Friday, January 29, 2010

Is ACES the problem?

I think something is being overlooked in this discussion. It is easy to blame taxes. And, one has to give a minor kudos to Parnell who alluded to a potential decrease in the State's royalty taxes. However, there is more here than just taxes.

One of the primary issues is the state of the national economy. There has to be a market to sustain the exploration and development. That the market is in decline due to Obama/Pelosi/Reid's disasterous attempt to rewrite the national economy paradigm. Yeah, GWB had his part in the making of this mess.

That situation definitely has an impact on what happens where with any industry, much less oil and gas.An indicator of the impact of the national economy is Shell's pulling back from oil tar sands recovery expansion from a planned 700,000bpd to 225,000bpd, including putting on hold a potential technology pilot project for insitu recovery. Cost of production is up--and it is here also, a 68% increase in operations costs on the NS from 2001. Therefore, it stands to reason that the oil companies are shifting their focus to portions of world that do not have the regulatory baggage--read nimby/greenie lawsuit--where it is cheaper to operate, even if the return is lower. Exxon and others bid on Iraqi concessions for around $1.40pb.

Shell is going forward with its offshore exploration, something the Parnell Administration seems to be hyping as the new oil rush. State gov't does not get as much directly out that development, but will gain from the jobs and infrastructure in the communities where support bases will be established. Unfortunately, the State is used to a "trickle down" economy where the revenue goes to the State directly and is then distributed to the smaller communities. This type of development, as well as mining will start to put the State back in its place and give new economic power to the communities impacted by the resource development--as it should be instead of this socialist state and colonial economy that is Alaska.

Given the reduction in the tar sands expansion on the part of Shell, it appears that AGIA and Denali may have lost a great deal of their appeal to the Canucks. I doubt those big pipe projects will survive.

This means that ACES is important to maintaining a bloated State gov't, which also feeds bloated local gov'ts. Reducing ACES is going to be a fight, given declining production on the NS.Should ACES be reduced?

Ireland reduced their taxes and boomed economically. Alberta and Saskatchewan played tug of war with the oil industry when Alberta increased its production royalties, and the oil companies bailed for Saskatchewan. Alberta figured the situation out quickly, and made up for lost drilling by lowering the royalty tax. Lowering taxes and royalties cannot be understated in terms of demonstrated positive impact.

Yet, when Parnell in his State of the State suggested that the State's royalty tax may be reduced, a good conservative pundit howled like a striped ape. Why, we just cannot do that!

The reality is that taxes are only one part of the problem in attracting the oil industry back to the State.

Taxes alone will not bring attention back to Alaska, a redress of regulatory impediments must also happen. Marathon Oil did not complain to the Anchorage Chamber of Commerce about taxes, they complained about the regulatory burden in aquiring the permits to drill new exploratory wells.

Calling for a reduction of ACES is only one aspect of what is needed to create a favorable environment for the oil/gas industry to reinvest in Alaska. A reduction in the royalty tax should also be looked at and weighed. However, the primary focus should be on the regulatory impediments. That's where the delays and the real money is lost to the oil companies and any resource development business trying to do business in Alaska.

In the mean time, we need to elect a governor who can move the State forward in the face of declining oil revenues and that candidate is Bill Walker. The all-Alaska pipeline will provide revenue, jobs and infrastructure that would allow the State to reconsider its policies regarding oil and gas development from a position of not having to knee jerk to demands that may be well intended, but might not have the end result desired.