The new PPT net profit oil tax system is good for Alaska.
Also it can be changed or modified at any time if need be.
It has been estimated that it will bring in an extra $1 billion in revenue to the State of Alaska when compared to the old ELF (Economic Limit Factor) oil tax system.
 
   The Alaska State Legislature finally passed the new oil tax on August 10, 2006 during the second special session.
I think the legislature took too long to finally come up with the tax plan to increase the revenue to the state. I think they should have passed it during the regular session.
   Sometimes endless study and excessive caution can lead to what seems to be paralysis.
There were some vocal citizens and groups that opposed a PPT oil tax based on profits. They preferred a "gross" system based on the total number of barrels of oil pumped.
   The old ELF system is similar to this. The ELF system however, attempted to recognize that oil from some fields is more difficult and expensive to get out of the ground than from other fields. So the State of Alaska tried to figure out some fractional numbers (or factors) by which to multiply the regular tax bill, so as to come out with a smaller tax bill for certain more difficult oil fields. Some fields have oil that is heavy, gooey and cold. It takes a lot more money per barrel to try to recover that kind of oil.

   So as an example, if the regular tax bill for a certain field was $10 million, an Economic Limit Factor of .65 would lower it to $6,500,000.
   Unfortunately, over the years the ELF system slowly got out of whack. The Kuparuk oil field recently ended up paying very little ELF taxes even though oil prices had risen substantially.

The Alaska legislature finally got moving and passed the PPT net profits tax and made it retroactive to April 2006.
There was the danger that if the Legislature drug their feet for too long they would possibly not have been able to make the tax retroactive to April.

   I (Randy Griffin) as one little individual Alaskan citizen was concerned about the slowness of the legislature while the State was losing an estimated $3.2 million per day by not having an updated oil tax system. Of course many other citizens were concerned as well. I imagine they sent many letters to their legislators.

   I wrote and sent the following email (in the blue box) to all 60 of our Alaska State legislators on August 4 & 5, 2006:

Dear Representative: Please pass the PPT net profits oil tax now. Whether it's a 20% rate or a little higher doesn't matter to me. What is important is that the new tax should have a test drive period into at least 2007. At the end of the "test drive" the tax should be reviewed to see if any changes need to be made. The test drive needs to start now so that we can start gaining valuable experience.    The net profit tax system makes sense because it is a self calibrating system. It dials in precisely to the actual expense and trouble of trying to get the heavy oil out of the ground. It is a fair system and will encourage exploration and development.    The old Economic Limit Factors were only estimates at exploration and drilling costs, and tended to get out of calibration with time.    Getting a good tax system in place is a necessary step toward getting a gas line contract. We cannot afford to dilly dally while the window of opportunity for a gas line project closes. At some point, low cost LNG imports on the Gulf of Mexico and on the East coast will satisfy the needs of the American Midwest market. Alaska needs to move quickly and get some of those long term contracts. The Alaska North Slope's proven 35 trillion cubic feet of natural gas reserves are less than 1% of the world's 6,044 trillion cubic feet of proven gas reserves.    Yes, we should make sure that everything is right in the gas line contract. It doesn't look like the gas line contract will be voted on until 2007. But even if the gas line contract was voted on in the latter part of 2006, I would not want the new oil tax to be locked in until it has finished its test drive.    I do agree that the participants in the gas line need to have financial certainty, but we need to have a test period for the new net profits tax system.                                                                                                              Sincerely, Randy Griffin                                                                                        PO Box 73653                                                                                        Fairbanks, Alaska, 99707

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This web site is written and paid for by Randy S. Griffin, PO Box 73653, Fairbanks, Alaska 99707