Monday, February 17, 2014

Alaska's Permanent Fund Dividend For Oil Companies - $2 a Barrel or $28?

Oil companies are making a huge fortune in Alaska.  They already were doing great before Governor Sean Parnell, with the help of the Alaska Redistricting Board, which broke the Bi-partisan coalition in the State Senate, got SB 21 passed this last session. It's like they have their own Permanent Fund Dividend from the state - a $2 billion dollar a year check.  And it's not even their oil.  It belongs to the current and future residents of Alaska.  Bet they don't spend much of their dividend in Alaska. 

Bill Weilochowski, Les Gara, and a few others have been trying to tell Alaskans this story for years.  Another person who's been on trying to get the story out a long time is Ray Metcalfe.  In an Alaska Dispatch article Feb. 14 Metcalfe spells it all out.

Metcalfe has two major points:

1.  BP is making only $2 a barrel in Iraq, but about $28 a barrel in Alaska
2.  Alaska media aren't covering this story because they fear losing oil company advertising.  
On April 28, 2009, Bloomberg Business & Financial News reported that BP makes less than $2 net profit for producing a barrel of oil in Iraq. On March 14, 2010, Petroleum News reported what BP's net profit was under ACES without bothering to mention that it calculated to a net profit of $28 per barrel on their total production. ConocoPhillips' annual report also demonstrates a $28 to $30 per barrel net profit from Alaska oil under ACES. But no news reporter or TV news show in Alaska has ever bothered to tell you how little Iraq pays to the same companies for the same service. 
Metcalfe also speculates about why BP doesn't increase production in Alaska:

In 1995, BP persuaded Congress to let it export North Slope crude, but before it got around to doing so, BP jumped on an unforeseen opportunity to buy Atlantic Richfield Co.'s West Coast refineries and retail gas stations. Arco's refineries were built specifically to refine North Slope crude. BP's purchase of Arco West Coast assets appears to have incentivized BP to abandon ideas of exporting and pursue the much more profitable business of refining its North Slope crude into products to retail in what were Arco's gas stations.
Controlling Alaska crude from the wellhead to the gas pump is very likely the most profitable cash cow BP has. When BP's North Slope production exceeded BP's ability to refine and retail on the West Coast, when BP's West Coast storage tanks nearly ran over, BP further demonstrated the high value BP places on its North Slope crude. Rather than sell its excess crude before returning its tankers to Valdez, BP retained possession, sending several tankers back to Alaska with half their load still in their hulls. Producing more North Slope oil than BP's refined products market share can absorb would likely require export and most certainly shorten the life of BP's Alaska cash cow. It is very likely that the size of BP's West Coast refined-product market share has a lot to do with the rate of North Slope production.

And he shows what BP was willing to do just to make $2 a barrel in Iraq:

In 2009, BP, through a competitive bid process, won the right to produce Iraq's largest oil field, the Rumaila field. The field was producing a little more than 900,000 barrels per day when BP took it over. Iraq only pays BP for actual costs for managing the original production. The contract requires BP to raise daily production to make a profit. As production increases, BP is paid for actual costs plus $2 for every barrel produced in excess of the original 900,000 barrels. Now that the cat's out of the bag, the new talking point for the other side is that it is unfair to compare BP's contracts with Iraq to Alaska because BP had no original capital outlay in Iraq. Unfortunately for the other side, history doesn't support their argument. BP discovered and developed Iraq's Rumaila oil field in 1953. Iraq gave BP the boot for taking too much of the profit in 1961. Fifty years later BP went back to Iraq, hat in hand, and offered to resume pumping Iraq's Rumaila field for $4 per barrel, and Iraq said no. Then BP offered to do it for $2 and Iraq said OK, but only on the increased production. BP's contract requires BP to bring the Rumaila field's production to 2.9 million barrels per day within six years. If they make it they will be making $4 million per day by year six. That's $1.460 Billion net profit per year.
And then, again, compares this to BP's Alaska situation.
At $28 per barrel profit under ACES in Alaska, it would only require the production of 143,000 barrels per day to make the same amount of money. This year the three big North Slope producers will produce about 500,000 BPD and under ACES would have taken home a combined net profit of about $5.1 billion. If SB 21 is not repealed, their combined net take-home will be closer to $7.3 billion.

He also puts BP's jobs promises into perspective:
On October 3, 2013, BP told the Fairbanks News-Miner that thanks to SB 21's tax cut BP will now create 200 new Slope jobs. A positive statement unless one calculates how many jobs the state of Alaska could have created with a billion or two. One billion dollars is enough to create 10,000 jobs that pay $100,000 per year; 2 billion could create 20,000 such jobs. Not many readers would think that a fair trade, but no reporter in Alaska has offered to make the connection for you. 
I guess when Metcalfe says 'no reporter in Alaska has offered to make the connections for you"  he wasn't talking about bloggers.  Because I made exactly that connection almost on November 3, 2013 - How Many Jobs Could You Create For $2 Billion?
For instance I did a post (can't find it though) on this theme showing that for $2 billion a year you could hire every unemployed Alaskan and give them each $30,000 a year for their labor.  Not a great salary, but it gives you a sense that there are probably great alternatives to what the oil companies DON'T promise to do. 
[I still can't find the original post - I even looked in the old drafts to see if it never got posted.  In it I showed you could hire all the unemployed in Alaska for $30,000 a year each, which I figured was a better deal that the oil companies would ever do with the money.]

Metcalfe doesn't offer much data on why the Alaskan media don't report on the gap between oil company profits and in Alaska and in Iraq.  He does point out that readers in other cities get reports comparing Alaska and Iraq oil profits.

The Associated Press Media Ethics, Standards of Principles, under Integrity, includes this line:
The newspaper should report the news without regard for its own interests, mindful of the need to disclose potential conflicts. It should not give favored news treatment to advertisers or special-interest groups.
I'm not sure how you'd prove this.  The Anchorage Daily News could argue it's staff cuts, not fears of losing advertising.  They could also point to articles that do report unfavorably on the oil industry.  But I agree with the premise in the article's headline -

There would be no arguments over oil taxes if Alaska's media were doing its job

Metcalfe, a former Republican legislator, does his homework and has been pretty much on the mark in past criticism of politicians and their ties to the oil companies in the past.

Not too many rational folks would allow a former  oil company lobbyist to negotiate on their behalf with the oil companies.  But Alaskans have allowed, former Conoco-Phillips lobbyist and now Governor Sean Parnell to do just that.

Enough Alaskans have signed a petition to repeal the SB 21 oil tax cut to get it onto the August ballot.   Can a group of citizens defeat big oil in the voting booth?  Stay tuned. 

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