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Alaska Lures Back Big Oil With Big Tax Breaks

The state squeezes the last dollars from a lucrative, dwindling industry
Central production area of Prudhoe Bay, the industrial petroleum extraction center on Alaska’s Arctic Ocean coastline
Central production area of Prudhoe Bay, the industrial petroleum extraction center on Alaska’s Arctic Ocean coastlinePhotograph by Gary Braasch/Corbis

Alaska’s oil boom times, which have propped up the state for decades, are coming to an end. In the late 1980s the state produced as much as a quarter of all U.S. crude, about 2 million barrels a day. Over the last 15 years, its daily oil production has been cut in half, to just more than 500,000 barrels. And the fracking boom has unlocked shale oil beneath Texas and North Dakota that is more profitable to extract. Rising oil prices have so far made up for Alaska’s declining production, but for a state whose budget relies on oil profits for 90 percent of its revenue, the picture is starting to look troublesome.

Last year, Alaska’s Republican-led legislature voted to cut taxes on oil and gas companies, reversing higher tax rates Sarah Palin put in place as governor in 2007. The lawmakers are betting that lower taxes, which budget hawks claim will wind up costing about $2 billion in fiscal 2014, will coax companies to invest in the state and ultimately start producing more oil. An August ballot measure to repeal the tax cuts, which were decried by opponents as a wasteful giveaway to Big Oil, failed by about 5,000 votes. Republican Governor Sean Parnell urged the oil companies to “move those billions of dollars” in tax savings “into work for Alaskans.”
 
They appear to be doing just that. BP is upping its capital budget in Alaska by 25 percent in 2014, to $1.2 billion. ConocoPhillips, the state’s largest producer, is spending $1.7 billion, 50 percent more than in 2013. The company has already raised production in Alaska by 6,000 barrels per day this year and plans to add as many as 40,000 barrels a day by 2018. “The oil companies clearly signaled they’d spend more if their taxes were lowered, and so far that’s what they’re doing,” says David McCaleb, an analyst at energy research firm IHS. McCaleb expects Alaska’s lower taxes will boost total investment from the industry by 10 percent to 15 percent over the next several years.