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Thread: tax breaks to encourage oil exploration

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    Default tax breaks to encourage oil exploration

    Gov. Parnel has been pushing for tax breaks for oil companies to encourage more exploration in Alaska due to the shale oil boom in the lower 48, but is this boom already a bust? Currently it cost $80 to $90 a barrel to extract shale oil from the ground, as demand falls due to declining economic activity the price of oil falls below the level that makes it worthwhile to extract it from expensive shale oil drilling and fracking. Shale oil and shale gas share some problematic properties. The cost of drilling each well is a big number, 6 to 8 million. The wells deplete very rapidly, over 40% after one year in the bakken formation of North Dakota. The oil is not distributed equally over the whole play but exists in " sweet spots ". The sweetest sweet spots were drilled the earliest and the quality of the remaining potential drill sites is already in decline. The current trend shows declining first-year productivity in new wells drilled since 2010 running at 25%. There are over 4300 shale oil wells in the bakken formation of North Dakota producing 610,000 barrels a day. In order to keep production up, the number of wells will have to continue increasing at a faster rate than previously. This is referred to as " The red queen syndrome " which alludes to the character in " Alice in wonderland " who famously declared that she had to run faster and faster just to stay where she is. The catch to all this is that the impairments of capital formation are working insidiously in the background to guarantee that the money will not be there to set up the necassary wells to keep production at current levels. In other words shale oil and shale gas are ponzi schemes. The story in Eagle Ford play in Texas is very similar. So in short do we go with Gov. Parnell's idea in lowering taxes for his oil buddies so they can put more money in their pocket which in turn encourages them to drill in alaska, but at the same time Alaskan's lose more revenue due to the tax breaks. Or do we hold out and wait for the shale oil bust causing the oil companies to once again look to alaska for oil bringing more revenue to benefit alaskan's than what we would get from a tax break for oil companies?

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    Quote Originally Posted by thunder chicken1 View Post
    So in short do we go with Gov. Parnell's idea in lowering taxes for his oil buddies so they can put more money in their pocket which in turn encourages them to drill in alaska, but at the same time Alaskan's lose more revenue due to the tax breaks. Or do we hold out and wait for the shale oil bust causing the oil companies to once again look to alaska for oil bringing more revenue to benefit alaskan's than what we would get from a tax break for oil companies?
    The big oil companies continue to post record profits... The proposal to take more money out of our pocket and gift it to the oil companies in the hope that they'll be nice to us is laughable. The sad thing is that so many people are willing to fall for this ridiculousness. If Alaskans are so dim witted as to be unable to recognize this scam for what it is, then they'll get what they deserve.
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    Supporting Member Amigo Will's Avatar
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    They get the same break I get at the pump,tax tax tax
    Now left only to be a turd in the forrest and the circle will be complete.Use me as I have used you

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    I think it's important to step back and look at this issue in terms of simple economics. It is an issue of return on investment. When you invest your money, you look for the best possible return on your investment, the oil companies are no different.

    The oil companies are global entities, they have no tie to investing in Alaska. If they get a higher return on investment in N. Dakota, or N. Africa, or the Middle East, that's where they invest their money. Alaska has to be competitive in a world market, and the combination of our high taxes and high cost to produce oil has made us non competitive.

    If the state lowers taxes it will result in more investment in the oil fields, more jobs, and more oil flowing through the pipeline. It's extremely short sighted to look only at the tax rate and ignore to continual decline in production. 100% tax on 0 barrels of oil is $0. We can cut the tax rate yet increase the state revinue if more oil is flowing through TAPS.

    The oil industry isn't as simple as cracking a valve and oil flows. It takes 5-10 years and millions and billions of dollars to develop a field.

    Alaska will be in a world of hurt if the short term greed of ACES shuts down TAPS.
    Those that are successful in Alaska are those who are flexible, and allow the reality of life in Alaska to shape their dreams, vs. trying to force their dreams on the reality of Alaska.

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    Default profits from....

    The real issue is where the oil companies making their profits? Unless a significant portion of those "record profits" are being generated in Alaska, the issue of whether they are making - or even losing - money doesn't really matter to us. The oil companies - like any other company - will invest where they get the best net profits after all the taxes, production costs, maintenance etc. Even a "dim-witted" person should be able to recognize that reality.

    And even without any taxes, the oil companies are vital to Alaska's economy. Look at the comm fishing, mining, and tourism industries-they pay relatively little in tax contributions yet are considered by many to be an important part of our economy.

    So, if did we lower the taxes on oil, would it be possible to recover the difference on raise the taxes on the comm fishing, mining, and tourism industries? Comm fishing and mining have been enjoying high profits on inceased sales and volumn and the tourism industry will come back. By your logic, when they show record profits shouldn't their be a cry to increase their taxes also?

    Of we could simply cut state spending to off-set a cut in oil-taxes. There are certainly a lot of entitlements that could be eliminated without drastically affecting the lives of the majority of the state's residents.


    Quote Originally Posted by iofthetaiga View Post
    The big oil companies continue to post record profits... The proposal to take more money out of our pocket and gift it to the oil companies in the hope that they'll be nice to us is laughable. The sad thing is that so many people are willing to fall for this ridiculousness. If Alaskans are so dim witted as to be unable to recognize this scam for what it is, then they'll get what they deserve.
    Living the urban lifestyle so I can pay my way and for my family's needs, and support my country. And you?
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    Default BP Suspended .............

    http://www.adn.com/2012/11/28/270631...w-us-govt.html

    No worries, AK 'dimwits' will augment to help cover their losses.

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    Default go away...

    So, would you rather tax them and the other oil companies so heavily that they all just leave Alaska? Or would you prefer that we just go socialist, and nationilze all the oil companies and let the state run the oil fields?

    Our taxes on oil are kinda like prices in a store - if our taxes on oil , or prices in the store are too high, the oil companies or customers will simply go elsewhere. Right now the oil companies are primarily looking for oil on federal lands, the state doesn't have the only store in town. Let's just hope we don't go broke before we realize our taxes are out of line.

    Quote Originally Posted by 68 Bronco View Post
    http://www.adn.com/2012/11/28/270631...w-us-govt.html

    No worries, AK 'dimwits' will augment to help cover their losses.
    Living the urban lifestyle so I can pay my way and for my family's needs, and support my country. And you?
    ".. ask not what your country can do for you, ask what you can do for your country" JFK

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    That oil belongs to the people of Alaska and/or the people of the United States. The oil companies don't own it. If they don't like the price, keep it in the ground. Oil won't evaporate. Sometime in the future, if we need it, and someone is willing to pay for it, they can drill.

    Remember YOU own that oil. It's yours if you live in the Great Land. Treat it like it's important to you.

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    Quote Originally Posted by tvfinak View Post
    So, would you rather tax them and the other oil companies so heavily that they all just leave Alaska?
    Ah yes, the tired old "if you don't give us this very valuable resource for free, we'll pack up and leave" threat. To that I say "don't let the door hit you on the way out."
    ...he who knows nothing is nearer to truth than he whose mind is filled with falsehoods & errors. ~Thomas Jefferson
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    Default and the fish and minerals...

    Yep - that is exactly what will happen. An in the meantime we do what? And remember that the price of oil or any other commodity can go down as well as up. Right now it is at a mid-price, we could have gotten a better deal when the prices were higher. Look at natural gas in the lower 48 - some new technology and suddently you have a glut. Things can and do change - the oil of today may become the coal of yesterday - oil isn't the only source of energy

    And, like the oil, we also own minerals and the fish. Yet, not one seems to care that those industries take our resources and go south with them leaving little but a mess and a few dollars in their wake. We should get a chuck of money from the fish caught in US waters offshore Alaska like the governemnt will pay for oil removed in the waters off Alaska. If the comm guys don't want to pay the price to fish, leave the fish the ocean to grow big again and replenish the stocks. We may even get King Crab, King Salmon, and halibut back again healthy numbers - won't that be great!

    I treat ALL of OUR resources like they are important to me - they truly are. But unlike others, I look at ALL the resources - not just oil. It is time we also take a hard look at the other industries that also remove our resources including the mining, fishing, and timber industries.


    Quote Originally Posted by Cohoangler View Post
    That oil belongs to the people of Alaska and/or the people of the United States. The oil companies don't own it. If they don't like the price, keep it in the ground. Oil won't evaporate. Sometime in the future, if we need it, and someone is willing to pay for it, they can drill.

    Remember YOU own that oil. It's yours if you live in the Great Land. Treat it like it's important to you.
    Living the urban lifestyle so I can pay my way and for my family's needs, and support my country. And you?
    ".. ask not what your country can do for you, ask what you can do for your country" JFK

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    Quote Originally Posted by Paul H
    If the state lowers taxes it will result in more investment in the oil fields, more jobs, and more oil flowing through the pipeline.
    Paul, if this were true, then why won't any of the oil companies commit to it, even at ridiculously low levels? That is thee major stumbling block in all this, those who are so-far opposed to what Parnell has proposed and the state house passed, have said, "back it up then with some sort of commitment to more investment, more Alaskan jobs, more oil in the pipe." But not one of the oil companies is willing to commit to anything at all for this "tax break." Doesn't that in and of itself refute your position and argument?

    The one thing I would agree with Parnell et al on is that the progressivity aspect of ACES needs to be changed, tamped down a bit. The rest of it though, I do see as one giant giveaway to big oil with them not committing one single dime to us for anything by way of new hires, more oil, more investment etc.

    I am offended by that, frankly. I mean, nearly half of all new north slope hires are non-residents. The oil companies say they just can't find enough trained Alaskans to fill those slots. Well sheesh, if they want 2 billion in reduced taxes, maybe they could commit to financing some voc-ed centers up here so that more Alaskans are qualified as welders, pipefitters, drillers etc, and to commit to hiring more Alaskans. Is that too much to ask? And that's just one tiny thing in all this, they won't commit to anything at all, nada, zilch, give us the tax break dammit, or else.

    Parts of ACEs should be looked at for change, but if the new legislature actually passes what Parnell and the oil companies are pretty much demanding, without any commitments from the oil companies at all, we'll yet again have reverted to being owned by big oil. And I will continue to be surprised we vote in the people we do to make these decisions for us.

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    Default investments etc.

    The oil companies are actually investing quite a bit in keeping the fileds running and last year was the best season EVER for drilling on the North Slope. I'm not sure what the plans are for this year yet but I suspect it won't be much off last year - oil companies ARE investing on the North Slope.

    There are a number of reasons why a lot a lot of the new hires are from out-of-state but the talent base in Alaska is very limited by its small population. However, even in places like TX and OK there is a scramble for oil field talent and skills. The there is competion from ND and the tar sands in Canada also. Part of the problem is also wages - the oil companies - like the comm fishing guys don't want to pay what it takes to hire Alaskans so they go for cheaper labor from the outside. Some of the problem- again like the fish guys - is that the work is seasonal.

    The oil companies also screwed up big time when they went to the 2 wk on - 2 wk off schedules. That enables a lot of workers to move out of state taking their families and future workers with them. They also lost political clout and PR that is hard to measure.

    Then there is desirability of living in Alaska esp. for the families. Costs are high for everything, espcially housing, it is expensive to get in and out of the state to visit outside or take a vacation, the winters are long and dark etc. Even hunting and fishing is very expensive, esp. for those in the Anchorage area. The wages here for skilled workers used to a 25% premium over Houston TX, BP is now paying 15% up to a max. of $15k.


    Quote Originally Posted by bushrat View Post
    Paul, if this were true, then why won't any of the oil companies commit to it, even at ridiculously low levels? That is thee major stumbling block in all this, those who are so-far opposed to what Parnell has proposed and the state house passed, have said, "back it up then with some sort of commitment to more investment, more Alaskan jobs, more oil in the pipe." But not one of the oil companies is willing to commit to anything at all for this "tax break." Doesn't that in and of itself refute your position and argument?

    The one thing I would agree with Parnell et al on is that the progressivity aspect of ACES needs to be changed, tamped down a bit. The rest of it though, I do see as one giant giveaway to big oil with them not committing one single dime to us for anything by way of new hires, more oil, more investment etc.

    I am offended by that, frankly. I mean, nearly half of all new north slope hires are non-residents. The oil companies say they just can't find enough trained Alaskans to fill those slots. Well sheesh, if they want 2 billion in reduced taxes, maybe they could commit to financing some voc-ed centers up here so that more Alaskans are qualified as welders, pipefitters, drillers etc, and to commit to hiring more Alaskans. Is that too much to ask? And that's just one tiny thing in all this, they won't commit to anything at all, nada, zilch, give us the tax break dammit, or else.

    Parts of ACEs should be looked at for change, but if the new legislature actually passes what Parnell and the oil companies are pretty much demanding, without any commitments from the oil companies at all, we'll yet again have reverted to being owned by big oil. And I will continue to be surprised we vote in the people we do to make these decisions for us.
    Living the urban lifestyle so I can pay my way and for my family's needs, and support my country. And you?
    ".. ask not what your country can do for you, ask what you can do for your country" JFK

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    Bushrat, I think your VoTech sponsorship idea has merit. I do not know if they aren't already supporting training like this now though. As for further commitments, they would be foolish to in my opinion. What are they supposed to commit to? Lets say they commit to raising the amount of oil thru the pipeline to 1 million barrels a day. That would take exploration , new wells - is the state COMMITTING to allow them to do that? We wouldn't even be able to commit to capping their legal fees to open a new field!
    The progressivity in ACES is crazy, based on the market price that they can't control. It was just a money grab. If their taxes are anything but linear, we should tax them more per barrel for producing less barrels!
    Mike
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    Sorry, re-ereading that I meant to say a set percentage rather than linear in the last sentence.
    Mike
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    Another article on the BP Suspension w/ a bit more detail. BP resume hurts; Alaska cases in the discussion. Related articles linked.
    I was never pleased with having experienced B. Allen, and am just as unpleased to see BP around. Pity the pure of heart in the ranks.

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    Quote Originally Posted by Paul H View Post
    I think it's important to step back and look at this issue in terms of simple economics. It is an issue of return on investment. When you invest your money, you look for the best possible return on your investment, the oil companies are no different.

    The oil companies are global entities, they have no tie to investing in Alaska. If they get a higher return on investment in N. Dakota, or N. Africa, or the Middle East, that's where they invest their money. Alaska has to be competitive in a world market, and the combination of our high taxes and high cost to produce oil has made us non competitive.

    If the state lowers taxes it will result in more investment in the oil fields, more jobs, and more oil flowing through the pipeline. It's extremely short sighted to look only at the tax rate and ignore to continual decline in production. 100% tax on 0 barrels of oil is $0. We can cut the tax rate yet increase the state revinue if more oil is flowing through TAPS.

    The oil industry isn't as simple as cracking a valve and oil flows. It takes 5-10 years and millions and billions of dollars to develop a field.

    Alaska will be in a world of hurt if the short term greed of ACES shuts down TAPS.


    Finally, a word of sense interjected into the politics of short-sightedness, xenophobia, and envy.

    Alaskans want to pitch hard-balls in the stadium of global economic realities? Hope y'all got a good, soft catchers's mitt for what gets pitched back.

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    Default big bucks..

    Big bucks attracts big players and brings out the worse in everyone. Crooks come out of the closet in droves to take what they can. Happens in the oil, mining, comm fishing, tourism, timber, and every other industry - oil isn't unique by any means.

    There are some players in the oil industry that have better reputations than others. BP's reputation speaks for itself; Conoco and Phillips were known as cut-rate players down south although they seem to do better up here. Don't know much about ENI or Pioneer - I guess we'll see. Shell has always maintained a class act; I was pleased when I worked for them overseas and did work for them in this country - I expect them to be a good neighbor here.

    Quote Originally Posted by 68 Bronco View Post
    Another article on the BP Suspension w/ a bit more detail. BP resume hurts; Alaska cases in the discussion. Related articles linked.
    I was never pleased with having experienced B. Allen, and am just as unpleased to see BP around. Pity the pure of heart in the ranks.

    http://www.alaskadispatch.com/articl...iness-benefits
    Living the urban lifestyle so I can pay my way and for my family's needs, and support my country. And you?
    ".. ask not what your country can do for you, ask what you can do for your country" JFK

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    Unhappy On and on and on and on and on and on and on and on and on and on and on . . .

    Quote Originally Posted by tvfinak View Post
    Big bucks attracts big players and brings out the worse in everyone. Crooks come out of the closet in droves to take what they can. Happens in the . . comm fishing. . industry . .

    Attachment 65892

    And away we go . . . . again . . wow! . . . how this person knows this boggles the mind . .

    No documentation, no proof, just bigoted, slanderous, prejudiced opinion?—why moderators allow it escapes me . .

    These fora don't allow one to say **** or ****, but don't mind unsubstantiated slander or false witness?

    Straining at a gnat while swallowing a camel? You want to slander people? Who was is said all truth must be confirmed by two or three witnesses?

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    Some say Leave it in the ground, keep taxes as is, watch production fade and see the closing of TAPS. All the heavy players leave. All the gas on the Slope is still in the ground. Cook Inlet can't supply gas to southcentral for winter demand.

    Is the Chuck You Farley gambit the best alternative?

    Last I heard a compromise left both sides sullen but not rebellious.

    Would Alaska be best served by leaving enough money for the producers to keep production barely flowing, by keeping production way up, or just closing down oil and gas? I suspect the best interests of the State are in maintaining production at some level.

    What is the right tax rate? Beats me, but if production is falling and not much is happening in the known areas connected or connectable to TAPS, one might consider a discussion on cost or production, including tax. I trust that the commenters realize that the first, if I recall. 18.5% of the sale price is the Royalty payable to the State, without regard to cost of production or other taxes.

    You might inquire what the costs are to produce and market a barrel of oil. Pretty easy to audit. Next might be an inquiry into the threshold minimum return rate. Long term stock market is around 10%, so assume it is in the 10% to 20% range to factor in the exploratory disasters and disappointments. So you tax the Net proceeds to leave a comfortable margin.

    So for the Chuck You Farley proponents, they would prefer to leave the 18.5% Royalty in the ground in a dispute over marginal rates on the net margin.

    In simple terms the State gets something in the $15 to $18 per barrel for owning the oil, (depends on the price) plus some added $$ for a tax.

    If the cost of winter heating fuel is really high, is a supply of gas or other fuel readily available to residents a benefit?

    The political system can tax you be direct means, or by driving up the cost of basic necessities, like heat and electricity.

    I take no position on any proposal extant, but argue that there are some pretty simple and basic financial considerations.
    Terry

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    Default biggoted...


    The exact quote was: "Big bucks attracts big players and brings out the worse in everyone. Crooks come out of the closet in droves to take what they can. Happens in the oil, mining, comm fishing, tourism, timber, and every other industry - oil isn't unique by any means." Again, you deliberately misquote and distort the meaning of what I stated.

    The point was that big money brings in corruption and the worse in EVERY industry - history shows that there are no exceptions. Anyone that keeps up with the news see examples of the worse behavior in all industries. As for comm fishing for example. we've have several examples of fishermen fishing in restricted areas and falsely where they caught their fish. One out of Kodiak recently got fined for doing that and we covered Trident getting, like BP, a big fine for polluting. BP is a good example of an oil company that" lacked integrity." Rum Runners in Anchorage was on the news today for their unsavory behavior. Hunting guides are constantly getting busted for breaking the law. Don't have an recent items on the lumber industry as its pretty dead right now, but I do remember reading all the trouble they go to mark their logs so they don't get rustled. Obviously the majority of people in all industries are basically honest and ethical - but the money always brings out the worse.

    Yea - I know I'm from the South and you've already stated your bias and prejudice towards us - "bigoted, ignorant, and narrow minded" etc. I guess twisting around what I say what I say is only fair game for you.


    Quote Originally Posted by Marcus View Post
    And away we go . . . . again . . wow! . . . how this person knows this boggles the mind . .

    No documentation, no proof, just bigoted, slanderous, prejudiced opinion?—why moderators allow it escapes me . .

    These fora don't allow one to say **** or ****, but don't mind unsubstantiated slander or false witness?

    Straining at a gnat while swallowing a camel? You want to slander people? Who was is said all truth must be confirmed by two or three witnesses?
    Living the urban lifestyle so I can pay my way and for my family's needs, and support my country. And you?
    ".. ask not what your country can do for you, ask what you can do for your country" JFK

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