Alaska’s Future: It’s Under Our Feet

March 27, 2012Kara Moriarty, Executive Director

AOGA Member Companies

Production Decline Is RealSerious Consequences

Accelerated Decline Since 2007

“Your state has about the worst energy tax policy in the world. The only worse I could find is North Korea.”

-Economist Steve Forbes at the Anchorage Economic Development Corporation’s economic forecast luncheon on January 25, 2012.

Alaska’s Tax Structure: How Bad is it?

Uncompetitive Tax Rates

30%

40%

50%

60%

70%

80%

90%

Effec

tive

Tax

Rate

Effective Tax Rate at $115/bbl Market Price(all taxes & royalties)

Source: Roger Marks, 2/8/12 Presentation

A Grim Future Without Oil & Gas

Sources of FY 2011 Unrestricted Revenue

Oil and Gas Royalties & Taxes ($7B)92%

Excise Taxes ($165M) 2%

Corporate Income Taxes ($157M) 2%

Mining Taxes ($49M) .6%

Licenses & Permits ($43M) .6%

Fisheries Taxes ($23M) .2%Source: Alaska Department of Revenue – Fall 2011 Sources Book

What needs to happen?

Alaska’s Oil Tax Structure Must Change

• Real, meaningful changes are needed to jumpstart production

•Legislation that does not provide for these changes will not earn industry support

•Spirit of cooperation must rule the day

Where are we?

Senate Bill 192* will not change investment

• Progressivity changes are negligible

• Current decoupling language would raise taxes

• Information system causes concern

• New minimum tax raises concern

• Production allowance doesn’t work *As of March 20, 2012

Effective Production Tax Rates: Effective Production Tax Rates: ACES, CS SB 192, CS HB 110 (FIN)ACES, CS SB 192, CS HB 110 (FIN)

Impact of 10% gross taxImpact of 10% gross tax

11Alaska Department of Revenue

Assumes FY 2012 Transport costs of $8.72/ bbl, Opex of $14.03 per taxable barrel, and Capex of $10.25 per taxable bbl.Assumes that 80% of production is impacted by 10% gross minimum tax with no credits allowed against gross tax.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$35 $45 $55 $65 $75 $85 $95ANS West Coast ($/bbl)

Effective Production Tax Rate (Post-Credits)

ACES

CSSB 192

CS HB110 (FIN) Unitized Fields

Share of Profit under ACES

Profit defined as total gross value of all oil produced, less transportation costs and lease expenditures.Assumes FY 2012 Transport costs of $8.72/ bbl, Opex of $14.03 per taxable barrel, and Capex of $10.25 per taxable bbl.

36% 38%33%

28% 25% 24% 23% 21% 20% 19%

44% 42% 49% 56% 61% 63% 65% 67% 69% 71%

20% 20% 18% 15% 14% 13% 12% 12% 11% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$40 $65 $90 $115 $140 $165 $190 $215 $240 $265

ANS West Coast ($/bbl)

Share of Profit under ACES

Producer State Federal

Share of Profit under CSSB 192

Profit defined as total gross value of all oil produced, less transportation costs and lease expenditures.Assumes FY 2012 Transport costs of $8.72/ bbl, Opex of $14.03 per taxable barrel, and Capex of $10.25 per taxable bbl.Assumes that 80% of production is impacted by 10% gross minimum tax with no credits allowed against gross tax.

19%

38% 34% 30% 26% 24% 23% 22% 21% 21%

70%42% 48% 54% 60% 62% 64% 66% 68% 68%

10%20% 18% 16% 14% 13% 12% 12% 11% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$40 $65 $90 $115 $140 $165 $190 $215 $240 $265

ANS West Coast ($/bbl)

Share of Profit under CSSB 192

Producer State Federal

Alaska’s Future is Under Our Feet