Repeal of oil tax reform will produce consequences

Will a repeal of SB 21 and the reinstatement of ACES endanger the renaissance in new oil now underway on the North Slope? It probably will, according to Alaska business reporter Tim Bradner.

Repealing oil tax reform will likely produce consequences that lead to severe budget implications for the state, undermine the economic feasibility of the proposed gas pipeline, and likely end efforts to explore for oil in Interior Alaska, Bradner said.

In the Alaska Journal of Commerce, Bradner said that SB 21’s repeal would endanger the oil business on the North Slope that economically supports gas. “That will undermine the economic structure of the gas pipeline,” Bradner said. “That project faces enough other hurdles like competitors and high costs, and this additional one could be a body blow to the project.”

The consequences for the state budget are also severe, Bradner warned. He explained North Slope producers have essentially stopped the production decline for the first time in 12 years after an annual decline rate of six percent under ACES. “If the historical six percent decline rate were to resume, the state’s billion-dollar-plus annual deficits would continue unless there were immediate and severe budget cuts.” Under that scenario, the state will drain its existing cash reserves except for the Permanent Fund by 2020, Bradner pointed out. Citing economist Scott Goldsmith, Bradner noted that if production is increased by just two percent under the current tax structure, a healthy cash reserve of $7 billion would remain in 2023.

An immediate consequence of a repeal is that special exploration tax credits for exploring for oil in Interior and rural Alaska would go away. The repeal would likely end those efforts.

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