RDC Testimony:
SB192 (CS SB 192\B) -Oil Taxes

Before Senate Resources
Testimony provided by Dave Cruz, RDC Board Member, Cruz Companies

February 28, 2012

Thirty-six years ago, I graduated from high school and got an opportunity to work on the pipeline. I drove trucks for Fluor and then worked as an equipment operator for Kodiak Oil Field Haulers.

In my R and R’s from the North Slope, I helped an older gentleman who was in construction, an independent contractor, and thought, “Hey, I can do this, too.” If you’re running your own business, you determine your own destiny.

Thirty-one years ago, I launched what is now Cruz Companies, and added a partner in 1983 — my wife, Dana. We currently provide well-paying jobs for 93 people in Alaska and 110 people in North Dakota.

My company builds ice roads and provides drilling support services, tundra transport and mobile camps in Alaska, as well as private and public heavy civil construction — roads and airports and tug and barge services.

Cruz Companies and all the jobs it has generated wouldn’t have happened if Alaska didn’t have a healthy oil industry.

The oil industry in Alaska isn’t healthy now. People in Alaska are losing their jobs because of this. Talented people are moving to other states that offer better opportunities.

Every Alaskan is a stockholder in the oil industry.

Some people believe the oil companies are holding out on us and should suffer. I don’t believe that. I think the oil industry provides the foundation for the state’s economy, for companies like mine, generating countless direct and indirect jobs. Oil pays for 90 percent of state government. There is not another source of income in our state that is close to being as significant as oil.

Steve Forbes, chair and editor-in-chief of Forbes Media, spoke last month at a meeting of the Anchorage Economic Development Corp. Forbes criticized Alaska’s oil-tax structure, saying it was one of the world’s worst — second only to North Korea.

We’ve lost 18 percent in oil production over the last three years. In that period, I’ve flown down here to Juneau to talk to a lot of you folks about needing to do something about these oil taxes to get our industry healthy again. House Bill 110 would remedy tax provisions strangling the oil industry here in Alaska. The governor supports that bill and the industry bought into that bill — but nothing has happened in the Senate on this bill since it passed the House in April 2011. The governor, House of Representatives and the oil companies all agree this bill would breathe new life into Alaska’s oil industry.

In exchange for lowering taxes, the industry has offered a $5 billion investment to increase our production. You guys did not move on it. You wanted to study it more. Legislators went to Norway to look at their model when really we needed to go look at the Lower 48’s model, which, even during a recession, seems to be working really well.

Here are rig counts from some Lower 48 states that are more competitive because they do not have high oil taxes.

• California, 43 rigs working
• Colorado, 69 rigs working
• New Mexico, 81 rigs working
• Pennsylvania, 105 rigs working
• Louisiana, 139 rigs working
• North Dakota, 187 rigs working
• Oklahoma, 198 rigs working
• Texas, 920 rigs working

And here is Alaska’s rig count, as of Friday: 9

Alberta, Canada provides a glimpse of what •could• happen to production here, if you make meaningful changes to our oil tax structure. The industry there was idled in 2009. Drilling support equipment was selling for 50 cents on the dollar. Thousands of people, out of work. The Alberta government adjusted the tax structure to create incentives to bring the industry back. The industry is rebounding — they’re going to drill 11,700 wells this year. Seven hundred rigs are operating there now.

There is no comparison between the cost of production in Alaska and the cost in other states. It is very expensive to do business in Alaska. To negotiate a drilling project in Alaska will cost you a couple million dollars and almost a year’s time. In North Dakota, you can negotiate a drilling project in a month and actually receive your permit in one week from the state.

Our competition has a road structure, a rail structure and can use private land for their ventures. They don’t wait on a pipeline to move oil. They truck it to a gathering center and rail it to the East Coast every day. They’re not trapped in endless mazes of government bureaucracy and buried in paperwork from federal regulators.

Our company in the last five years has provided support on numerous exploration wells — from Glennallen, NPR-A, Kuparuk and the White Hills — and not one well we have worked on has come into production.

In North Dakota, there’s a 90 percent chance that a well we work on will be in production within 60 days of when we drill it. In Alaska, that takes years.

In 1974, the largest nongovernment employer was the Southeast Alaska timber industry. Multiple sawmills, two thriving pulp mills, thousands of well-paying jobs…legislated out of business. Market did not shut them down. Legislation shut them down. Regardless of whether it was state or federal, it was politicians who did it.

History tends to repeat itself. Is this the history you’re going to create with the oil industry here in Alaska? Until we stop the decline of the oil industry and gain one barrel more than we had yesterday, we might see history repeated in Alaska. Gov. Wally Hickel taught us we can control our destiny here in Alaska. You can change this.

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