Five years ago, through Senate Bill 21 (SB21), Alaskans were asked to substantially reduce our oil production taxes. In return, we were promised there would be more capital investment, more oil jobs, more oil production, and more state revenue. We got none of these. Instead, we got less capital investment, less oil jobs, less oil production, and billions of dollars less in state revenue.
The consequences of passing SB21 have been devastating to Alaska. While the major international oil producers have made billions from our oil in the last five years, we have spent $18 billion of our savings, cut our PFDs to less than half, cut essential services, cut municipal support, cut our children’s education and universities, cut our Alaska Marine Highway System, cut our emergency and pandemic response capacity, and cut our capital budgets and the jobs they create. Even in the best of times, Alaskans need a fair share from the sale of our oil.
This is not, however, the best of times. In these times of low oil prices, it is even more important that the division of revenues from our oil be fair to both Alaskans and the major international oil producers. Under SB21, Alaskans’ share has been anything but fair. SB21 has made a bad situation unbearable through providing artificially low production tax rates and unnecessary tax credits for our three largest and most profitable oil fields. Alaskans simply cannot afford to continue giving away billions of dollars in corporate welfare to major international oil producers.
In the last five years, the gross revenues from the sale of our oil have been $57.4 billion. So, let’s look at some hard truths about how the $57.4 billion in gross revenues has been divided between Alaskans and the major international oil producers.
Lowest Royalties. Let’s be honest about royalties. Alaskans receive the lowest royalties of any state or private owner with major oil resources in the United States. In the past five years, the state received 12.5 percent of the $57.4 billion in oil produced or $7.2 billion in royalty oil.
As major resource owners have become more sophisticated in royalty negotiations, they have increased their royalties to 25 percent while Alaskans continue to only get 12.5 percent. For the last 30 years, Texas has received a 25 percent royalty. For over a decade, private land owners with major reserves throughout the United States have received a 25 percent royalty. Colorado and New Mexico have received a 20 percent royalty, and North Dakota has received, on average, an 18.7 percent royalty.
Also, important to note are the major international oil producers’ efforts to confuse royalty oil with oil taxes. The state keeping royalty oil is not an oil tax and should not be included in any calculation of oil taxes. Royalty oil is the part of the oil production the state keeps as a lease payment and sells either “in-value” to the producers or “in-kind” to third-party refiners.
Lowest Oil Taxes. After Alaskans received about half of a normal royalty, the major international oil producers realized $50.2 billion from their sale of our non-royalty oil in the past five years. These producers paid two oil taxes on these revenues—production taxes and corporate income taxes.
Let’s be honest about production taxes. Under SB21, Alaskans have received the lowest production taxes in our history and the lowest production taxes of any state or nation with major oil resources in the world. SB21 has more ways for the major international oil producers to avoid paying production taxes than Carter (a pill manufacturer) has got pills. In the five years before SB21, Alaskans received a total of $19 billion or $3.8 billion per year in production taxes after credits. In the five years after SB21, Alaskans received a total of negative $82 million or negative $16.44 million per year in production taxes after credits. Ironically, since SB21, we have paid the producers more to produce our oil in paid credits than they paid us in production taxes. If the Fair Share Act were in place for the last five years instead of SB21, Alaskans would have received a minimum of $5 billion or $1 billion per year in production taxes after credits.
Let’s also be honest about corporate income taxes. Alaskans have received almost no corporate income taxes and with the pending BP sale will receive even less going forward because Hilcorp does not pay corporate income taxes. In the past five years since SB21, Alaskans have received a total of $262 million or $52.44 million per year in corporate income taxes. This is roughly one-half of one percent of the $50.2 billion the major international oil producers have received from their sale of our non-royalty oil.
When we combine both oil taxes (production taxes after credits and corporate income taxes), Alaskans get less than any other state or nation in the world with major oil reserves. We do far worse than Russia, Iraq, Norway, Nigeria, Brazil, or any other country with major oil reserves. In the past five years since SB21, Alaskans have received a total of $179 million or $35.8 million per year in combined oil taxes. This is roughly one-third of one percent of the $50.2 billion the major international oil producers have received from the sale of our non-royalty oil.
Normal Property Taxes. The major international oil producers pay property taxes to the state and to the municipalities. This is not unique to the producers nor is it a tax on oil production. All Alaskans pay property taxes for the many benefits we receive from living in Alaska.
Since SB21, the state’s share of property taxes has been a total of $598.4 million or $119.68 million per year. Even if these property taxes were combined with the state’s oil taxes, the major international oil producers are only paying one and one-half percent of the $50.2 billion they have received from the sale of our non-royalty oil.
The Fair Share Act. Let’s just be honest. The major international oil producers have made more per barrel from our oil fields and paid us less per barrel in oil taxes than they do anywhere else in the world with major reserves. They are not overtaxed in Alaska, and any claims to the contrary ignore the facts.
It is time for the major international oil producers to pay Alaskans a fair share again. At current oil prices, the Fair Share Act would increase the production taxes for our three largest and most profitable fields from 0-4 percent under SB21 to 10 percent. This is more than fair to the producers and represents less than the average production tax they have paid for the three decades before SB21.
Transparency. Our oil policies govern the development of hundreds of billions of dollars of our oil resources. They should be based on the best information possible. Such information should include the revenues, costs, and profits for each producer in each of our three major oil fields. Today, such information is not available to Alaskans—the owners of these oil resources.
The Fair Share Act will require a producer’s production tax filings for our three major oil fields to be public. Alaskans will then have the information we need to provide proper stewardship and to ensure our partnership with the major international oil producers remains fair going forward.
Robin O. Brena is a life-long Alaskan, a long-time oil and gas attorney with Brena, Bell & Walker, the Chair of Vote Yes for Alaska’s Fair Share, and the former Chair of the Oil and Gas Subcommittee for Governor Walker’s Transition Team.”