Voices of Alaska: Oil industry crucial to Alaska economy

  • By James Udelhoven
  • Tuesday, June 10, 2014 2:23pm
  • Opinion

Only three legs support the Alaska economy: oil, the federal government and everything else.

That’s why oil tax reform is an Alaska problem, not an oil company problem. Oil companies can invest anywhere in the world, and they do. They take their investment wherever they can achieve the highest rate of return. If that is not Alaska, then it may be North Dakota, California, Indonesia or anywhere else in the world. To them it’s a simple choice: what is the lowest risk and highest return.

It’s not so simple for us.

Without oil, Alaska would look very different. According to the University of Alaska Institute of Social and Economic Research (ISER), an Alaska sans petroleum would be about half the size it is today — and totally dominated by the federal government.

That’s not a place I want to raise my family.

An oilless Alaska economy would be thin, seasonal and transient, not robust and well rounded. Much of the infrastructure we take for granted would never have been built — and personal income would be 10-20 percent below the U.S. average. In short, we would be small, spare and poor.

But we’re not — thanks to oil.

The State of Alaska has collected $157 billion (in today’s dollars) from oil since 1959, money that funds 90 percent of the state’s general fund.

Oil means we can spend more per resident — roughly double the U.S. average — yet keep the tax burden light on most businesses.

Fully two-thirds of the job growth since statehood is due to petroleum and today half of the jobs in Alaska can be traced to petroleum.

We have money in the bank, thanks to our oil revenues: $50 billion in the Permanent Fund, $12.4 billion in the constitutional budget reserve fund and $4.8 billion in the statutory budget reserve.

On a more personal level, oil revenues contribute about $25,000/year to a family of four through permanent fund dividends, a lower tax burden — $2,500 per capita — and extra spending, according to ISER.

It is virtually impossible to replace our oil dollars. To equal what we raise in oil revenues would require an $8,000/ounce tax on gold, a $4,000/person tax on visitors or a $40/salmon tax on seafood, according to ISER.

Or we can keep Alaska an attractive place to produce more oil and collect another $85 billion on the oil and gas wealth that we know remains in the ground. That includes a liquefied natural gas (LNG) project that requires a vital oil industry to be built.

The reason is that much of the known, proven gas on the North Slope is in the Prudhoe Bay field, which is an oil field. The oil and gas are produced from the same wells and the support infrastructure built for oil has to be maintained — at an ever-increasing cost — to support gas production. But the profit margins for gas are slim compared to oil so supporting the infrastructure just for gas would be difficult without the oil.

Last year the state took a giant step towards securing a long-term future for our state by passing oil tax reform. The new law only went into effect last January but already we see a renewed sense of optimism on the North Slope, fueled by large investment commitments by the industry. As ISER has calculated, an infusion of $4 billion in additional capital will result in 50,000 barrels of new oil per day, which means more state revenues and 60,000 oil patch jobs over 20 years.

This is great news for everyone — especially the state, our economy and our families. Alaskans are the true beneficiaries of more oil, which is why it is so important for Alaska to vote No on 1 on Aug. 19. A vote no will keep oil tax reform in place, which will help ensure a healthy Alaska for decades to come. A vote yes is a vote for bankruptcy.

James Udelhoven has been doing business in Alaska for over 40 years and is the founder of Udelhoven Oilfield System Services.

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