Alaska’s Future: Election 2012
With 59 of 60 legislative seats on the ballot, the future of oil production economics hangs on the election results
There are two major inter-related themes in this election
Is the Senate Bipartisan Working Group good or bad for Alaska? And should oil production taxes be reduced along the lines suggested by Governor Sean Parnell, basically a no-strings-attached break of up to $2 billion a year, or should the Legislature modify certain parts of the tax system known as ACES – such as the progressivity feature, which escalates the government's percentage take at high per-barrel prices – only if the North Slope producers somehow commit to or actually achieve production increases?
The overlap between the themes
North Slope production has been decreasing since 1988, when the pipeline through-put peaked at 2.1 million barrels a day. Although the industry declared "no decline after '99," production has continued to drop in the 21st century, and is now below 600,000 barrels a day.
Under the previous Economic Limit Factor (ELF) tax structure, many fields were paying no taxes. That changed in 2006, when Governor Frank Murkowski and the producers proposed a shift to a profits-based tax system, rather than the gross value tax under ELF. Murkowski was seeking an agreement to build a natural gas pipeline to the Lower 48, and his contract to do that would have established a profits tax of 20 percent. But the Legislature passed PPT (alternately Petroleum Profits Tax, or Petroleum Production Tax) at 22.5 percent, while leaving Murkowski's contract to gather dust due to its eyebrow-raising features, such as a tax rate lock-in for 30 years and a gas tax lock-in for 45 years.
The passage of PPT, it turned out, involved corruption among senior executives of oilfield services company VECO and certain legislators.
The FBI raided six legislators' offices on August 31, 2006, nine days after Murkowski lost the Republican gubernatorial primary, gathering only 19 percent of the vote, while Sarah Palin won with over 50 percent (former legislator John Binkley accounted for nearly 30 percent). Thus, PPT was considered highly suspect by the end of 2006, when Palin assumed the governorship. And by the following spring, she declared that it was not raising the projected revenue. That, along with the arrest on May 4, 2007, of Representative Vic Kohring and former Representatives Pete Kott and Bruce Weyhrauch, led both Palin and Democratic legislators to call for a review of PPT.
In a special session that began on Alaska Day, October 18, 2007, Palin called legislators back to re-examine PPT. Kott already been convicted and Kohring's trial was under way when the session began. (Former Representative Tom Anderson also had been convicted in a separate scandal not involving oil and gas issues.)