Ten years later, SB 21 oil tax remains a ‘failed system,' former DNR commissioner says
There is no one in Alaska with a deeper and broader knowledge of the oil industry than geologist and former oil explorer Mark Myers, the former head of the U.S. Geological Survey and the Alaska Department of Natural Resources.
Myers, now a consultant who works for oil producers around the world, says he supports SB 114, up for a public hearing Thursday at 1:30 p.m..
He thinks of the bill as a bandaid that would provide revenue the state needs to offer services to Alaskans.
“I have never in many different projects in many different countries, never recommended Alaska’s system as a leading practice. But I do use it as an example of a problematic and failed system,” Myers told the Senate Finance Committee this week.
He said Alaska does a good job on permitting and collecting data, but the 10-year-old SB 21 tax system is a poorly designed package. SB 114 is a step in the right direction to replace it and it should not be a hard decision to enact it, he said.
The provisions of SB 114 would still leave the oil companies with about 45 percent profit. “That is a great metric,” he said. A lot of companies around the world are getting a great deal less than that.
"You can have a race to the bottom or you can acknowledge that 45 percent for the industry is a pretty darn robust take,” he said.
The oil companies, their lobbyists, their contractors and their apologists are claiming, as they always do, that any tax increase will make Alaska uncompetitive and eliminate jobs. They have yet to suggest a smaller increase as a compromise.
“The industry will always make the best arguments it can not to pay taxes,” Myers said. “And you can easily be fooled, but please don’t be tricked again into a race to the bottom with severance tax.”
“You don’t have to be the lowest or cheapest in the country to attract investment,” he said.
It is the job of the oil company employees to say that if taxes go up by a nickel, it will be really bad for them. “That’s what they need to to do. But it’s not what the state needs to do,” he said. “The state needs to make sure that the tax rate doesn’t damage the industry, but that it recovers the money necessary to fund its fundamental operations.”
He said the SB 21 oil tax system is far too complex, inefficient and “it’s easy to game.”
Part of that is because it’s a net profits tax, part of that is because the way the state oil tax credits work and part of that is the lack of transparency about what’s really going on.
The oil companies have created many different profit and loss centers in their operations to manage their net profits to their advantage.
He urged legislators to make sure they have experts that can be trusted, experts who don’t rely on contracts with oil companies to make a living.
The state has 10 years of data about SB 21 under various price levels and it has not attracted an expansion in capital investment.
“I would recommend that we don’t give SB 21 credit for Willow and Pikka, those are the result of the exploration credits and Armstrong Oil’s discovery,” he said, referring to a type of credit that is no longer offered and the work of Bill Armstrong’s company.
The proposed tax changes would not threaten the development of the Willow and Pikka projects, he said.
The value of SB 114, he said, if that the state is going to need a lot of revenue in the years ahead to deal with the inevitable and expensive transition away from fossil fuels. The cost of infrastructure is already a major challenge because of climate change.
“This isn’t just about what the industry needs. It’s what the state needs in revenue now,” he said. “It’s going to be very expensive for us in the future to manage the basic infrastructure changes.”
“It’s really about what the state needs more than what the industry would like to have,” he said.
There will be a big decline in the use of oil worldwide, which will mean less investment in Alaska regardless of the fiscal system.
Myers said he expects the Willow and Pikka projects will move forward and a few others, but it will be hard to attract much more investment after that.
Renewable energy will be cheaper than oil in the relatively near future, he believes. The transformation is more significant than the shale oil revolution.
He advised lawmakers to read BP’s take on the transition.
The major companies have a vested interest in keeping Alaska oil fields going for as long as possible because that delays the immense reclamation costs that will come due when a shutdown occurs, he said.
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