Aug. 19 (Bloomberg) -- Alaskans are headed to the polls to decide whether to seek a bigger chunk of oil company profits, a proposal producers say threatens to curtail investment needed to revive output from the state’s once mighty North Slope.
“Oil belongs to us -- we the people,” former Governor Sarah Palin, a supporter of today’s referendum, said in a video posted on her web channel this month. “We have every right and a responsibility to value it appropriately, to demand a clear and equitable share of our oil’s value.”
The referendum would allow voters to repeal Governor Sean Parnell’s 35 percent flat rate, part of his effort to encourage investment and arrest a decline in Alaska’s oil production. If it succeeds, the repeal would reinstate Palin’s 2007 sliding tax rate scale, which starts at 25 percent and can rise to as high as 75 percent when oil prices climb.
BP Plc and ConocoPhillips are among the oil producers working to defeat the repeal. Crude output from Alaska’s North Slope has fallen 75 percent from a peak of about 1.97 million barrels a day in 1988, according to the U.S. Energy Department. Declines every year since 2002 prompted state efforts to encourage new drilling and stimulation of old wells. The production drop after the flat tax was approved was the lowest since at least 2005, according to the state.
Crude plays a prominent role in Alaska’s economy, with residents receiving annual dividend checks sharing in the oil wealth. The sector accounted for 47 percent of the state’s revenue in the 2013 fiscal year and 92 percent of its unrestricted general fund revenue. Alaska’s North Slope includes Prudhoe Bay, the largest U.S. oil field by proved reserves, according to a 2009 assessment by the Energy Department.
Opponents of Parnell’s flat rate plan, which excludes some new production from the tax, called for the statewide vote saying the program is a giveaway to big oil. A survey of 673 voters by Public Policy Polling found an even split -- with 42 percent supporting repeal and 42 percent opposed. The remainder of those surveyed from July 31 to Aug. 3 were undecided.
Producers and other supporters have said the flat rate, which took effect Jan. 1, is needed to spur spending in the state’s oil fields. Estimates of new investment driven by Parnell’s tax plan ranged from $4 billion by the industry group Alaska Oil & Gas Association to $10 billion by the state revenue department.
“Under the new tax reform law, BP plans to reinvest 90 cents of every dollar we make over the next five years in Alaska,” Dawn Patience, a spokeswoman for the London-based company’s Alaska unit, said in an e-mail.
ConocoPhillips raised first-half spending in Alaska by 48 percent to $805 million, according to a quarterly report filed Aug. 5 with the U.S. Securities and Exchange Commission.
The company added two North Slope rigs and intends to add a third in 2015 partly because of the flat rate, said Natalie Lowman, a spokeswoman. Repeal would make the company “re- evaluate its plans for the North Slope,” Lowman said.
While U.S. oil production has been rising, North Slope output fell 0.1 percent in the fiscal year ending June 30 to average 531,074 barrels a day. That compares with an 8.2 percent decline in the year-earlier period, according to a report by the Alaska Department of Revenue. The department forecasts continuing declines in oil revenue through 2021.
“It’s probably too early to say we’ve arrested the decline,” State Senator Bill Wielechowski, an Anchorage Democrat who campaigned to repeal the 2013 law, said in a phone interview. North Slope production is profitable enough without exclusions for new production, Wielechowski said.