The three arguments the oil companies make about tax increase proposals never change
On February 20, 2017, veteran oil and gas consultant Rich Ruggiero told legislators that the oil industry could be counted on to always say the same three things when faced with a proposed increase in oil taxes.
"In their world there is no concept of the operator earning too much and a government earning too little," he said.
It didn’t matter whether the proposed change was from 5 percent to 6 percent or from 50 percent to 60 percent, he said. The oil companies would say the change would create instability, reduce investment and eliminate jobs.
At the time Ruggiero was a consultant to the Legislative Budget & Audit Committee. He had helped develop the ACES tax system years earlier and had done consulting work for the state. In his 2017 presentations, he said Alaska was not unstable compared to other oil and gas taxing jurisdictions around the world and that change in oil taxes was normal.
“You’re always going to get three messages from the operators. That if you should change your tax system, you will become unstable relative to everybody else. You will be less competitive to everybody else and you’re jeopardizing, possibly, jobs in the oil patch in your locale,” he testified to the House Resources Committee six years ago.
“They are for-profit oil entities. Their shareholders expect them to get the maximum value they can wherever they’re at. This is just a natural reaction.”
“And I can tell you that a letter I wrote on behalf of the oil patch in the North Sea in the 1990s bears striking resemblance to a letter AOGA (Alaska Oil & Gas Association) wrote in 2007 when we were going through the ACES,” he said.
“Part of what you have to do is decipher from that message what really is very critical and what really is going to kill an industry or really negatively hurt the state as opposed to that’s just their natural inclination that they have to come out and say that whatever you do that takes money out of their pocket is a bad thing,” he said.
Two days later, Kara Moriarty, the president of the Alaska Oil & Gas Association, attacked Ruggiero’s comments about stability, competition and jobs.
“One would think that by the way he talked about these quote unquote ‘themes’ that industry is not being genuine and just providing the same old arguments that they deploy across the globe when governments consider changing tax policy,” Moriarty said.
“I just want to put it on the record that I personally take great exception to his choice of words and frankly I find them insulting. He was insinuating that industry is not credible and that these themes should not be believed. The reality is the reason the industry does talk about stability, competition and jobs across the globe is because they are real factors in making investment decisions.”
To be accurate, Ruggiero never said that stability, competition and jobs were fabricated issues. He said that stability, competition and jobs would be the arguments whenever any tax increase was mentioned, regardless of how large or small.
The reflexive action of the companies—that the only acceptable increase is zero increase—makes it harder to know if a given tax proposal would really do damage to stability, competition and jobs. The industry does have a credibility problem.
On Monday, Ruggiero was back again to testify before the Alaska Legislature, this time as a consultant working for the Alaska Oil & Gas Association, making the case for the oil companies.
Ruggiero’s tone and focus was much different than past appearances and he didn’t mention that the industry always makes the same three arguments against any increase.
But the main arguments against SB 114 from the industry and its political supporters? The same as always—stability, competition and jobs.
A public hearing on SB 114 was put off until Thursday at 1:30 p.m. The bill would close the Hilcorp loophole, reduce oil company credits to $5 a barrel and tie those credits to capital expenditures.
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From consultant Rich Ruggiero’s 2017 presentation to the House Resources Committee.