March 10, 2010
Representative Craig Johnson
House Resources Committee
Alaska State Legislature, State Capitol
Juneau, AK 99801
Re: HB308-Oil and Gas Production Tax
Dear Representative Johnson:
The Resource Development Council (RDC) would like to encourage the Legislature’s efforts
to develop an improved tax policy that enhances the State of Alaska’s competitiveness for
exploration and development investments. We support legislation that will encourage new
exploration and development of Alaska’s oil and gas deposits, as well as enhance production
from existing fields. Only through equitable and predictable tax and royalty policies will we
be able to reverse the trend that leaves our pipeline less than one-third full today.
RDC is a statewide, non-profit, membership-funded organization founded in 1975. The RDC
membership is comprised of individuals and companies from Alaska’s oil and gas, mining,
timber, tourism, and fisheries industries, as well as Alaska Native corporations, local
communities, organized labor, and industry support firms. RDC’s purpose is to link these
diverse interests together to encourage a strong, diversified private sector in Alaska and expand
the state’s economic base through the responsible development of our natural resources.
More and more, Alaska is becoming a less attractive place for the oil and gas industry to invest
its capital. According to investors – the companies that take the risks involved in developing
energy resources, Alaska’s high cost environment coupled with its high tax regime discourage
new investment. While some in state government and the Legislature may disagree, Alaskans
need to listen to what the investors are telling us, since they are the ones making the decisions
on where to invest their corporate capital.
While Alaska still holds much promise for significant oil and gas discoveries, there is a world
of opportunity elsewhere for companies engaged in energy development. Investors will
develop the prospects in their global portfolios that offer the best returns, whether here in
Alaska, the Lower 48, or abroad.
It is not enough that Alaska is rich in oil and gas because industry faces substantial risks and
high costs in the arctic. The economics of developing energy deposits in the far north are
highly challenged, but the state can mitigate many of these challenges by creating a warmer
business climate, one that has attractive and highly competitive fiscal terms that compel
industry to invest here.
Given oil is the lifeblood of Alaska’s economy and the pipeline is running at one-third its peak flow, it is imperative
the state have the right tax and royalty policies in place to attract industry investment and sustain the economy.
Approximately $40 billion in new investment will be required in the next ten years to develop new fields and prevent
the current six percent annual decline in North Slope production from accelerating. Moreover, 38 percent of projected
production in 2015 is expected to come from fields that are not yet in production.
Yet Alaska appears to be heading in the wrong direction. Capital spending by major oil producers has ebbed and a
disproportionate share of spending has been directed to maintenance projects, which do virtually nothing to generate
new production but remain important in maintaining the base production. 2010 will bring the number of exploratory
and development wells to their lowest levels in a decade on the North Slope, where production is down 80,000 barrels
since 2007.
RDC finds these trends alarming and the lack of investment where it matters most indicates the production decline is
likely to accelerate well beyond state projections. The worrisome trends also indicate more than just tweaks are needed
to restore Alaska’s competitiveness and draw investment dollars back to our state.
RDC is closely tracking oil and gas production tax legislation and requests the opportunity to testify and comment on
this issue as the session evolves. We appreciate your efforts to improve Alaska’s competitive position in attracting new
investment and we thank you for considering our concerns.
Sincerely,
Resource Development Council for Alaska, Inc.
