The Democratic Oil Alternative

TARGET: New Fields, New Oil From Old Fields, More Competition

“Alaska doesn’t have to be a company town to be a resource state. But to be a successful resource state, we must get our resources to market and get a fair return for selling them. That’s why Alaska Democratic legislators put forward a proposal to spark development of new fields, squeeze more oil from existing fields, and advance non-tax ideas for getting more oil out of the ground and into the pipeline.

“It’s simple: Production before reduction. Our bill puts Alaska first instead of giving away billions of dollars for nothing but promises and the status quo. If an oil company puts more oil in the pipeline than they are now, they pay less in taxes on that oil.” – House Democratic Leader, Beth Kerttula

Our Three Principles
    • Get New Oil in the Pipe (Don’t reward the status quo)
 
    • Production Before Reduction (Get something for what we give)
 
    • Don’t Break the Bank (Protect Alaska’s economy)

What Does this Mean?

Get New Oil in the Pipe

Alaska’s future depends on new oil in the pipe, new fields, and new competition on the Slope. 

Big breaks for tapping new pools of oil:
      Future depends on new oil: New oil builds our future. Selling the oil we’re already pumping faster for less does not.

Put more oil in the pipe, get a break: It’s that simple.

Not paying for what’s already happening:
      The bill is targeted to produce oil that wouldn’t otherwise get produced, not just to pad oil company profits on oil they’re pumping anyway.

Production Before Reduction

Alaskans must receive tangible benefits in exchange for any significant tax reduction. 

Tie Breaks to Increased Production: The goal is to sell more of our oil, so our changes are directly linked to selling more oil down the line.
      Directly Targeted to More Oil: Our bill is links tax breaks to new development and more oil in the pipeline.
      Show us the oil: The tax breaks in our bill come as a reward for increasing production, not as a gift for maintaining the status quo.

No Giveaways: We cannot support a “no or few strings attached give-away” or tax changes premised on hopes and prayers.
      Giveaways Don’t Work: We’ve tried it before (ELF), and it didn’t get us more oil.
      Giveaways Aren’t Fair to Alaskans: It’s our oil, and Alaska deserves to share in the benefits when its value rises.

Protect Alaska’s Economy

We Will Not Trade Savings for Promises:

Protects our Economy: Minimizing the financial impact protects our economy.
      Alaska weathered the economic storm because we got our fair share.

Build for the Future: Minimizing the impact allows Alaska to build for the future.
      Our oil is valuable, and schools, roads, and energy projects cannot wait.

The Governor’s proposal breaks the bank: It plunges Alaska into deficit spending immediately and would cost Alaskans billions of dollars and quickly burn through our savings. 

Our proposal Maintains Revenues:
      Our proposal is fiscally responsible and balanced: It maintains a healthy revenue stream for Alaskans while incentivizing additional production.
      Alaska can support schools and build infrastructure:  While we’re helping get more oil in the pipe, we won’t be putting off much needed investment in Alaska.

How Does Our Oil Bill Do This?

Gets New Oil in the Pipe (The whole bill does this)

Target New Fields: Gross Revenue Exclusion (GRE) of 20% for new North Slope fields, limited to first seven years of production (Sec. 13)

Invite Competition: Extend Small Producer Tax Credit to 2022 (Sec. 8)

Give producers 3 Gross Revenue Exclusion options (Sec. 13):
       Tap New Pools in Old Fields: 10% for new areas in legacy fields
       Reverse the Decline: 10% for all future production in excess of 2013 levels
       Incent Heavy Oil: 10% for all future heavy oil production

New Technology: Incentive for heavy oil research and development (Sec. 9)

Improve Access to TAPS: Make state loans available for new production facilities (Sec. 19)

Prevent Warehousing: Require development plans with initial leases on state land (Sec. 1-3)

Increase Partnership: Potential for state direct financial investment in new fields (Sec. 15-17)

Gets Something for What We Give

Target New Fields: Gross Revenue Exclusion (GRE) of 20% for new North Slope fields (Sec. 13)

Invite Competition: Extend Small Producer Tax Credit to 2022 (Sec. 8)
      Give producers 3 Gross Revenue Exclusion options (Sec. 13):

Tap New Pools in Old Fields: 10% for new areas in legacy fields

Reverse the Decline: 10% for all future production in excess of 2013 levels

Incent Heavy Oil: 10% for all future heavy oil production

OP-ED: Oil tax reduction? Not before production

Editorial – February 20, 2013
By Representative Beth Kerttula

Alaska doesn't have to be a company town to be a resource state. But to be a successful resource state, we must get our resources to market and get a fair return for selling them. That's why Alaska Democratic legislators put forward a proposal to spark development of new fields, squeeze more oil from existing fields, and advance non-tax ideas for getting more oil out of the ground and into the pipeline.

It's simple: Production before reduction. Our bill puts Alaska first instead of giving away billions of dollars for nothing but promises and the status quo. If an oil company puts more oil in the pipeline than they are now, they pay less in taxes on that oil.

Over the last five years, Alaska has gotten its fair share for our oil resource, paid off debts and socked away over $15 billion. We've seen record employment on the North Slope, increased exploration and many new companies coming to Alaska to drill for oil. Oil companies have made billions in profits from our oil, often offsetting losses from investments in the Lower 48 or overseas.

Those are all good things for Alaska, but the fact remains that there is more oil on the Slope, and plenty of room in the pipeline. To maintain a strong economy as we work to get even more of Alaska's oil to market, we followed three principles in crafting our proposal: It must get new oil in the line; Alaska must get something for what it gives; and Alaskans must maintain a fair return for our oil.

Getting new oil in the line means any tax changes must result in additional oil in the pipe, not simply reward oil that's already being produced. When the governor gives companies tax breaks without tying them to what Alaskans want–more oil to market–then he rewards the status quo and does nothing to get the majors out of harvest mode. We target our incentives to oil above what they're already producing. New fields, new oil from existing fields, heavy oil, those are the focus of our tax breaks.

We also advance non-tax ways to get more of our oil to market. We propose ways to advance heavy oil technology, to ensure producers don't warehouse our resource, and to partner with industry so Alaska can better share the risks and rewards of developing new North Slope oil.

Alaskans must receive tangible benefits in exchange for any reduction in taxes. Our bill targets tax breaks to performance. It requires more production before any tax reduction. A business would never enter a deal to give up cash for promises, and neither should Alaska. There is simply too much at stake.

We cannot forget, it's Alaska's oil. Unlike in a company town, all Alaskans own the resource together, and it's our job as legislators to make sure we manage the resource for the maximum benefit of all Alaskans. We cannot give it away for less than it's worth, and we cannot plunge into our savings accounts when our resource is selling at historically high prices. The oil companies will always ask for more from us, but Alaska cannot afford to sacrifice its schools, roads, energy projects and public safety just because they ask for it. Minimizing the financial impact by targeting incentives to new production protects our economy and allows Alaska to build for the future.

Committee chairmen have expressed a willingness to listen to reasonable ideas to get more of our oil in the pipe, and we will hold them to that. Our proposal is both reasonable and well-researched, and it's based on the common-sense principles of setting goals and rewarding industry for reaching them.

Please look at our proposal and let us know what you think. Oil tax discussions are too important to Alaska for the Legislature to only look at one set of ideas, and our proposal would get more oil in the pipe without breaking the bank. It should be part of the conversation.

[signed] Beth Kerttula

Beth Kerttula is the House Democratic Leader from Juneau. The Democratic oil tax alternative is HB111 in the Alaska House and the Alaska Senate companion bill is SB50.