SB21 is Starting to Work

alaska-drilling-rigs.pngNew oil resources can not be found if new wells are not being drilled.   Under ACES, drilling activity declined to just 7 rigs in 2011 – while oil prices were peaking at new highs.

With the increase price of oil, companies should have been drilling left and right.   But they were not, and legislators took notice.   Something was wrong.

With the passage of SB21, companies did the math and realized exploration in Alaska made sense once again. Under the new law, 17 rigs are working across Alaska's North Slope, an 89% increase from 2013.

Source: Alaska Journal of Commerce, May 29, 2014 & Hughes & Baker historical data.

The SB 21 Story in Pictures

The pictures say a thousand words.

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Sources: AK Dept. of Revenue, Econ One & PFC Energy.  State Taxes    Global Taxes   State Production   Barrel Graphs   Upside Potential

Myth #1: SB21 is responsible for our budget shortfall

falling-revenue.pngSB 21 wasn't in effect until 2014

SB 21 is not responsible for lost revenues in 2013 

Falling oil production, not any tax scheme, is responsible for Alaska's declining revenue. See Goldsmith Report >

Because ACES penalizes new production, legislators grew concerned that ACES might prevent new petroleum resources from being developed in the future.  SB 21 is crafted to more heavily tax old fields and less heavily tax oil new discoveries if they are brought on line.  

Since SB 21 just went into effect on January 1, 2014, it has not had a chance to prove its worth.

Source: 2012 Alaska Revenue Sources Book, Dept. of Revenue

Myth #2: SB 21 was a give-away to Big Oil

ACES Tax Take

Versus Producer Profit, $100 BBL, FY 2015

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SB 21 Tax Take, Old Oil

Versus Producer Profit, $100 BBL, FY 2015

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SB 21 takes a larger piece of each barrel of current production than ACES did.

Source: Alaska Department of Revenue Fall 2013 forecast assumptions.  Download PDF 
Illustration is for an average non-GRE eligible barrel of North Slope oil in FY 2015 only, at $100 per barrel price.

Myth #3 ~ Repealing SB 21 will be good for Alaska

production-taxes-state-large.jpgJust the opposite is true

In a free country, if you aren't nice to people, they leave.

Returning to ACES sends companies considering new investment in Alaska a clear message: if you discover new oil, we'll take more of the profit than Colorado, Wyoming or North Dakota.

Why would a business choose to invest money in Alaska, when there are ample opportunities for exploration in other states?

Source: Econ One-DOR Presentation, 4-13-2013. Download PDF

Myth #4 ~ ACES was Good Public Policy

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ACES taxes on new oil production were higher than Venezula, Russia and China.

As legislators watched new production go up in other states, and down in Alaska they asked why?

The answer was simple: There's no reason to invest in finding new oil in Alaska if you could explore in Canada or Greenland where taxes are much lower.

It is no surprise then that under ACES new production activity declined. 

Source: PFC Energy Presentation, 3-12-2013  Download PDF