This job is hard sometimes. It becomes harder when you have to waste your time researching facts that others – in this case an oil company lobbying group – tell half-truths about to get the law changed in their $$$$ favor. Shocking that those who shill for multinational foreign corporations would not tell you the whole truth in an effort to take your money (when you lose a fair share for Alaska’s oil the next demand will be for an income tax or a cut in your Permanent Fund Dividend). Nobody likes being called a liar by well-funded special interests.
Here's the latest industry skim across the waters of truth they've been playing on AM talk radio, and on their website. They are doing this through a spokesman for a group pushing oil tax giveaways, that is called "Make Alaska a Banana Republic" - oops - I mean, "Make Alaska Competitive." Sorry. Mixed up their name with the truth about what they’re trying to do.
So - it's time to respond. And if these industry spokesfolks are honorable – it’s time for them to take down their misleading website claims, and stop repeating their misleading radio claims. How fat a chance is there of that? We’ll see how much honor these folks want to uphold.
Oh, by the way, that group won't reveal which companies have put in what amounts of money for their campaign effort. Who’s going to call on them to share that information? C’mon – just tell us your 20 top donors, and how much they’ve contributed. We’d like to know.
First: Some Context.....Then the Big Oil Company Mis-Accusations
First - for context - as you know, I don't think highly of the Governor's effort to reduce the state's oil revenue share by $8 billion over the next five years. That will put this state into the same recession the lower 48 is suffering from. Brilliant. Firing teachers, public safety officers, permitting staff, and stalling important projects - including energy projects – is the result the Governor’s bill brings. His plan reduces oil company taxes for no promise that they will hire more Alaskans, no promise that they will drill more, and no promise that they will do more exploration in Alaska. It's based on a naive hope, wing and prayer that the oil companies will reward us if we fork over handfuls of money we need for our savings, schools, roads and infrastructure. Smart tax relief would only grant breaks if they ensured increased drilling and production.
Giving money to oil companies and hoping they give it back never worked when we had a lower tax. Back in 2006, when the Production tax was near 0% for most new fields, we had 30% less investment in Alaska, oil production declining by 6% a year, and 40% fewer jobs in the oil and gas sector. The companies, instead of investing in Alaska, took lots of their pre-2007 profit and gave it to shareholders and executives.
The Governor justified his bill saying it would spur exploration in new areas (technically, new "units"). The facts prove otherwise.
In legislative testimony I asked BP, ConocoPhillips and Exxon if they'd explore new drilling units based on the Governor's bill. BP said NO. Exxon said NO. Conoco said they wouldn't commit. That testimony is attached to this newsletter.
“Great” negotiating job by the Guv. Give away $8 billion over the next five years for no commitments to do new work. Companies will drill in existing units – as they have been. In fact wells in these units have been increasing under our new oil tax in recent years. But we don't need a new law to get them to try to recoup their billions in investments in those existing units. Current law pays them over 50% of the cost of capital expenditures in existing units through tax incentive credits and deductions from their tax payments. That is, they get to buy down their taxes if they invest in Alaska.
But as the Governor says, we need new exploration - something the Governor's bill doesn't get us.
And, before I get to “Make Alaska a Banana Republic’s” half-truth, I'll note that I and others have proposed real reform that would actually work, and get us new jobs. In amendments offered on the House Floor, and in a bill I have filed, I've proposed tax credits that a company only gets if it hires people to explore in new fields, or puts new oil in the pipeline. Credits would be offered to companies building needed new processing facilities to process oil, water and gas before sending new oil into the pipeline. You'll see a press release at the end of this newsletter discussing that as a smarter option than just giving money away in reduced taxes, under a Governor's bill that requires no new expenditures in Alaska to get those tax breaks. That's what I call negotiating from our knees.
“Make Alaska a Banana Republic’s” Attack Campaign:
A Half Truth’s Always a Better Tool For That Than the Full Truth.
Two weeks ago Senator Hollis French and I noted that BP had ordered two new, more efficient land-based drilling rigs for North Slope use. Hollis had pictures of the two new land-based rigs being shipped up from Portland. Conventional wisdom is that they will be used to replace less efficient drilling rigs in Prudhoe Bay to more efficiently explore for more oil in that field. That's good. Current law, as I mentioned, encourages that kind of investment by letting companies reduce their state taxes through credits and deductions, resulting in the state paying over 50% of the cost of new capital expenditures made in Alaska. We said that two weeks ago.
What was the oil company response? They tried this as a claim, and wasted a lot of my and Hollis' time. They claimed - in a website post called "Fact or Fantasy"- that our claim was "drivel" and "fantasy". This post attempted to make it look like these rigs were ordered prior to the current supposedly "onerous" tax law Alaskans passed in 2007. The law that’s given Alaskans a fair share for our oil, and a $12 billion surplus. The law that tells companies they only get lower taxes if they invest in Alaska. They like laws that let them take the money out of Alaska.
In their campaign they claim that:
"BP signed the contract for the two new rigs with Parker Drilling in 2007, long before ACES was adopted or even conceived." Um. But that's not really true....
The claim gets a Pinocchio Nose – you decide how big, and we need a few more facts that will hopefully come out soon. Their point on AM talk radio is that if they knew about the ACES law that passed in 2007 – the law that finally got Alaskans a fair share for our oil after a corrupted oil tax process in 2006 that sent legislators, and oil industry folks to jail (no evidence that those who weren't sent to jail did anything corrupt) – they would have never ordered the $250 million in rigs. But, but, but…..
This smelled fishy. Fishy like a chum salmon lying on a river bank for a week. So Hollis and I and our staff started doing some research.
Here’s an article showing these land-based rigs were ordered, not in 2007 as these special interests claim, but in 2008, after ACES had passed. That is, after the new tax law passed, they said, they wanted to invest $250 million in better oil rigs. That’s news we should all celebrate.
The May 6, 2008 article states: "Parker Drilling Company Announced today that a subsidiary of BP PLC has issued a Letter of Intent to a Parker subsidiary for a drilling contract that will require two newbuild land rigs for a development drilling program in Alaska".
And another from the Houston Business Journal, also on May 6, 2008: “Parker Drilling Co. has won a five-year drilling contract valued at $250 million. Under the contract, awarded by a subsidiary of BP….. [T]he Houston contract drilling company will build two land rigs for development drilling in Alaska. Parker plans to begin work on the contract in 2010. The contract also has a five-year option”.
Then there's Parker Drilling's annual reports. Their 2007 report mentioned a rig they built, and sent long ago to the Liberty oilfield. That’s been built and placed at Liberty long ago. The 2007 Annual report made no mention whatsoever that the two rigs now being sent up to Alaska. That’s because the oil industry claim that they were ordered in 2007 is false. Want the truth? Here it is, and it doesn’t help BP’s claim that they wouldn’t have invested in these rigs had they known about the ACES law we passed in 2007.
Their 2008 annual report, under "2008 Highlights" notes the two rigs Hollis and I mentioned, that are being sent up to Alaska now, were ordered by BP in 2008, not before ACES as the website claims. Here's what the builder of the rigs says about them. They were ordered in 2008, just as Hollis and I mentioned two weeks ago. The annual report reads:
"2008 Highlights . . . . The commitment to build two advanced-design land rigs to fulfill a long-term drilling contract with BP. Revenues related to the project are expected to be in excess of $250 million during the initial five-year term." And in discussing their 2008 work they continue: "BP subsequently awarded Parker a new contract to build and operate two new arctic-class land rigs for development drilling in Alaska."
So - compare these facts to the "Make Alaska A Banana Republic" claim: "BP signed the contract for two new rigs with Parker Drilling in 2007." Hmmm.
Below you'll see the press release Senator French and I issued last week, and that contains more information.
This lobbying group makes two other misleading claims. First, they claim that other states have 50 – 100 times more rigs than Alaska. That’s true. Because in Texas and Wyoming you can back your pickup truck up, and plant a rig that drills to find tiny wells, as small as ones that produce 10 barrels a day (called a “stripper well”). In Alaska we only look for large wells on the North Slope – that produce hundreds or many thousands of barrels a day. Given our remoteness, we can’t do what they do in Texas – back up a pickup truck to a stripper well to find tiny amounts of oil. And that won’t reverse out decline here. In Texas, for example, they can also do with tiny, cheap rigs because they are on the road system, and because private landowners own the subsurface rights there, and a private family is happy to back up a rig if it will get them 10 or 20 barrels of production. That is, in Texas, given their location, they can drill small Ma and Pa Clampett fields. So – claims that other states have more (usually tiny) rigs than Alaska does are, well, silly. We have to use much bigger, much more expensive rigs here, and often have to build world class rigs that drill deep. We find big fields – relatively speaking, and need fewer rigs to do that. Still – as I note in this newsletter – we should incentivize new exploration rigs by increasing the tax credit for companies that truly explore new fields, not in-field expansions which companies have an incentive to do already on leases they are already producing. The Governor’s bill fails on the “new exploration” front. Badly. It passes on the “give money away hand over fist for no commitments” front.
And finally, you’ll see below that companies have announced new development and offices in Alaska. That’s good news. They all announced their projects under the existing law, in press releases that didn’t say they were contingent on the Governor’s bill passing. After the Governor filed his bill, and they were prodded, they did what any good capitalist would do – they said gee, they’d like tax rates to be lower. Make Alaska a Banana Republic spins this change in company statements as “proof” that the Governor’s tax giveaways are needed by companies that announced new development projects, with no claim that they needed additional breaks. These are breaks any corporation WANTS. All companies want to pay lower taxes. They have a duty to their shareholders to maximize shareholder profits, not to treat the states they do business in fairly.
The fact is that all the development projects listed below were announced by companies that did not say, until they later altered their statements, that they needed the Governor’s bill to pass.
OK, that’s it for now.
As always, call if you have any questions. I hope you are enjoying your summer.
FOR IMMEDIATE RELEASE
New Oil Drilling Rigs, High Profits and New Developers
Undermine Parnell Demand for Oil Tax Giveaway
ANCHORAGE- New signs add to the weight of evidence that Governor Parnell’s proposal to roll back taxes on oil corporations by $8 billion over the next 5 years is an unjustified corporate giveaway.
This week pictures surfaced of two new $100 million drilling rigs being sent from the Portland shipyard to Alaska’s North Slope. The owner of the rigs, Parker Drilling, has indicated that this delivery is part of British Petroleum’s land-based drilling program. The rigs made news in Portland when they required a shutdown of interstate traffic during rush hour as they were transported down the Willamette River.
“A picture is worth a thousand words,” said Senator Hollis French, D-Anchorage, who took the photos during a recent tour of the port of Portland. “The governor is acting like the sky is falling, but these two rigs tell a very different story.”
Courtesy: Senator Hollis French
Other evidence has also shown that Governor Parnell’s giveaway is unwarranted.
Industry Profits Continue to Climb
Yesterday, ConocoPhillips announced second quarter profits of $490 million for its Alaska operations, a 29% increase from its second quarter numbers for 2010. Despite the increase in Alaska, the company’s global profits fell during the second quarter, from $4.2 billion last year to $3.4 billion in 2011. “ConocoPhillips is making over $5 million in profits every day in Alaska, in a quarter when their global profits fell. Alaska is a cash cow for them,” said Representative Les Gara, D-Anchorage.
Evidence that Alaska’s tax regime is getting favorable reviews in the investment world can be found in a recent article posted to Forbes’ website. In the article, stock analyst Chris Mayer is quoted as follows: “So the state government created some sweetheart deals for oil and gas companies to spend money here. Among these goodies is a 40% state refund on money spent for drilling and exploration costs — paid in cash to the operator. There are other laws in place that could refund as much as 20% of other costs and 25% of net losses incurred.”
“For a small operator looking to get a sweet return on a moderate-sized pot of money, Alaska is like the El Dorado of oil and gas,” Mayer continued.
Development Continues Under Existing Law
In addition to oil rigs heading north, companies that have announced or started work on the North Slope in the last year – without any new tax breaks – include:
-Spanish oil giant Repsol committed to spend $768 million in new exploration over the next three years;
-Great Bear Petroleum announced plans for oil fracking development;
-Norway’s StatOil opened offices in Alaska last month
-Brooks Range Petroleum announced it will begin new development in Alaska
-ConocoPhillips is still working to develop NPR-A under current tax laws, which have only been delayed by a federal Army Corps of Engineer’s decision most expect to be reversed.
French and Gara both noted that the Governor’s bill contained no requirement of additional Alaska investment. “Just giving oil companies money, hoping they’ll give it back, has never worked, and won’t work now,” said Rep. Gara.
“Our motto is going to be: ‘No reduction without more production’” said Sen. French. “Rep. Gara and I are looking for ways to actually stimulate more Alaska investment.”
Senator French and Representative Gara plan to hold a press conference this afternoon at 1 p.m. in Room 220 of the Anchorage Legislative Information Office to give further information on this topic as well as answer questions. For those can’t attend in person, you can call to the teleconference at 1-855-463-5009.
For more information, contact Senator French’s office at 907-269-0234 or Representative Gara’s office at 907-269-0106. PRESS PDF