Tag: Oil Revenues

What Did Palin Do To The Alaskan Oil Industry?

These are exerpts from a piece in the WSJ.

Oil companies in Alaska are paying more money in taxes than ever before. The state’s oil and gas tax revenues for its just-ended fiscal 2007 topped $10 billion. That’s twice as much as fiscal 2006 and four times more than 2004.

Some supporters of Barack Obama see that money coming in and say that John McCain’s running mate, Alaska Gov. Sarah Palin, must have done what Sen. Obama wants to do — sock those companies with a big fat windfall profit tax. This is a deeply misleading reading of her 2007 tax reform.

A few years ago, Alaska had a big problem. Despite high oil prices, the state’s fiscal future was in peril because the state relies on only three aging oilfields for 80% of its oil and gas tax revenue.

As a new governor in 2007, Mrs. Palin stepped in to address the fiscal crisis and restore accountability. Working with Democrats and Republicans alike, she chose a 25% profits tax. But in lean years the state reverts to a 10% gross revenue tax on legacy fields that do not require massive continuing inputs of new capital.

Relative to the old system, Mrs. Palin’s plan — called “Alaska’s Clear and Equitable Share” (ACES) — improves incentives for developing new resources. It ensures the state does well in boom times — as it is doing now — when oil prices are high. But it also hedges against low prices in the future by ensuring that oil companies exposed to commodity price swings don’t face a crushing tax burden when commodity prices fall.

Her plan includes an escalator clause that gives the state a larger share of revenues when oil prices rise. This is common to production-sharing agreements all over the world.

Mr. Obama proposes to give each American a $1,000 check funded by windfall profit taxes to ease the pain of high energy prices. Some say Mrs. Palin’s ACES is like that, because this year every Alaskan will receive a $1,200 check as a share of the oil bonanza. (The check comes in addition to the approximately $2,000 every Alaskan will receive this year as a dividend from the Permanent Fund, which was established by state constitutional amendment in 1976 as a way of sharing the state’s mineral wealth with the people.)

The real comparison is not between Mr. Obama’s windfall profit tax and Mrs. Palin’s risk-and-profit-sharing plan. It is between Alaska’s constitutional rule — that the people must share directly in the state’s mineral wealth — and Mr. McCain’s proposal that coastal states should share in federal offshore oil revenue. His plan is for the funds to be used for public purposes like roads, schools and conservation. A share of royalties dramatically improves the coastal states’ incentive to support drilling. But if Mr. McCain offered every individual American a royalty check too, he might find it easier to sell his program.

China Wins Iraqi Oil Race

China crossed the line first in the race for big oil contracts in post-Saddam Iraq and has gained a head start over Western oil majors in the competition for future energy deals.

China’s biggest oil company, state-run CNPC, agreed a $3 billion service contract with Iraq on Wednesday.
The deal could set a precedent for terms that fall far short of the lucrative contracts the oil majors had hoped for as they jostled for access to the world’s third largest oil reserves.
Starved of investment since the Gulf War of 1990-1991 and the subsquent U.S.-led invasion of 2003 that removed former President Saddam Hussein, Iraq holds some of the world’s last large, cheap, untapped oil reservoirs.
Now CNPC and China’s other state-supported oil firms are likely to face off with Western oil companies in a bid round for other long-term contracts to enhance giant fields already in production. Iraq aims to sign those deals in mid-2009.
Baghdad needs billions of dollars of investment to overhaul and expand its energy sector after years of sanctions and war.
Energy-hungry China has already provided tough competition for Western oil majors in Africa. Chinese state oil companies can take on more risk than big oil firms as securing future energy supplies is a matter of strategy rather than profit.
CNPC faced no competition for Adhab, a renegotiated contract first signed under Saddam in 1997. Full details have yet to emerge, but it is know that the new service contract is for a set fee, a change from the initial production sharing agreement (PSA).
Production sharing contracts were common in the 1980s and 1990s in the days before oil prices shot up, when the oil majors held the whip hand over producer countries who competed with each other for investor capital by offering generous terms.

Where Does The Money Go?

As reported in the WSJ:

Iraq is generating revenue of about $80 billion a year, mainly from its vast reserves of crude oil, but spending only about 1% of the total on maintaining critical infrastructure projects such as roads, bridges and sanitation, the U.S. government auditor said.

Meanwhile, the U.S. has appropriated around $48 billion in the past several years to help reconstruction efforts, the U.S. Government Accountability Office said.

The GAO, which is the investigative arm of Congress, estimates that for 2008, Iraq could generate between $73.5 billion and $86.2 billion in total revenue, of which oil exports will account for between $66.5 billion to $79.2 billion. That is based on Iraqi oil ranging from $96.88 to $125.29 a barrel and oil export volumes ranging from 1.89 million to 2.01 million barrels a day.

That figure is up significantly from the oil-export sales from 2005-2007 that accounted for about $90.2 billion for both years. In that period, Iraq spent 90% of its $67 billion in expenditures on operating costs such as salaries, pensions and services. Most of the remainder was spent on investment expenditures, such as structures, machinery and vehicles.

Just 1% of the Iraqi government expenditures went to maintenance of roads, bridges, vehicles, buildings, water, sanitation and electricity installations, oil pipelines and weapons.

An interesting story, but still I want to know where does the money go?