Alaskans want bigger piece of oil boom

Dissatisfied with the state's share of revenues, some push to cut tax breaks and force construction of a pipeline.

When Rosemary Ahtuagaruak began blaming an alarming outbreak of asthma cases on oil-field air pollution a few years ago, local elders in her Inupiat Eskimo village cautioned her against antagonizing the oil industry.

They did not want to revert to the pre-oil days of dire poverty when families lacked even basic furniture, she said at a recent conference here. "If you continue to speak the way you do, we'll not eat on tables again," she recalls one elder told her. But Ms. Ahtuagaruak, a onetime health aide later elected mayor of her village, Nuiqsut, continued her critiques.

As oil prices - and oil-company profits - soar and development spreads to previously protected areas, disgruntled Alaskans are becoming bolder in their critiques of the industry. They are spread from the Arctic coast, where Inupiat residents have used oil revenues to move into relative middle-class comfort, to the capitol in Juneau, where oil earnings account for at least 4 of 5 dollars going into the state's general revenue fund, and everywhere in-between. Their charge: the industry exploits the state.

"Alaska, in fairness, ought to get every penny over $30 a barrel," one man complained during a recent Alaska Public Radio Network call-in show. "Why can't we be more like the sheiks or the princes of Saudi Arabia?"

Such sentiments have helped spur a pair of citizen initiatives, possibly headed for the 2006 ballot, which take aim at oil companies' pocketbooks.

One measure would repeal a tax formula, known as the Economic Limit Factor (ELF), that gives tax breaks to smaller North Slope oil fields because they are presumed to be economically marginal.

Flat tax

The "Shelf The ELF" initiative would set production tax rates for all fields at a straight 15 percent, eliminating a formula critics say is outdated and costs the state over $1 billion a year. It is similar to a bill pending in the legislature that would amend the ELF formula so that production tax rates vary according to the price of oil. The bill's backers say many North Slope oil fields that benefit from tax exemptions don't deserve them.

Another citizen initiative would impose a "reserves tax" on untapped energy resources. As long as oil companies failed to ship out the 35 trillion cubic feet of proven natural gas that lie in the North Slope, they would be charged $1 billion a year, according to the initiative.

"This is a way to force the oil companies into putting up or shutting up," says state Rep. Harry Crawford, an Anchorage Democrat and one of the measure's sponsors. He claims the three main North Slope producers - ConocoPhillips, BP, and ExxonMobil - are delaying action on a long-promised gas pipeline to maximize returns on overseas projects.

But oil companies and their supporters say the initiatives would unfairly raise costs and increase financial volatility, making Alaska less attractive for investment. Companies that take on exploration and development risks should not be begrudged occasional windfalls, industry supporters say. They add that marginal costs are growing as fields mature and overall production - now at less than half the peak level of 2 million barrels a day achieved in 1988 - continues to dwindle.

"If we were doing as well as some people say we are, we would have 15 companies here putting money into the ground. And we don't," Judy Brady, executive director of the Alaska Oil and Gas Association, told the Anchorage Chamber of Commerce at a recent forum.

The North Slope producers also defend their natural gas track record. They claim to have invested $125 million in a pipeline feasibility study and say they are negotiating with the state for a contract to build and operate a massive pipeline to serve the Lower 48 states.

Meanwhile, North Slope natural gas has not been ignored, they claim. Rather, it has been extracted and reinjected into oil-field reservoirs, increasing pressure underground and resulting in an extra 3 billion barrels of crude oil produced to date. "For anyone to suggest that the gas has just been sitting up there or has been warehoused is absolutely wrong," BP spokesman Daren Beaudo said.

Broad support

So far, the initiatives appear to have widespread support. An Alaska natural-gas pipeline has been proposed since the early 1970s, and public frustration over the failure to build it is evident.

The gas reserves tax was endorsed by former Gov. Jay Hammond, a maverick Republican and conservation icon who died Aug. 2. It is backed by former Gov. Walter Hickel, a Republican famous for his pro-development views, who says the state should revoke the leases of oil companies if they fail to deliver a natural-gas pipeline. In an online poll conducted by an Anchorage television station, 84 percent of respondents supported the reserves tax.

Critics of the ELF formula say it is obsolete and was never meant to apply to small but highly profitable satellite fields that are able to send their crude for processing to older, larger nearby fields. Gov. Frank Murkowski, an oil-friendly Republican, used that reasoning earlier this year to revoke ELF breaks for six satellite fields that feed oil to facilities at Prudhoe Bay.

Other critics focus on environmental and lifestyle impacts. Plans for drilling near ecologically sensitive Teshekpuk Lake and offshore in the Beaufort Sea are seen as threatening the wildlife upon which the Inupiat hunting culture depends. Expanded drilling has drawn opposition from the North Slope Borough, a Minnesota-size district in northernmost Alaska.

It is also inspiring some Inupiat to rethink their longtime support for Arctic National Wildlife Refuge drilling. In Kaktovik, a village of 280 once considered a bastion of support for ANWR drilling, 60 people have signed a petition urging protection of the refuge.

"It becomes very clear that the oil industry wants to develop 100 percent of the North Slope - the land and the ocean," said petition organizer Robert Thompson, an Inupiat tour guide.

Oil has loomed large in Alaska since commercial production began in the early 20th century at Katalla. The relationship has been rocky at times. But oil money makes it possible for Alaskans to avoid paying any income tax or state sales tax. And it has been used to create a $30 billion state-owned trust fund that pays annual dividends to residents.

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