Minimum tax change.

Big Impact.

While one percentage point might not sound significant, it is a 25 percent increase when it is added to a four percent tax. In other words, raising the minimum tax is big enough to cause significant impacts on producers at today’s oil prices.

According to the Revenue Sources Book1, the average cost to produce a barrel of oil on Alaska’s North Slope is almost double the price of the same barrel of oil before any taxes are paid. While the state is facing a massive budget deficit, in part due to low oil prices, the industry is also facing massive shortfalls at these prices.

AOGA price per barrel infographic

As low prices remain lower for longer, competition for investment will only increase. Companies will be looking for the best resource opportunities with the highest likelihood of success in terms of quality of the resource and regulatory environment, and which opportunities have the best fiscal terms. During these tough times, companies can only afford to invest in stable, predictable, and competitive environments.

The current oil tax system is balanced and working as intended. It set a higher minimum floor than previous tax systems to protect the state at lower prices, while setting a stable and predictable rate for when oil prices rise again. As a result, at current prices, Alaska’s oil tax policy has brought hundreds of millions of dollars more in tax revenue to the state than it would have under the previous system.

Significantly raising taxes on companies who may already be losing money is not a wise, nor feasible long-term solution for anyone. Any short-term gains in state revenue will be overshadowed by the impact to investment, jeopardizing employment and new oil for the pipeline.

1http://www.tax.alaska.gov/programs/documentviewer.aspx?1240r