RDC Testimony:
SB192 (CS SB 192\B) -Oil Taxes
Before Senate Resources
Testimony provided by Rick Rogers, RDC
February 28, 2012
Good afternoon. My name is Rick Rogers, Executive Director of the Resource Development Council for Alaska (RDC). With me today is one of our directors, Mr. Dave Cruz, who will augment RDC’s testimony after my comments. RDC is a statewide membership-funded non-profit trade association representing the common interest of the Forestry, Fishing, Tourism, Mining and Oil and Gas industries in Alaska. Our membership is truly a broad cross section of Alaska businesses including the aforementioned industries as well as communities, all twelve Regional Corporations, utilities and support business that recognize the important role resource development plays in our economy.
We are grateful that there will finally be an opportunity for public testimony on this issue tonight, and RDC thanks the committee for this invited testimony today. I have not prepared slides for todays presentation; I suspect members of this committee may be having PowerPoint fatigue.
Today I hope to emphasize the sense of urgency and the broad base of support from RDC membership towards meaningful adjustment to the production tax to achieve a better investment climate in Alaska. Some of the most vocal proponents of production tax reform among our membership are not directly involved in the oil and gas industry. The business community is fearful what continued TAPS throughput decline will do to our economy as a whole.
We are convinced that ACES in its current form is retarding investment and contributing to an accelerating production decline. Alaska is sitting on the edge of a fiscal cliff. A sobering outlook can be found in the Governors budget, the ten-year budget projection which shows several plausible scenarios with significant budget deficits by 2014.
The Senate appears to be focused on imposing the highest tax politically possible on the producers. Squeezing the last dollar from the productive private sector with an ever-expanding State budget is not going to lead Alaska to a prosperous future. The long-term discussion needs to be how to encourage more production. Taxing ourselves to prosperity is not a strategy. The CS to SB192 will not provide the improved investment climate to change investment behavior and increase production. At least it’s an improvement over the prior version that raised the production tax.
Pedro van Meurs, in his presentation to this committee a few weeks ago noted that “standing up for Alaska is politically popular”. He also notes “It will be very difficult to introduce such changes in the current somewhat unfavorable climate in Alaska.” This is a historic turning point for Alaska, rhetoric characterizing tax reform as a "give away" that legislators must “stand up to” mischaracterizes the objective; to empower the private sector to increase Alaska's productivity to the ultimate benefit of its citizens. Leadership can explain that to Alaskans. Leadership can explain that a high tide will lift all ships, and that royalties increase only with increased production. Leadership can overcome issues that appear to be very difficult.
I hope that van Meurs’ political concerns are overstated and that we don’t end up compromising our future for short-term populist opportunism. We want to keep our eyes on the ball and promote legislation that will reverse the decline in TAPS.
RDC is interested in meaningful results that move the needle, slowing and then reversing production decline. As currently drafted CS SB 192\B will not move the needle. PPT and then ACES tripled production taxes since 2005 contributing to an accelerating production decline in spite of robust oil prices. DOR analysis suggests this bill makes little difference compared to ACES. Tripling up while “tweaking” down is not going to result in the investment needed to move the needle to increase investments that will lead to more production.
RDC supports HB110 because it will move the needle. The producers have committed $5 billion in new investment if meaningful reform such as HB110 passes. The producers are the ones who are making investment decisions. For example, Conoco Phillips Alaska capital investment is flat in Alaska vs. a 104% increase lower-48 (2010-2011). The producers have committed 5 billion of new investment under HB110. I can't envision a rational corporate strategy that would make those types of commitments and then not follow through.
There are lots of ways to build a mousetrap. RDC does not care who gets the credit, or which vehicle gets us across the goal line. We do care that it is substantive, significant, and meets the objective of encouraging private capital to return to the slope.
RDC is glad to see exploration credits, which are working, have not been reduced or removed in SB192. Exploration is an important element, however exploration credits need to be part of a broader approach leading to increases in near term and long term production. When new oil is found we need an investment climate to encourage its production.
In the interest of time I would like to yield my remaining time to RDC board member Dave Cruz, owner of Cruz construction. Mr. Cruz has deferred a trip to the North Slope today in order to convey RDC's sense of urgency regarding meaningful tax reform. Dave is experiencing first hand the effects of a noncompetitive climate for capital investment on the North Slope.
Dave Cruz, a lifelong Alaskan, has been involved in construction and resource development since 1976. Cruz is president and CEO of Cruz Companies, a 31-year-old company based in Palmer. Cruz is a board member of the Resource Development Council for Alaska, Inc., and a board member of Mat-Su Borough’s port commission. He has served as president of the Associated General Contractors of Alaska. Cruz supports youth sports and numerous charity organizations in Alaska. RDC is proud that he has agreed to serve on our board and take the time to supplement my testimony today.
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