A Citizen’s Guide

TAXING: One of the phrases that concerns me in the current oil tax debate is “at current prices.”

In their attack on legislative attempts to raise taxes beyond what they’ve agreed to with the governor, the oil companies are concentrating entirely on what various proposals would mean “at current prices.”

It’s easy to see why the ads focus on current prices, because the tax increases would be enormous, in keeping with the dramatic profit levels created by current prices.

At the same time, however, oil executives make it clear they do not make investment decisions based on current prices, which have been inflated by international tensions. Instead, the executives say, their investment decisions are based on a far more conservative approach, somewhere in the $35 to $40 a barrel range. The state’s official forecast is even lower.

If it’s reasonable for the oil companies to make their investment decisions based on $40 oil, then it’s unreasonable to focus a public relations effort about investment decisions on what might happen if $70 oil becomes normal.

It’s possible oil will stay at $70, rise to $100 or drop back down to $20, the number that prevailed for most of the 1980s and 1990s.

We don’t know what will happen because future oil prices are beyond the control of anyone in Alaska.

But if prices decline to the levels that are about those on which the industry makes investment decisions, the proposals from the governor, the Senate and the House would be much closer together than they appear “at current prices.”

For instance, at $40 a barrel, legislative consultants predict the governor’s bill would mean an increase of $400 million in oil production taxes over the status quo. At that level, the Senate bill would generate about $40 million more than the governor’s bill, according to the consulting firm EconOne.

The oil companies are not highlighting those mid-range numbers because they are too close together to serve as political ammunition.