additional investment in these fields. These are the fields that produce the royalty oil for the state of Alaska. These are the fields that produce the economy of scale that make all the other fields viable. For a company like ours, we’re invested not only in the core fields, but also in new fields as well. If you take a billion dollars of cash flow out of the money that’s available for new investments, that’s gonna have an impact on new investments that we have in places like Willow and GMT2, and other fields that we may find as we explore. So at the end of the day, the biggest issue that we have with this is it’s going to put Alaska in a potentially non-competitive position, which means money’s not going to flow to Alaska, which is going to impact jobs, is going to impact production long term if not not the state.
Want to talk a little bit about the transparency thing as well. The tax initiative, if it passed, would make all of our confidential tax filings public. There’s no other place in the country that does that, Alaska would be unique. But right now, we provide a tremendous amount of information for the state of Alaska, the Department of Revenue, we give them incredible detail on everything that we do: all of our costs, revenue, everything else. And they have the ability to take a look at that and provide guidance to legislation in terms of what tax policy is doing. If you put all that out in the public domain, I’m not sure very many people are gonna know what to do with it. But what it will do is it will put confidential information, it will put our contracts we have with drilling companies out there and another drilling company will have the advantage of seeing what you know, company X has bid on their work. Basically, probably the biggest harm that’s going to come from all of this is the impact to competitive information from our suppliers. The other thing that kind of implies is that we’re going to have kind of a boutique type of tax system up here. We’re going to use this information to have crafted different tax rates for different entities. That’s not a way to encourage investment in the state of Alaska.
LT: So Scott, and Robin, before I move back to you for response, Scott, the opponents to the measure say that it increases oil taxes too far too fast. And you mentioned the concern over making documents public. Is there a slower ramp up that could possibly meet the test for producers that would be reasonable if people did want to move towards the change? Is there a slower ramping up that would be more palatable, and is there any room for compromise on making certain documents public and not contracts or particular strategies public?
SJ: Oil taxes have been the subject legislative discussion, I guess, since Prudhoe Bay was discovered, probably before then. I anticipate we’ll continue to have those discussions. So if the tax initiative doesn’t pass, you know, the state has a revenue issue, and I fully anticipate that it’ll be back on the agenda for the legislature next year. If that happens, we’ll do what we always do, and that is present factual information to the legislature so they can make an informed decision. And that’s what I hope to do today is present more factual information to your listeners so they can make a decision on the tax initiative. And you know, that’s really kind of the problem with having a general popular vote on something as complicated as this. It’s up or down type of vote, and this could be based more on emotion probably than facts. So, you know, I anticipate that if the state decides it wants to revisit oil taxes next year, we’ll come down to the legislature, we’ll provide information, and the legislature will be the ones to decide whether or not they want to go down a path of increasing taxes are not.
You know, the interesting thing in all this, though, is that Alaska right now is the only place in the world I’m aware of, that’s talking about increasing taxes on the oil industry under today’s circumstances. Norway is looking at delaying or deferring about $11 billion plus in tax payments from the oil industry to try to help them get back on their feet. So, you know, to put this on the agenda right now, when we’re all looking at a way to try to recover from the impacts of demand destruction, low oil prices, is really going to be sending the wrong message to the industry as a whole. You know, looking at a 300 plus percent increase in taxes., it’s just really sending the wrong message. With regard to your comment on documents. You know, that’s a slippery slope in terms of what’s reasonable and what’s not. If the tax initiative passes, it’ll be up to the legislature. I think the attorney general has opined that, if the tax initiative passes, this objective of making all documents public, probably won’t happen because there’s some confidentiality statutes that are out there. But certainly that’s the intent of the tax initiative campaign is I want to make all those documents public. And you know, I’m not gonna sit here and split hairs on it.
LT: So Robin, respond to what we just heard here from Scot. Why is this a good time now? Oil prices have recovered a bit but they’re still low. Is it wise to change the tax structure while the industry is still so shaky?
RB: Well, let me say Scott covered a lot of ground there, so let me just take it in bits and pieces. I’m going to push back a little bit, because we’re really talking about Alaska’s share of their own resource here. Alaskans get a fair share through two primary mechanisms: they get it through royalties, and they get it through production taxes. Those are the two primary mechanisms that we do. But let me be clear, it’s our land, it’s our oil. We’re really talking about increasing Alaska share from their own oil is what we’re talking about. The mechanism that we use is royalty or production taxes, but we’re not talking about a tax increase, we’re talking about a fair share for what we sell. And I think that’s an important context.
You asked if it’s the right time. We have a huge state deficit, our dividends have been cut in half, our university has been gutted, the education systems being gutted, municipal support from the state is all but gone, property taxes are rising, police and fire protections are being compromised, our marine highway system can even make it to communities with reliable service that don’t have road access. So things have gone to hell in a handbasket in Alaska ever since Senate Bill 21 passed. And when it passed, it passed under the promises that there would be more investment. it passed on to the promise that there’d be more jobs, it passed on to the promise that there would be ultimately more state revenue; not a single one of the promises have been kept.
I mentioned royalties and production taxes, that’s the way we get our share. Our royalties that we get up here are 12.5%. They’re about half of what other people get in royalties. Texas has been getting a 25% royalty for over 30 years, and has had an impact from that increase on production at all. Colorado, Louisiana, every state in the union that h, but the point here is the major producers in Alaska are paying about half of a royalty. So let’s go to production taxes and talk about production taxes. So production taxes, the five years before Senate Bill 21 passed, we brought in $19 billion under production taxes, or $3.8 billion a year.
LT: That was under ACES.
RB: Yes, it was. Under Senate Bill 21, in the five full fiscal years that we’ve had since, our production taxes have been zero; we have paid the producers more in cacheable credits than what they have paid us in production taxes. So you can look at this, this is really quite simple. This isn’t complicated. We get half the royalty we ought to get, and we get no production taxes. And they’re talking about government take calculations. Let me say something about government take: government take calculations confused a lot of issues. They are not an economic indicator. And I noticed that Scott’s calculation of government take a moment ago was different than Mr. Marks, who is paid to represent the industry with regard to these kinds of comments as well. So they can’t even get their government take right. But government take is a statistic, and an imperfect one. Those that are familiar with the shortcomings of government take tend to overuse it.
The bottom line here is we’re getting nothing in production taxes, and we haven’t gotten anything in five years, and it’s long overdue for us to get something out of our production tax scheme. When I talk about going from 19 billion down to 0, five years before and five years now, keep in mind — let’s take Prudhoe Bay as an example. We give three quarters of a billion dollars in reduced production taxes for the production in Prudhoe Bay alone. Three quarters of a billion dollars we are paying to the major producers to produce oil in Prudhoe Bay. Can Alaska afford to continue to pay three quarters of a billion dollars to produce oil out of Prudhoe Bay? Prudhoe was built and TAPS was built when the price of oil was $3.39. In today’s terms, it’s $21 bucks; they’re getting two or three times more than they originally expected. Prudhoe Bay, since Senate Bill 21 has been there, the capital investment in Prudhoe has gone down from $826 million to $202 million. The investment, actual investment in Prudhoe has gone down to 25% of what it was. We simply cannot afford to continue to pay money. Prudhoe Bay operated with no credits for decades, with nothing. It is the largest, most profitable conventional oil field in North America. Is the crown jewel of Alaska, and we’re giving it away by giving away $8 per barrel credits for Prudhoe Bay for every revenue barrel being produced.
LT: I want to move to the phones now. Let’s go to Stephanie in Juneau. Hi, Stephanie.
CALLER: Hi, good morning. Thank you very much for taking my call. You know Alaskans really understand, I think, that the oil companies are hard hit right now, but what I would like to hear from Scott Jepsen a little bit is why you don’t have enough money in the bank to invest here. Investing in the oil fields is one of my primary concerns, so I appreciate you addressing that. Thank you.
SJ: So, you know, it’s not a matter of ‘do have enough money in the bank?’ It’s whether or not your investments compete. And what this tax initiative does, simply put, is it makes Alaska less competitive for investment. We have places to invest in North America that are actually, quite to the contrary of what Mr. Brena just asserted, significantly more profitable than what we see here in Alaska. And, you know, Robin talks about Prudhoe being the most profitable place in North America to invest. Well let’s put things in perspective. In Eagle [oil field] in Texas, in 2017, we talked to investors about the fact that our lifting costs are $2 a barrel, our transportation costs are about $2 a barrel, and we have about a $35 cash margin of $50 WTI; you can’t do that here in Alaska.
When you talk about investments, it’s not just royalty and severance taxes, it’s also property tax, it’s state income tax, it’s your capital costs, it’s your lifting costs. Alaska’s lifting cost basis is pretty darn high. We gave another investment presentation here just a short time ago, and our expectation for our three largest unconventional fields in the lower 48, is our lifting costs will average about $4 a barrel for over the next 10 years. That’s a far cry from Prudhoe Bay, which is $12-16 a barrel. So capitals limited, we do have capital to invest, but it has to go to places that make the most economic sense.
RB: Well, first of all, let’s be real about Prudhoe Bay. In 2018, it costs less than $13 a barrel to lift, it costs less than $2 in capital, and it cost $8-9 to transport, and they made $63 a barrel. They made $40 a barrel margin out of Prudhoe Bay. That is twice as much as they make anywhere else. And let me say something about ConocoPhillips investing. ConocoPhillips, since Senate Of its capital investm, they’re returning 15% of their capital spend in Alaska. I mean, if you take a look at what they’re doing versus what they’re saying — and it’s not just about ConocoPhillips, it’s about the whole industry — the fact is that Alaska is being used as a cash cow, we’re allowing our wealth to leave Alaska.
And the question went to can ConocoPhillips afford it. So let me just say two things. One is ConocoPhillips in the last two years has increased their dividends by 58.5%, almost 60% increase in ConocoPhillips dividends in two years. They have repurchased $9.5 billion dollars of their own stock, and two months ago, they increased their stock repurchase authorization from $10 billion to $25 billion. They paid down their debt since 2016 by $12 billion. ConocoPhillips, we would have been much better off keeping our money and investing in ConocoPhillips stock, at least we would have got some dividends out of the deal. So ConocoPhillips is in a Renaissance. They are dumping cash to their shareholders, they’re increasing dividends by 60% in two years, they’re paying off debt at a record level and they’re repurchasing their own stock at a $25 billion clip. And they’re taking 70% of their profit out of Alaska. ConocoPhillips will be just fine if they have to pay a little extra to Alaska now.
LT: I want to give Scott a chance to respond to that. But first, I’d like to go to the phones and hear from Steve in Anchorage. Hi, Steve.
CALLER: So last time we went through all this, Senate Bill 21 and back in the year in a day. You know, if we voted no, we were going to get, you know, millions more barrels of oil per day. You know, I seem to recall it was almost kind of like a promise from the oil companies, and I’m just just wondering what happened there? What went on with that, because I don’t think we saw that.
SJ: That’s a really good question, so let me tell you what actually happened. In the years prior to SB21 passing, the North Slope was pretty much a steady 6% decline rate. When SB21 was passed — and I was down in Juneau, I talked to legislators about this — we didn’t make any promises about what production will do, other than to say that if you have a positive investment climate you should expect investors to act rationally. So after SB21 was passed, what we saw was investment increased. You know what the three highest years of investment in the core fields on the North Slope has been? It was three years after SB21, passed: 2014, 2015 and 2016. And what happened after that is the production decline went from 6% to about a percent. Basically, we’re about 75,000 barrels a day higher today than we would have been if we had just simply ridden the decline down under ACES.
And we’ve gone back to the company, we’ve taken a look and asked the question, so “Okay, well, that’s great, but you had two different tax frameworks. You had the confiscatory tax framework of ACES versus what I think is a more reasonable tax framework under SB21. Is the state better off financially with that higher production rate and SB21 versus the decline rates that we were seeing under ACES, and theACES tax rate? And the answer is, yes. The state’s better off to the tune of about a billion and a half dollars a year. I think you’re probably referencing the Fair Share Act guys claim that somebody promised a million barrels a day if SB21 passed. Well, a paper was written about that by the administration about what was in that estimate, and it was a goal. It wasn’t certainly a promise, certainly none of the oil companies made that promise or inferred that in any way, shape or form, and neither did the Parnell administration. Instead, it was a reflection that if you had ANWR come on stream, if you had offshore Chukchi Sea, the Beaufort Sea come on stream, if you have discoveries in NPRA, more development of the onshore piece on the North Slope, you could potentially hit a million barrels a day. And that was entirely possible. But a lot of those things haven’t happened for various reasons.
So at the end of the day, SB21 is absolutely working, there is no question about it. The assertion that somehow the state is worse off. You know, Mr. Brena talks about all these bad things that have happened to the state since SB21 passed. What he doesn’t mention is that the price of oil went from over $100 a barrel to $40 a barrel in 2016. What did that do? You drove all sources of petroleum revenues down. You can’t have that kind of fall in your commodity price when you’re depending upon a share of that commodity price to fund your state and not see a change in revenue to the state.
LT: Okay, so please respond before we take a quick break here. Go ahead, Mr. Brena.
RB: First, that’s the kind of partial information that’s misleading to Alaskans. So, Mr. Scott is right that ’14, ’15 and ’16, the three years after the Senate Bill 21 passed that they had a higher capital investment. But let me be clear, capital investment doesn’t turn on a dime. Those were investments in projects that had been going on for five or 10 years. So Senate Bill 21 doesn’t get to claim the minute that there’s a tax change that it’s because of the tax change, those projects were planned and funded years before that happened. And what he left out is the three lowest years of investment have been the last three years after that initial lag from those projects. $1.8 billion, $1.6 billion and $2.1 billion are the lowest levels of investment in Alaska’s history.
The other thing that is partial information that’s very misleading is to blame all this on the price of oil. Our production taxes went from $19 billion to zero. The price of oil changed 35%. Production went down 15%, the time-value of money went up 10%. So we should have went from $19 billion down to $9 or $10 billion. We went from $19 billion to zero under Senate Bill 21. We are planting dollars to get nickels in giving away so many massive, a billion or a billion and a half dollars of increases to get nothing. And the production has dropped. They have an advertisement, and their advertisement is “Well, we beat a bad state forecast.” You know, Senate Bill 21 passed on jobs. We had 15,000 jobs. The minute the repeal of Senate Bill 21 failed, that month at BP was the highest month of our employment in Alaska’s history of 15,500 oil jobs; we’re down to about 9,000 now. We have Alaskans leaving Alaskans. It’s fundamentally wrong to say that if we keep more of our wealth in Alaska from our own oil, that Alaska is better off. Alaska is better off if we get a fair deal for our oil and keep that wealth in Alaska then letting ConocoPhillips take the money, or Exxon or BP, and leave the state.
SJ: So Lori, I know you want to talk to your listeners and get questions, but there’s so much misinformation which Mr. Brena has talked about over the last few minutes, I’m gonna need more than a minute. So I’ll start out first. Robin pretends like he sits in our boardrooms and he knows what our decisions are. I absolutely guarantee you that there are a lot of decisions pending with regard to what happened with SB21 and our future investments. To think that GMT1 was a done deal, GMT2 was a done deal, expansion of CD5 was a done deal, picking up additional rigs was a done deal, I can tell you with absolute certainty that is not true. And he has no way of knowing that; I do, I sit in our boardroom.
Robin also says that the state has received zero dollars in production taxes since SB21 passed. Well, if you just looked at the revenue sources book, you’ll see that the total since 2014, has averaged about $770 million dollars a year. It’s varied because oil prices vary. The tax initiative campaign has this belief that the capital credits — so, you have to go back. The State of Alaska, put in an incentive system to bring new players to the state of Alaska. They said that if you came up here to Alaska and you invested money, and you have no production or you produce less than 50,000 barrels a day, we will pay you in cash for a portion of your investment. And, you know, I would argue that’s probably not the greatest tax policy because you’re paying people before they produce anything, but that’s what they put in place. Those cacheable credits, those debits that Mr. Brena is talking about never accrued to the owners of Prudhoe Bay, Kuparuk or Alpine, and the legislature fixed all that in 2017. There are no cashable credits available at this point in time. This was a red herring, but it’s a fundamental underpinning of the tax initiatives campaign. They seem to be implying that somehow or other if this tax initiative is passed, it will fix this problem. It won’t.
LT: We’re gonna go back to the phones for a moment, Drew is in Juneau. Hi, Drew.
CALLER: Like I said, calling from Juneau and whether we like to admit it or not, we are an oil town here. Revenues fund are slowly shrinking but largest employer, the state government, and the industry — so this is a question for Scott — the industry and their advocates called us to Vote No in 2013 and SB21. And we’re being told no again, but how is the industry, or how are you, Scott, willing to contribute during this crisis, when everyone has been told me to pitch in at every level to help support the fiscal crisis.
LT: Thanks for that question, Drew. And, Scott, is there an increase that the industry would support?
SJ: If the legislature wants to take up another tax increase, you know, we’ll be down there to talk to them about what the impacts are, and they can make their own judgment call as to whether or not that’s something that they want to move ahead on. The other things that we’re doing though here right now, while prices are down, we’re still continuing to invest. We have got our capital program, but we’re still gonna invest over a billion dollars here in the state. Yes, jobs are, you know, they’re not as many people working on the North Slope, but that’s a function of the fact that everybody’s trying to survive. We have this CVOID threat, we’re still contributing on a philanthropic basis to charities around the state. So we’re doing what we can given the difficult times that we’re in right now.
But I also want to go back and address some of the things that Robin said a few moments ago because so much of it is off base. He talked about the fact that we have increased our dividend over the last three years. What he fails to tell you is in 2016, we cut our dividend from $2.96/share to $1/share. Today, it’s back up to about $1.68. We are a company that attracts investors based upon a certain amount of payout to investors and dividend is part of the game. But we have cut the dividend back in response to the financial pressures we’ve seen from low oil prices. Stock repurchases, we have suspended that program, can’t afford them right now. But what we are doing is we are still investing in places like Alaska. We haven’t cut our capital budget to zero.
LT: Before you respond, Mr. Brena, I’d like to get back to both callers and the questions that we have online, and one of the questions that we did have was about making documents public. Scott said that Alaskans might not know what to do with these financial records if all of them were made public. So, Robin defend that part of the ballot initiative. What do you think the value to the public would be of these documents?
RB: I’m happy to do that. Let me clear up one thing quickly before I do. Mr. Jepsen, Scott said that the petroleum revenues were the revenue sources book, they are. I’d invite people to take a look at the 2019 revenue sources book, page 89, and they have all of the production taxes for each year. He suggested that they indicated that they averaged $700 million a year since Senate Bill 21 passed. So as two, eight, and 10, four, five and 11. Six, one and 12 billion for over 4 billion in ’13, 2.6 billion in ’14, it dropped $1.6 billion when the price of oil stayed identical. And here is Senate Bill 21: $381 million, $176 million, $125 million, 741 and 585-587. And it’s for 2021, massive deficit facing us, it’s going to contribute $122 million. And and let me say that he said, you know, the cashable credit. So that’s what we got. What we paid out is on page 63. If you take a look at that, for example, for ’15 and ’16, for ’16, we got in $176 million, we paid out to the producers $498 million. We’re running negative, we’re paying them more than they’re paying.
LT: Is this part of the reason why you want these documents to be made public? Explain to us what the value is here.
RB: is here. Now, let me do that. Part of my challenge with these kinds of conversations is the industry comes up with an expense of $35 billion misleading Alaskans about what our fair share should be. They’ve had a tremendous political influence in Juneau. You can’t even have a conversation in Juneau. They’re not willing on their own to step up and help out Alaskans at all in this time of need. And part of when we have these conversations that we go in is that Alaskans aren’t allowed to know how our own fields are producing. He said that no other field had that kind of information. All the other fields are based on gross not net calculations in the United States. For example, we got about 12-12.5% of our gross out of our fields the last year and that’s only royalties, we got nothing for production. North Dakota has gotten about 30%, Texas has gotten about 30%, they’re getting 2.5 to three times more than we do under a gross system straight up. So the next time we have this conversation after the Fair Share Act, and Scott said that you’re going to have supplier contracts, you don’t have to have supplier contracts disclosed. It requires their tax filings for these three major fields to be a public document.
LT: Scott, quickly respond, and then let’s go back to the phones.
SJ: You know, Mr. Brena throws out an awful lot of information here claiming that $35 million–
LT: A lot of numbers
SJ: Yeah, there’s no basis for any of that that I can find. If you just take a look at what happened to our sevens tax payments, production tax payments, they fell because the price of oil dropped. We have a net tax system. In 2015, which Mr. Brena likes to talk about because he says, you know, oil prices not the same as it was in 2010, the price of oil went from in the range of $100 plus dollars a barrel down to about $74 a barrel — I’m sorry, the capital spending, the total spending of the North Slope went from $4.7 billion to $7.4 billion in 2015. The production went from 643,000 barrels a day down to 501,000 barrels a day. We ran the calculations, if ACES had been in effect in 2015, the state would have gotten 15 cents a barrel. 15 cents a barrel. That is a pure function of spending, production rate, and the fact that you know, we have a net tax and when you consume a lot of the value in capital investment and operating costs, there’s not a lot left to tax. That’s the nature of the net tax system. Under SB21 the state got $2 a barrel. Now the good thing about all this is that we were spending $7 billion on the North Slope. That employed a lot of people. What happened after that, of course, was the fact that when the price dropped and everybody had to retrench, you couldn’t afford to spend that same amount of money. So you couldn’t afford to spend the same amount on employment as well.
LT: Okay, I want us to move back to the phones now. Rick is in Anchorage. Hi, Rick.
CALLER: This is Rick Phillips. Thanks for letting me ask a question here or make a comment. Senate Bill 21, which has been the worst bill for Alaska, basically going to bankrupt the state, it gives the oil companies an $8 a barrel tax credit when the oil is under $80 a barrel. So in the $19 billion in lost revenue since 2014, plus the state had to use $17 billion dollars in our savings in the CBR, Scott you said that countries are going to give oil tax relief to the companies where we have already been giving tax relief to the company since 2014. And you promised more production, there’s less production, promise more jobs, there’s less jobs, more revenue for the state, there’s less revenue for the state. And you’re talking about investing a billion dollars in Alaska, but you’re I think you’re talking about investing that in the NPRA, which is the National Petroleum Reserve. Make a comment about what we get from the National Petroleum Reserve, please.
SJ: Sure, I’ll be happy to talk about them. The state of Alaska did a report on what they thought they would get from Willow once Willow goes into production. Willow, by the way, is entirely an NPRA. The state estimates they’ll get $5-9 billion in severance taxes off of production from NPRA. And half the royalties in NPRA come back to the state in the form of the NPRA impact mitigation grant program. It doesn’t go directly to the state UGF, but it goes to the communities on the North Slope. And actually, any community around Alaska that thinks it’s affected by oil and gas production and NPRA. So NPRA is a place that, you know, the state is going to benefit from. Your other assertions that somehow or other SB21, has resulted in less production as a cause of the state’s revenue issues, that’s not true. The cause of the state’s revenue issues right now is the fact that the price of oil has dropped. That’s just an absolute apparent data point that you can’t work your way around. If ACES had been in place these last few years, the state’s financial position would not be significantly different than it is today.
LT: Robin, quickly.
RB: You can explain a drop from $19 billion in production taxes to zero over two five-year periods through a 35% drop in the price of oil, and it’s disingenuous to continue to suggest that the price of oil explains the entire phenomena. The fact is that under Senate Bill 21, it performs terribly in low oil prices, medium oil prices and high prices. Scott suggested that somehow that Senate Bill 21 outperformed ACES and he gave some calculation. If you would have ran ACES and Senate Bill 21 over the same period of time, ACES delivered $11 billion more; that’s all the savings that we’ve been blowing through. And in terms of their investment, ConocoPhillips is investing in federal lands. You know, we are allowing them to deduct from our share of Prudhoe Bay investment that’s going on in our neighbor’s lot. It’s kind of like a neighbor building a house, and you help and pay for it. Whether or not we see any benefit out of NPRA is yet to be seen, it’s on federal land. There is a portion, a 50% portion of the royalties that rolls back through, but is subject to impact payments, it’s not obvious it’ll be available at all to help us with our deficit. But in the meanwhile their spend is going to increase the deficit by $300 billion a year.
LT: I’d like to get back to the phones for a moment. We have a number of callers stacked up here. Let’s go to Ray in Anchorage.
CALLER: Yes Scott, you compared a fracking field to Prudhoe and said that the lifting costs were lower. You know, I’ve got a report from Scotia Bank who finances more oil industry stuff than anybody I know, and that wouldn’t comport with what they’ve had to say. But here’s the point, here’s what’s wrong with that. A fracking well dries up in about three years, and you got to drill a new one to replace it. So your lifting costs are kind of irrelevant when you have to replace them all every three years, which you don’t have to do in Prudhoe. In Prudhoe, you’ve got wells that are producing 30 years. So that’s a red herring.
LT: All right, I want us to be able to listen to some of the supportive messages and the people who are opposed to this, the OneAlaska campaign. We want to play some ads from both sides. Let’s start with an ad from the supporters of the ballot initiative. And then we’ll let Scott respond to that.
AUDIO: Believe it or not, Alaskans are getting a worse deal for our oil now than back when all those politicians were taking bribes. In the past few years an Alaskan family of four has lost $28,000 in dividends as ConocoPhillips raised its dividend three times, and paid their CEO over $80,000 per day. Does that sound fair to you? Didn’t think so. Save your dividends. Vote yes for Alaska’s fair share. Vote yes for Alaska’s fair share. Paid for by Vote Yes for Alaska’s Fair Share. Top contributors David Carter, Robin Brena and RST Properties.
LT: So Scott, your thoughts about this? What per price barrel do producers need to have in the three fields that are being targeted by this initiative to hit the breakeven mark and start turning a profit?
SJ: The other thing your previous caller said shale wells dry up in three years. Well, we got an awful lot of shale wells that are a lot older than three years. So, you know, that simply isn’t true, Mr. Brena’s allegation that somehow or other the investment in NCRA is going to cost the state $300 million a year, I’ve looked at the state’s analysis, you can’t support that. At $60 a barrel, the impact on the state Treasury is nil. You only have notes only when you have higher prices and you get into the net tax rates that we can deduct any of those costs. And then it’s only a matter of time, it’s not a matter of now. We deduct them later. We deduct them now, obviously, it’s an incentive to invest because you get the time-value of money, but if we don’t deduct them now, we’ll deduct them further out in the future, and it’s going to be a net gain to the state.
LT: I want to go next to the ad against ballot measure one and then we’ll let Robin Brena respond to that. Let’s hear now from OneAlaska.
AUDIO: Alaskans will decide an issue this year that affects our economic future. Consider the facts. Fact, more than 18 billion barrels of oil have gone through the trans-Alaska pipeline since 1977. Fact, $4.8 billion in Alaska wages per year are supported by oil and gas industry spending. Fact, the employment footprint of the oil and gas industry is unmatched in Alaska. Learn more at one alaska dot com. This communication was paid for by OneAlaska, top contributors are Exxon Mobil, BP Alaska and ConocoPhillips Alaska.
LT: Robin, your response to the statements that were laid out in this ad?
RB: Well, first, let me put this in some context. When the fair share act passes, the production rates will be less than their average has been for the last three decades before Senate Bill 21. This is not a radical increase in cost in taxes in Alaska. We are about a third of our sister states now, and it will put us less than our average. It’ll put us less than our other sister states. It’ll be the best tax system for fully mature fields in the world, and it doesn’t affect new and developing fields. So I don’t want to leave it out there that this is some big increase. Frankly, it’s not.
Scott asked on our ad, Our ad makes the point that when bribes were being taken by the legislature, the legislature ended up with a better deal than what we got out of Senate Bill 21. And I don’t think that they get to run from the problems in Senate Bill 21. They had ConocoPhillips employees voting for Senate Bill 21, for their employers. They had people with obvious conflicts that shouldn’t have been participating in our votes, and they spent $30 million in lobbying it through and convincing Alaskans we’d be better off for taking less than our oil. And there was a bunch of promises made for jobs that have not proven true, and they just try to blame it on a 35% reduction in the cost of oil. That’s not fair. With regard to that particular ad that you mentioned. You know, the oil industry is big, but let me say that it doesn’t do any good how much oil that they take out of the state, how much wealth that they take out of the state, if we don’t get our fair share of it. And so what’s happening right now is that they have realized over $50 billion in five years since Senate Bill 21 passed, and they have paid in production taxes, and corporate income taxes, one third of 1% of the gross.
LT: You’ve both thrown around a lot of really big numbers, percentages, large numbers. This ballot initiative is a two page act. What’s your level of concern about how Alaskans will be able to parse all this, and really, this is a difficult issue. It’s a layered and difficult issue for people to wrap their head around the current tax structure, and what these changes will potentially mean. Are you concerned that people, even after this hour of conversation, still won’t have clarity on what a yes or no vote really means?
RB: I think that they’re gonna put another $10 million into confusing the issues, but I think it’s a relatively simple thing. We’ve got nothing for five years under Senate Bill 21. And we got $19 billion before. Is one third of 1% in oil taxes, is that the industry paying Alaskans our fair share? When we’re getting about a third as our sister states? So I think Alaskans may have a difficult time understanding the nuances of each each individual change. I think that they perfectly understand that Alaskans aren’t getting a fair share, that ever since the Senate Bill 21 passed that Alaska has been in a recession, that Alaska didn’t come out of a recession and add any significant jobs even after the price of oil increased substantially, but it was in the $70 ranges again. Can you imagine Alaska, in a recession, losing jobs when the price of oil is $70 a barrel? That is only possible under Senate Bill 21.
LT: Okay, Scott Jepsen. Your level of concern about people being confused by this?
SJ: Let me just give you an example of how revenues have been shared here in the state of Alaska since 2014, the first full year of SB21. ConocoPhillips published its financials for Alaska. In that timeframe, we made about $4 billion in net income. We paid the state in taxes and royalties, about $4.5 billion, the federal government got the remainder. So basically out of the income that was available out there, ConocoPhillips got about 41%, the state of Alaska got about 45% and the feds got about 14%. So government share in that whole scheme of things was close to 60%. That’s nowhere close to the 1% of whatever it is Robin has been throwing out there. We go back and take a look at the share of revenue that Alaska has gotten out of the gross value of oil on the West Coast for this year, for 2019 is about 24%. This is not a simple conversation around “Well, it’s all about severance tax.” It’s not, we pay royalty, we pay income tax, we pay property tax. You know, Mr. Brena was talking about the fact that we paid zero severance taxes. But then he went back and then noted in the revenue sources book that we have paid $2.6 billion in 2014. And you know, a varying amount since then, you can’t have it both ways.
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