Impact of current oil-tax system forces Alaskans to make tough decisions.

• Author: Yi, Sandra
• Position: GAS & OIL

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Dave Cruz's Alaska roots run deep. His first job was working on the trans-Alaska oil pipeline and he built a successful business servicing the North Slope. Now, Cruz's family may have to uproot for new lands.

"We have to follow the work, so we made the choice to move our oilfield support to North Dakota," Cruz says. "North Dakota has a more favorable tax environment, they are more pro-business and they have a how-can-I-help-you attitude instead of what's-in-it-for-us attitude."

As the president of Cruz Construction, a Palmer-based company that provides exploration support and tundra transportation to the oil, gas and mining industries, Cruz has experienced the impact of ACES oil tax (Alaska's Clear & Equitable Share) directly.

"In 2007 through '08, we were able to employ a couple hundred people all winter," Cruz says. "Now we're able to employ a dozen. We had Anadarko, Chevron, FEX, Brooks Range, ConocoPhillips, Pioneer that were exploring on the North Slope. Today, we have only one exploration well that's going to happen--and that will be done in March of this year."

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Cruz is now one of the thousands of Alaskans supporting Gov. Sean Parnell and his call to restructure ACES, which was enacted in 2007 under then-Gov. Sarah Palin. It raised the oil production tax base rate to 25 percent, applied against the production tax value. It also set a progressivity rate of 0.4 percent, significantly boosting taxes, particularly when oil prices are high. And, under ACES, as oil prices increase, the marginal tax rates can climb to more than 80 percent.

Parnell's House Bill 110 (HB 110) aims to lower oil production's base tax rate from 25 percent to 15 percent for new field and adjust the production tax calculation on an annual basis instead of monthly. Although it doesn't eliminate progressivity, it slows the rate at which it rises, and uses tax brackets. The bill would reduce the overall government profit, but it aims to restore the opportunity for earnings with more investments.

"The state may still provide one-sixth of the domestic oil supply, but the volume from existing wells is dropping steadily. We're at risk of seeing irrevocable production decline, which threatens the pipeline. Our state needs to increase our competitiveness and grow our economy," Parnell said.

MAKE ALASKA COMPETITIVE COALITION FORMS

After Parnell introduced HB 110, a group of Alaska organizations and individuals formed the Make...