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Do the math: SB 21 isn’t good for Alaskans

Posted: September 3, 2014 - 3:41pm

I taught math. I wasn’t good in math, but you want a teacher for whom math isn’t obvious. The textbook helped kids identify what they didn’t know. Then they asked other kids. They got points for asking, but big points for explanations. If they asked me, I’d explain ways I’d seen work for dozens of kids. Sometimes I’d get that look, that they didn’t understand how numbers worked.  After this last election, let’s try the math again.  

This election shifted $10,000 in tax burden from oil companies to you. Over the next four years every man, woman and child has agreed to pick up the tab. Was it worth spending $170 for every “No” vote Exxon-BP-and-Conoco bought?  You bet. Spend $200 to have suckers pick up the tab for $10,000? The math follows.  

1. 7,000,000,000 less in royalties (uncollected fees that BP-Conoco-Exxon paid) ÷ 700,000  people in Alaska =  $10,000 per Alaskan that will have to come from another source.

2. The state ran the two biggest deficits in its history the last two years, spending more than we took in. Record deficits even before the vote locked the rate in. (The Alaska Legislature ran $2.3 billion short in 2014.)

3. The golden egg is shrinking. Prudhoe Bay, the largest oilfield in North America, pumped for 35 years and is dropping 6 percent a year. The budget reserve comes from oil royalties (growing from $2 billion to $11 billion under ACES) and is shrinking now with the deficits.

4. Alaska would have collected $8.5 billion less in Parnell’s years in with SB 21. It made $1.2 billion less in oil royalties this year with SB 21 rates in effect (royalties are 46 percent with ACES v. 35 percent with SB 21) making Alaska the cheapest oil in the world. (Ireland passed a lower tax rate in a bribery scandal soon to be revoked and Cameroon charges 11 percent royalty.)

5. Three companies essentially control Prudhoe — BP, Exxon and Conoco. They have done little exploration in the last decade. Alaska is profitable for these companies.  Conoco makes $31.15 profit per barrel of oil produced in Alaska. It makes $8.37 a barrel for oil in the rest of the Americas. Alaska accounts for 13 percent of the oil Conoco produces, but 35 percent of its profit — twice the income of all the lower 48 operations. Conoco and BP average over $2 billion a year profit in Alaska from investments made thirty years ago. This cash cow funds exploration, elsewhere.

6. BP says it will add 200 jobs to the workforce with these tax incentives,  but BP is shedding jobs as it sells off four Slope fields to Hilcorp. They receive $2 billion   in tax breaks for “jobs,” which equals $10 million for 200   jobs.

That amount taken by the state and paid to teachers, road crews could mean 20,000 state of Alaska jobs paying $100,000 per year, instead of 200 BP Slope jobs. 

7. ACES added jobs in the oil industry — from 6,300 oil jobs to 8,800 — 40 percent more. Few of them by Exxon, BP or Conoco which have their cash cow tethered. ACES incentives brought new players to the Slope — Pioneer, Eni (the Italian energy firm) and Repsol (the Spanish oil giant) discovering six new fields, adding 20,000 barrels a day.

8. SB21 isn’t reversing the 6 percent decline each year that the pipeline has seen for decades. In fact the Parnell’s experts call for production to decrease 40 percent this decade with SB 21. The Parnell administration forecasts that SB 21 will collect $4.5 billion less in royalties in the next 5 years. If oil rises this shortfall could be $10 billion.

9. This is a democracy.  We are in the same leaky boat together, Homer.  It doesn’t matter if you were wise to reject pleas from companies that make $2 billion a year in this state for “tax breaks.” You will still have to pay the incentive for the planet’s most profitable corporations to take your oil.  It won’t tax me as much as you, as Conoco’s dividends help me, but even those won’t pay my burden.

Again, this election was not about preserving $150,000-a-year Slope jobs, keeping the pipeline “full” or coaxing oil companies into building a gasline. This election was about you picking up the tax bill so three profitable corporations could have better bottom lines this year, this decade and on.  Your senators signed for you to pick up a $10,000 tab (SB21) by one vote.  This is a bill the governor pushed.  Under the leadership of “Captain Zero” we’re into negative numbers and drilling deeper.  If you can’t see the next argument that an income tax is necessary, have a good time with your credit card till then. For those that say “tax the rich”  — who do you think the oil companies are?   

Did the “Vote Yes” campaign make mistakes? Yes! The biggest was not helping small business owners and the public understand that SB21 is picking their pocket. 

What’s good for Big Oil isn’t necessarily good for business.  Take $40,000 out of a family’s spending over the next four years, there’s not enough money for meals out, movies, even cups of coffee.  

For those who cling to different numbers or different spins, I offer no apology. I haven’t made my money being politically correct, but financially correct. For those of you who do not agree, you’re free to follow other explanations  — into negative numbers. 

Gordy Vernon lives in Homer and is a watcher of the oil companies — and holds stock in some of them.


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jokimball777 09/05/14 - 11:49 am
Thank you for writing this

What was strange was how quickly the legislature was trying to burn through the savings collected through ACES, wildly spending on ludicrous megaprojects, meanwhile claiming ACES didn't work as they loot the treasury.

Now one need only read the headlines "Alaska oil production to continue decline, company officials testify" and "Conoco Profits Up as Alaska Production Declines" to know that you are right in your assessment.

At a time when Alaska should be making record profits due to the huge increase in the price of our resources, we instead give the windfall gains to the already record profit breaking oil companies.

And then the state of Alaska don't even bother to audit what the oil companies are claiming on their taxes.

This year, production costs almost doubled, so this is a huge loss in the taxes paid to the state.

Perhaps the production costs doubled because the oil companies inflated transportation costs, as they did happen to get caught by a federal judge doing just that.

Please read: Judge: Oil companies 'cavalierly' wasted hundreds of millions on pipeline work in the ADN.

SB21 or not, I believe the state of Alaska can again be accused of "inexcusable trustworthiness" in believing the oil companies transportation costs doubled all on their own.

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