Oil Clout Ebbs in Alaska as Billions in Tax Credits Are Cut

Oil Clout Ebbs in Alaska as Billions in Tax Credits Are Cut
Four decades after unlocking America's biggest oilfield, Alaska and its drillers are drifting apart.

Exxon, Conoco and BP said they aren’t eligible for credits at current oil prices. Nonetheless, they’ve joined the chorus arguing against new taxes.

“Raising taxes on oil and gas companies in Alaska is not the way to advance the state’s economy," Aaron Stryk, an Exxon spokesman, said via e-mail. “Higher taxes undermine the efforts of companies continuing to invest in the state and those committed to future investments."

The tax breaks have encouraged exploration, agreed Hoffbeck, the revenue commissioner. But they’re untenable given Alaska’s fiscal crisis, he said by telephone.

Deficits Ahead

“The subsidies were available during a time when the state had high revenues and we were able to use them as an investment in the future," Hoffbeck said. “Now we’re in a position where we’ve lost 82% of revenues due to low oil prices and we simply cannot afford to pay subsidies."

With little rebound in sight for crude prices, Alaska faces more deficits ahead, Moody’s Investors Service said in a Sept. 14 report. The state has slashed spending by a third since 2013 and is burning through a $10 billion rainy-day fund. Nonetheless, Moody’s cut Alaska’s credit rating one notch in July, to Aa2, citing the state’s “inability to meaningfully address these severe shortfalls."

Walker, a Republican-turned-independent, has proposed a state income tax, as well as cuts to the yearly dividend checks state residents receive from investments tied to oil revenue. Both ideas face opposition in the legislature.

Hoffbeck said Alaska can’t simply wait for oil prices to recover. The state expects global crude prices to hover between $40 and $60 a barrel for years, well below the $103 needed to balance the budget, he said. Diminished output from the North Slope only makes the math harder.

“There’s no easy decision," Hoffbeck said. “If there was one, we would have landed on it already."


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