Oil industry's 'independent study' of oil tax measure is a glorified press release
Four Texas oil companies, which have already spent $20 million to fight the plan to raise oil taxes, are claiming that a new economic study shows that Ballot Measure No. 1 would eliminate 6,300 jobs and mean the loss of nearly $6 billion in oil company investments between 2021 and 2029.
Those numbers are not anything to take to the bank, however, given the lack of Alaska research that went into the document that puts them forward with complete confidence, when they should be offered as back-of-the-envelope guesses.
Entirely missing from the so-called analysis is any review of what the increased revenue would mean to the state of Alaska in terms of state services, the Permanent Fund Dividend, other taxes, etc. Or any recognition that tax rates on new and smaller oil fields would not change.
The oil companies and the association of Alaska Native corporations are making much of a new document prepared by the American Action Forum, a right-wing Washington, D.C., group, claiming it is an “independent study” of Ballot Measure No. 1.
“Based on our independent study, the leaders of Alaska’s Native corporations are urging Alaskans to vote no on Ballot Measure 1,” the Native corporations say in radio ads created and paid for by OneAlaska, the group nearly 100 percent funded by BP, ConocoPhillips, ExxonMobil and Hilcorp.
Native corporation leaders, many of them already opponents of Ballot Measure No. 1, hired the American Action Forum to provide ammunition to use against the ballot measure.
Surprise, surprise. The AAF concluded that raising taxes is a bad idea and it would harm the industry.
Ballot Measure No, 1 would lead to the loss of 6,300 jobs and the loss of nearly $6 billion in oil company investments, according to the document.
But the document from AAF is not an economic analysis that reflects any serious statistical research that can reasonably justify such precision, especially since it doesn’t count the impact on state and local government finances or the real-world dynamics of North Slope operations.
The AAF document is a glorified press release, one that draws sweeping conclusions absent key details that make Alaska different from other places in the country where the oil industry operates.
The footnotes in the press release cite a few state documents, the Alaska Oil and Gas Association, a newspaper story, reports by the McDowell Group for AOGA, the Keep Alaska Competitive Coalition and three independent studies that don’t deal with Alaska.
One of the studies in the footnotes, from 2014, had this conclusion: “We show that oil production from existing wells in Texas does not respond to price incentives. Drilling activity and costs, however, do respond strongly to prices,” the authors of that study wrote.
The major study relied upon by the press release authors, “Spatially variable taxation and resource extraction: The impact of state oil taxes on drilling in the US,” was published in September in the Journal of Environmental Economics and Management.
It dealt with wells drilled within five to 10 miles of state lines in various parts of the Lower 48.
The authors looked at “drilling activity between 1981 and 2015 across 91 reservoirs that cross a state line to estimate how changes in severance tax rates per dollar affect drilling.”
“The policy implication of our empirical estimate is that using state tax rate decreases to incentivize investment may lead to losses of state government revenue,” the authors wrote.
The authors of the press release used this study for their main calculation about the impact of Ballot Measure No. 1, concluding that a one-dollar increase in severance taxes per barrel will lead to an 8.1 percent decrease in the number of wells drilled. This, in turn, leads to the $6 billion reduction in investment and the loss of 6,300 jobs.
The foundation of both numbers is based on a faulty premise—that a study about wells drilled near state lines in the Lower 48 directly applies to the North Slope. Alaska’s major oil fields are not 5 to 10 miles from a state line.
Rest assured that the major companies have performed real analyses that use accurate economic information about Alaska and have actually studied the impact of proposed tax changes at various prices. The press release is just a way to promote two imaginary numbers—6,300 jobs and $6 billion in investments—that can be endlessly repeated in the political campaign.
I wrote to the authors of the 2020 study for comment about their work and the AAF press release.
Peter Maniloff, assistant economics professor at the Colorado School of Mines, said, “Our estimates are from the Lower 48. If taxes go up in a state, then firms either drill fewer wells or they go drill in another state. We estimate the sum of the two effects. In Alaska, I'm guessing the second effect is going to be minimal. What is ConocoPhillips going to do, move rigs from the North Slope to New Mexico?”
“Another important difference is the difference between the tax treatment of legacy fields and new exploration. Our estimate wouldn't apply to this,” he wrote. “All that said, there really is an important tradeoff. If you raise taxes on things, people do less of them.”
The main impact of Ballot Measure No. 1, at today’s prices, is to raise the minimum gross severance tax to 10 percent on the three largest oil fields, not on new fields. This is hardly the end-of-the-world scenario that the four oil companies claim it is.
The Legislature will be able to amend the measure, if voters approve the initiative. There are many ways that legislators aligned with the oil industry have secretly blocked the advancement of all oil tax legislation in the past. The initiative is the only practical way to break that stranglehold and force the debate into the open.
At $45 a barrel, the state now collects $191 million a year in severance taxes. That would rise to $564 million, an increase of $373 million at $45 a barrel.
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