Below are ten articles written over the past ten years by Ray Metcalfe, concerning corruption of VECO, Senator Ben Stevens and Governor Tony Knowles.
February 2006, ANCHORAGE DAILY NEWS refused to print this letter written in response to their writings about issues I had forced into the public eye.
It's a crime for legislators to represent individuals for pay.
Dear Editor:
Your article “Working On The Side,” published February 19, 2006, missed one major point.
It is a crime for a legislator to accept salary, in any form other than their legislative salary, in exchange for advocating or opposing legislation.
Your statement, “The public has no way to tell if a lawmaker's consulting contract is a legitimate business arrangement or little more than a legalized gift,” suggests that a legal loophole exists for legislators who accept “consulting fees” under a false pretence that they supplied legitimate consulting services unrelated to the legislature.
No such loophole exists. It is a crime for legislators to receive gifts in excess of $250, (See AS: 24.60.080), and it’s a crime for legislators to represent individuals before the legislature in exchange for pay. (See AS: 24.60.100.)
It has become commonplace, but not legal, for legislators to accept “consulting fees” under what I believe to be, far more often than not, a false pretence that they supplied an unrelated legitimate consulting service.
While it is legal for lobbyists to represent individuals before the legislature for pay, when legislators do so, it is called “bribery.” (See AS: 11.56.110.)
The real breakdown in the system comes when those who’s duty it is to prosecute the powerful have more fear of losing their jobs for trying, than they have losing their self-respect if they don’t.
Ray Metcalfe
250-5442
Authored with my assistance, submitted to the ANCHORAGE DAILY NEWS by Al Sundquist December of 2005, and the ANCHORAGE DAILY NEWS refused to print.
When did APOC go over to the dark side?
When Alaska Public Offices Commissioner, said the law wasn’t clear enough to hold Ben Stevens accountable for channeling money from his father to his fishing company, APOC became the Ben Stevens defense team.
I read Ray Metcalfe’s charges and his supporting evidence. APOC’s $150 slap on the wrist was more than inappropriate, I believe the Republican appointed majority may be shielding the corruption of their favorite father and son team.
Sheila and her fellow Republican appointees know that the rules they are supposed to enforce were designed to prevent exactly this kind of wrongdoing by public officials.
For the rest of us who set on the sidelines and do nothing, if Ben were to tell us that a falling star had landed in his pocket once, although hard to swallow, he would deserve the benefit of a doubt. But when APOC pretends not to see, as Ben Stevens shrugs his shoulders with a “who new attitude” and over and over again, stuffs his daddy’s earmarked appropriations into his pocket, we have the classic case of the audience afraid to speak what they all know.
Neither APOC nor the King have any cloths.
ANCHORAGE DAILY NEWS refused to print this article which was printed in the Fairbanks and Juneau paper.
When Alaska's leaders break the law
Ray Metcalfe
Fairbanks News-MinerFriday, November 04, 2005''' - What do you do when your government breaks the law?
Communist Russia had a great constitution that didn't work because Russians couldn't ask their courts to enforce it.
When Alaska's Legislature passes unconstitutional laws, Alaskans can ask a judge to declare them unconstitutional and throw them out. The process is called "public interest litigation."
Alaska's courts recognize that few people will risk going to court without personal economic interests. Without people willing to challenge government, simply for the purpose of enforcing our constitution, we would have very few checks and balances. Consequently, Alaska's courts protect people who bring such complaints in two ways:
First, when public litigants bear the burden of proving the state's errors, Alaska's courts recognize them as a public servants and require the state to refund 100 percent of their costs.
Second, Alaska's courts recognize that public litigants are usually underfinanced private citizens battling against a battery of well-funded state attorneys. If the state were allowed to shackle them with the state's legal fees following a loss, all public litigants would eventually be bankrupted and silenced. Consequently, unless the court concludes that a public litigant's complaint was frivolous, the courts protect them from having to pay the state's legal fees even when they lose.
In 2003, Gov. Frank Murkowski asked state Sen. Ben Stevens to pass legislation designed to do away with those annoying lawsuits that have occasionally forced them to obey Alaska's constitution.
The Republican Moderate Party, which is no relation to the Alaska Republican Party, challenged the constitutionality of the attempt to dispose of public litigation, and we won in Alaska Superior Court.
With public litigation protections back, we were willing to risk challenging the closed primary law. We won, and the closed primary is now history.
We are now in court seeking disclosure of the "Wood Mackenzie Report." That's the report for which the Legislature paid $50,000 to find out how Alaska's oil company profits compare with the rest of the world's.
To the surprise of the legislators who ordered the report, it did not support the cries of VECO--the Anchorage-based oil field services company--for more oil-tax cuts. Now your VECO-sponsored Legislature is doing everything it can to keep you from seeing the report.
Gov. Murkowski has appealed the Superior Court's overturning of his attempt to do away with public litigation. His appeal will be heard before the Alaska Supreme Court at 1:30 p.m. Wednesday, on the fifth floor of the old 4th and K courthouse in Anchorage. Your attendance would be appreciated.
If our victory is upheld, we will soon be in court suing the Division of Elections over its decision to toss our petition to recall Ben Stevens, and we'll sue the Alaska Public Offices Commission for its decision to toss our complaint regarding Ben Stevens' refusal to explain what he did to earn $2 million in consulting fees.
Previously, we sued Gov. Tony Knowles when he rewrote the lease of one of Alaska's largest oil fields, reducing the state's royalty to a fraction of what a previous oil company had offered to pay. Tony then gave that rewritten lease to his biggest contributor without competitive bid or payment to the state.
Our one volunteer attorney was overwhelmed by 32 well-paid state and BP attorneys. We lost on a technicality. Had we not been protected by the rules of public litigation, our litigating would have ended and none of the above issues would have ever been litigated.
Tom Irwin, Alaska's former commissioner of the Department of Natural Resources, was right in recently questioning the legality of Murkowski's plan to give away Alaska's gas.
Now that Ben Stevens' plan to divvy up Alaska's fish between himself and a few friends has been exposed, it should come as no surprise to you that Frank Murkowski has similar plans rolled up in his plan to send Alaska's gas through Canada. It won't happen without a legal challenge from us.
And if Sen. Ralph Seekins ever gets the Legislature to approve his plan to put people in jail for accusing him of ethics violations, I promise to erect a giant billboard accusing him of ethics violations the very next day!
Ray Metcalfe Email Rayinak@aol.com
Most of Alaska’s newspapers printed this article. ANCHORAGE DAILY NEWS refused.
July 2005
Corruption is killing the Alaska Dream
Corruption is killing the Alaska Dream and it’s soon going to take your dividend, and possibly your job, if you don’t pay attention.
Twenty-five years ago, State Senator George Hohman’s fellow Senators expelled him from the Alaska Senate and an Alaska Judge sentenced him to three years because someone said he said supporting a certain legislative proposal might be good for a thousand dollar “campaign contribution.”
Today, State Senator Ben Stevens doesn’t need “campaign contributions.” He’s collected nearly two million dollars in “consulting fees” from people hoping to benefit from his legislation. Today, prosecutors ho-hum such indiscretions to death while our ethically bankrupt Senate Leadership rewards Ben’s behavior with the Presidency of the Alaska State Senate.
Nearly a quarter-million of Ben's payments came from VECO, in exchange for services Ben fails to define in his “Conflict of Interest Report” beyond “Consulting fees.”
If you find all this hard to believe, direct your browser to http://citizens4ethics.com/ and click on “Conflict of Interest Documentation.” View the facts and decide!
In 1999, VECO supported a $350,000 campaign seeking voter permission to redirect Permanent Fund Dividends to capital projects. The vote was 83% “NO.”
Since the 1999 vote, VECO has paid $400,000 to six lobbyists and $243,000 to Ben Stevens, seeking ways to fund government from Permanent Fund earnings to thereby reduce public pressure for the Legislature to demand world market value for Alaska’s oil.
VECO’s interest in raiding the Fund stems from their wish to sustain an endlessly increasing series of taxbreaks, (taxbreaks commonly referred to as ELF), that the oil companies lobbied through many years ago. While oil company profits soar, ELF has cut Alaska’s tax on oil in half.
ELF’s taxbreaks increase automatically every year. If not reversed, ELF’s increases will soon cut our severance tax on North-Slope oil to one-fourth of the original pre-pipeline agreement. If labor leaders continue to ignore this issue, everything from patching potholes to competitive salaries for teachers and troopers will become impossible without taking away dividends and slapping the public with a very big tax. Giving away Alaska’s oil is not a winning formula for successful bargaining.
When Stevens was sworn into the State Senate, he signed an oath, (a contract with Alaska) promising to uphold Alaska’s Constitution. Alaska’s Constitution requires him to seek the highest possible payment for Alaska’s resources. Stevens then contracted his advice and loyalty to a company seeking to extract Alaska’s resources for as little as possible.
Shortly thereafter, Stevens introduced a Bill attempting to redirect $337 million from the Permanent Fund Earnings Account, into capitol projects.
The Permanent Fund Earnings Account has for 25 years been Alaska’s piggybank for dividends.
Stevens argued that the cost would just be a few dollars per person, but do the math. Divide $337 million between 650 thousand Alaskans. You’ll come up with $518 for every man, woman, and child in Alaska; and you can be sure they will extract more next year.
Contracting to advocate the position of two clients on matters of each client's mutually shared but conflicting interest is generally considered fraudulent and corrupt. Due to the opposing objectives of such contracts, it is not possible for a single consultant to loyally advocate victory for both sides. “By necessity of law,” one of any two such contracts was irrefutably signed in bad faith.
Stevens’ failure to define what he actually does for his “consulting fees” violates Alaska’s Conflict of Interest Disclosure Law (Sec 24.60.200) which requires Legislators to provide the public with details sufficient to tell the reader what work was performed in exchange for payment received.
Alaska Criminal Law (Sec. 11.56.110) reads: “A public servant commits the crime of receiving a bribe if the public servant solicits a benefit with the intent that the public servant's vote, opinion, judgment, action, decision, or exercise of discretion as a public servant will be influenced.” Receiving a bribe is a felony.
If enough Alaskan's do nothing while Ben Stevens does VECO’s bidding and raids the Permanent Fund, corruption will flourish, and Alaska's Dividend distribution program will soon be history.
Ray Metcalfe
Most of Alaska’s newspapers printed this article. ANCHORAGE DAILY NEWS refused.
May 2005
If enough Alaskan's do nothing while Ben Stevens raids the Permanent Fund, Alaska's Dividend distribution program will soon be history.
The need to stop Ben Stevens from raiding the permanent fund and the need to repeal ELF go hand in hand.
ELF refers to an endlessly increasing series of tax breaks that our Legislature approved for oil producers many years ago.
ELF is a mathematical formula that increases its tax cuts for oil more and more every year. Since the original pre-pipeline severance tax agreement Elf thus far has cut Alaska’s percent of take from North Slope Oil in half.
Our original 15% severance tax on North Slope Oil was the lowest tax of any major oil producer in the world when it started and it has now been lowered to 7%.
If ELF is not repealed, over the next five years, the automatic increases of ELF's tax cuts will cut our severance tax on North Slope Oil to one-fourth of the pre-pipeline agreement, cutting our severance tax to an unheard world record low of 3%.
The oil companies cannot sustain their automatically and endlessly increasing tax breaks over the next five years, without persuading the Legislature to raid the Permanent Fund and take your dividend to make up for the difference in funding required to cover the costs of services we all demand.
Ben Stevens is the guy the oil companies have hired, to the tune of about $50,000 per year, to make sure the Legislature raids the fund rather than repeal ELF. While pretending to represent you, Ben Stevens in fact doing the oil companies business. He and the oil companies who bought his loyalty are using his position in our Legislature to rob us blind.
If Ben and his buddies get away with what they are up to, they will use the Permanent Fund to clear our roads and patch our potholes until the Fund runs empty. It will run empty just about the same time BP sucks the last drop of oil out Alaska and splits, leaving Alaska about as poor as the coal companies left the hillbillies in Appalachia.
Don't be a hillbilly. Come to our organizational meeting to begin the recall of Ben Stevens and the kickoff of the Campaign to Repeal of ELF. Both campaigns begin at 7:00 PM Thursday, May 12, at the Wilda Marston Theater in the Loussac Library.
For details go to http://citizens4ethics.com/
Ray Metcalfe rayinak@aol.com 907-344-4514
April 2006
Most of Alaska’s newspapers printed this article. ANCHORAGE DAILY NEWS refused.
Do The Math. It’s Not Rocket Science.
Alaska's Legislature hired one of the world’s top oil consultants to advise it's members. Unfortunately, they don’t appear to have heard a word he said.
If you read between the lines of Daniel Johnston’s report to the Legislature, he said the Governor’s proposal would bind Alaska to a sales agreement that is 35 percent below what many other oil producers would be willing to pay for Alaska’s oil. According to Johnston’s report, the average host country kept 67 percent of the proceeds when oil was bringing in $20 per barrel. Now that oil is selling at $60 per barrel, oil-producing countries throughout the world keep approximately 92 percent of the sale proceeds.
But don’t take my word for it. Check out the entire report by clicking on the link to “Legislature’s Paid Consultant Said” at [http://repmod.info./ http://repmod.info.] And do the math.
According to Alaska’s leading oil economist, Richard Fineberg, Alaska's combined income from the oil, (royalty oil, severance tax, income tax and property tax) add up to a 33 percent taking from a $53 barrel of oil, and the feds take an additional 13 percent, for a total of 46 percent, making Alaska the lowest taxing major oil producer in the world. Effectively, we pay $32.40 per barrel to BP, ExxonMobil and Conoco Phillips for the same service most owner-states pay only $4.80 to obtain. Another way to say it: We pay seven times as much as the rest of the world to get our oil produced. And according to the Wood MacKenzie report to the legislature, the oil company’s claim of higher costs in Alaska is deceptive hype If the Governor’s proposal passes, we will be locked into a deal to pay about five times as much for the next 30 years.
If our Legislature did what it should and doubled our current 33 percent take to 66 percent, and the feds continued to keep 13 percent, we would still remain one of the lowest taxing major producers in the world — with a significantly different effect. '''The increased state revenue would be sufficient to restore municipal revenue sharing, eliminate 100 percent of all local sales and property taxes, restore power equalization, and pay every man, woman and child in Alaska a $3,000 annual dividend. '''Do the math.
If the Governor’s proposal is adopted, Alaska will be locked into an agreement for the next 30 years to sell both its gas and its oil at 35 percent below the world average profit retention by oil producing host countries. This would be a mistake that, under the Governor’s proposed “Contract,” future legislatures could not undo.
Alaska’s future well-being depends on the general public’s grasp of the points made in Johnston’s report to the Legislature. It is a publicly owned document. On page 47, you will find a statement in the middle of a chart paging the world average profit retention at 92 percent. As you view the chart, keep in mind that the chart is upside down from an owner state prospective. It was developed to show oil company executives what countries offer the highest return on investments through the lowest taxes. You can reprint and publish it for distribution in any way you wish.
The Governor’s arguments won’t wash with the public if enough people are armed with a reference point by which to measure the Governor’s plan. High taxes? Compared to what? Compared to whom? Without such a reference point, the public is unable to determine whether to support or oppose the plan.
With wide enough recognition of these facts, a tidal wave of opposition to the Governor’s plan might soon hit Juneau. So do it.
Do the math.
Ray Metcalfe RayinAK@aol.com 907-344-4514
August 2004
Most of Alaska’s newspapers printed this article. ANCHORAGE DAILY NEWS refused.
Bartlett’s Predictions Come True
"When the 55" “elected” delegated met in Fairbanks to frame Alaska’s Constitution, they predicted that someday outside interests would hold sway over Alaska’s elected officials and resources.
In anticipation, they built protective barriers into our constitution
Bob Bartlett, Alaska’s Delegate to Congress and the keynote speaker at Alaska’s Constitutional Convention, urged Alaska’s Convention Delegates to adopt an Article to protect Alaska’s resources from falling under the control of outside interests.
Bartlett’s speech read''' “A failure to write into fundamental law basic barriers to minimize fraud, corruption, non-development, and exploitation may well be viewed fifty years from now as this Convention's greatest omission.”'''
Bartlett warned''' “Two very real dangers are present. The first and most obvious danger is that of exploitation under the thin disguise of development. The taking of Alaska’s mineral resources without leaving some reasonable return for the support of Alaska governmental services and the use of all the people of Alaska will mean a betrayal in the administration of the people’s wealth.'''
Bartlett further warned''' “that outside interests, determined to stifle any development in Alaska which might compete with their activities elsewhere, will attempt to acquire great areas of Alaska’s public lands in order NOT to develop them until such time as, in their omnipotence and the pursuance of their own interests, they see fit. If large areas of Alaska’s patrimony are turned over to such corporations the people of Alaska may be even more the losers than if the lands had been exploited.”'''
In response, Alaska’s delegates adopted the most comprehensive resource protection Resources Article in the nation.
Article VIII,
Section 1. Requires resources to be made available for the maximum use “consistent with the public interest.”
Section 2. Requires development and conservation (conservation meaning wise use) “for the maximum benefit of its people.”
* Bottom line; if our Governor gives or sells Alaska’s minerals to his friends for less than world market value, we can point to the constitution and sue.
Sections 11 and 12, combined with provisions of the Statehood Act, prohibit the transfer of title to minerals while they remain below the surface. Rights to extract Alaska’s minerals are leased not sold and lessees must make continual progress toward development or be forfeited back to the state.
Ownership of Alaska’s minerals transfer to the extractor when they are severed from the ground and a severance tax is paid.
Article IX Section 1. Provides that the authority to tax the extraction of our minerals can never be surrendered, suspended, or contracted away.
* Today’s legislature cannot bar future legislatures from reconsidering tax rates.
Consistent with Bartlett’s predictions:
# The oil industry has now held Alaska’s gas hostage for 27 years.
# Our Governor is working to stifle the “All Alaska Gas Line to Valdez,” which requires no tax breaks, while favoring his friends seeking huge tax breaks for a more expensive proposal that you would pay for in excessive shipping tariffs and reduced PFDs.
# To help, our Legislature recently passed the “Stranded Gas Act” authorizing Murkowski to negotiate “contracts for payments in lieu of other taxes and for royalty adjustments.”
* In clear conflict with Alaska’s Constitution, they’re attempting to sell of Alaska’s largest asset to the lowest bidder and bar future legislatures from re-consideration.
# The Statehood Act provided that Alaska would receive 90 % of any royalties paid to the Federal Government for the sale of oil from under federal all lands within Alaska, excepting only those lands set aside before statehood, as naval petroleum reserves.
# Since Statehood, Federal statutes have been enacted which provide that Alaska will receive 50% of all royalties derived from the sale of oil within the National Petroleum Reserve Alaska (NPRA).
# The energy bill currently before Congress, which is being pushed by Lisa Murkowski, authorizes the Secretary of Interior to reduce taxes and royalties in the National Petroleum Reserve Alaska (NPRA) to zero. '''(Click Here read the portion of the bill offering to give Alaska’s interest away)'''
* Alaska’s interest in the NPRA is potentially as valuable as the oilfield that built Alaska’s Permanent Fund and supported Alaska’s government for the past twenty seven years.
* Rather than threaten to sue if Congress tried to give Alaska’s interests away, Governor Murkowski, on September 16, 2003, sent US Senator Pete Domenici a letter stating: '''“Even though these provisions could affect Alaska’s royalties as well, I strongly support them as a way to increase activity in marginal areas and to attract private capital.”
Ray Metcalfe
Alaska Legislator 78-82 & Chairman of the Citizens For Ethical Government
RayinAK@aol.com
July 2004
Dear Editor:
Until we get our fair share from oil, NO, NO, NO and again No. If we voters let the Governor raid the fund, the pressure for the Legislature to do the right thing with oil will be gone. Another 25 years will go by and another $60 billion, which should have gone into our Permanent Fund, will be out the window.
Over and over you’ve heard oil companies say “A deal is a deal,” to defend the fat hog they’ve cut in Alaska. If “A deal is a deal,” then let’s go back to the deal we had on oil before the oil companies used our money to buy our Legislature.
Years ago, oil companies used our money to lobby through a tax break known as “ELF” or “Economic Limit Factor.” ELF is a mathematical formula that provides an endlessly increasing tax cut for most of Alaska’s oil fields. Over the years, ELF’s cuts have grown to the point that most North Slope fields no longer pay any severance tax at all.
There’s a reason why most Alaskan leaders resist reversing the effects of ELF. I call it “the trickle-down theory.”
Hypothetically speaking, “the trickle-down theory” works kind of like this: A North Slope oil producer, maybe one like BP for example, hands out a “gravy contract” without competitive bid. The “gravy contact” delivers a $50 million payday but requires only $10 million worth of work.
Delivered with a wink and a smile, the gravy contract gets handed to maybe someone like Veco for example. (Not necessarily Veco, keep in mind were only talking hypothetically here.) The service company then pockets a big chunk of change and subcontracts most of the work. Like the service company, the subs also get several times what their work is really worth.
Then, about this time of year (campaign season, special sessions, things like that) the oil producers take an inventory of which legislators are either ignorant of oil taxes and/or willing to sell-out their fellow Alaskans. They then pass that list on to the oil service company. The service company arranges a big fund-raiser, at maybe someplace like the Petroleum Club and sends invitations to all the executives of the subcontractors who were on last year’s “gravy train.” Executives wanting to see their company on next year’s “gravy train” know attending the fund-raiser, with a pocket full of checks is required. Hence, the trickle-down theory — or “the Veco drip‚” as I sometimes call it.
A tiny fraction of Alaska’s oil wealth trickles or drips down to the campaign accounts of those lawmakers who, in exchange for a little bit of power, are willing to pass laws enabling oil companies to use our money, to strip us of our resources and hand the big bucks to foreigners.
It doesn’t end there, it gets worse. Oil money paid to politicians was once limited to $1,000 campaign contributions, but no more. Last year, Veco paid state Senator Ben Stevens $47,000 for “consulting fees.” Now ask yourself, what possible interests of yours can a state senator serve when a company — with a financial stake that depends on stripping Alaska of its resources without proper payment — pays our senator more than we do?
State senator Scott Ogan recently brought a similarly inappropriate relationship into focus when he bargained away the land-ownership rights of his constituents in favor of methane gas developers, who paid him to support their interests. Abstaining from representing two clients with conflicting interests is fundamental to the ethical standards of every licensed profession. Legislators who fail to comprehend and abide by such standards are, in my opinion, unfit to serve in our Legislature.
Many books have been written about the carpetbaggers who robbed Montana of is copper wealth and Kentucky of its coal wealth. In both cases, outside interests used ill-gotten gains to fund campaigns for those local politicians willing to bilk their fellow residents in exchange for their day in the political sun. Someday there will be a similar book about Alaska’s oil.
Kuwait and Saudi Arabia each spend about $4 per barrel paying for the services they get from oil companies, like BP. When oil is fetching $40 a barrel, these countries take home about $36 a barrel. In Alaska, when oil is going for $40 a barrel, we Alaskans keep less than $12.
There’s nothing unique about Kuwait and Saudi. The majority of the world’s oil, “including Alaska’s,” is drilled, produced, pumped and delivered to refiners at a cost of between $4 and $6 per barrel.
Almost every government in the world keeps the difference between the world-market price of oil and the cost of paying the oil company that does the drilling, pumping and delivering. We Alaskans gives it away.
When compared to other major oil-producing countries, Alaska’s oil taxes are clearly among the lowest in the world. If Alaska retained anywhere near the same portion of profits that most oil producing governments retain, dividends would go up and deficits would vanish.
If we do so sufficiently before the oil runs out, Alaska’s Permanent Fund could still grow to the approximate $60 billion or so it would take to sustain dividends and government services without taxes, for generations to come. If we don’t, we will eventually raid the fund, spend it down, and loose it all.
To see a spreadsheet detailing the effects of ELF and a chart comparing oil taxes worldwide, visit - site no longer valid - and click on the banner inviting you to help “repeal ELF.” From there you can also find charts detailing what ELF costs Alaska and a chart that shows how Alaska’s oil taxes compare to the rest of the world.
August 1998
Northstar must be bid fairly.
Delegates to Alaska’s constitutional convention endeavored to ensure that all Alaskans would find inclusion at the table of plenty that Alaska has to offer.
Our delegates hoped to avoid the prospect that Alaska would someday have a chapter in its history, similar to the histories of many other States, when privileged classes took control of State resources and harvested its wealth for themselves, while excluding others. Citizens in many states were denied the right to participate in any way other than as labor for those who received the real wealth.
Kentucky has history of a privileged few who once gained control of State government and, in turn, Kentucky’s Coal resources. Kentucky’s resources were harvested for the benefit of that few, largely non-resident owners and stock holders, who left behind an exploited, impoverished, unemployed population, residing in a State striped of its resource wealth. Montana has a similar chapter in its history with its copper mines.
In the Northstar deal, Governor Tony Knowles attempted to make the stock holders of BP (British Petroleum) just such a privileged group for Alaska.
Had Alaska’s constitutional framers not endeavored to preserve Alaska’s resources for Alaskans, it’s likely that Prudhoe Bay would belong to a handful of people, worth billions of dollars. Anchorage would be about half its size and you wouldn’t be receiving dividend checks.
Alaska’s leases are put out to bid on a variety of differing terms. Bidders determine values by assessing terms and the production potential. Northstar was offered for bid on specific terms.
When Amerada Hess refused to perform on the terms of their lease, they were sent a notice of default, with a mandate to perform or forfeit their lease.
When BP bought Amerada Hess’s lease rights, BP then ask the state to scrap the terms and let them develop Northstar under vastly different terms; terms that would have brought the State much higher bids if offered to all bidders.
If this precedent is allowed to stand, a future Governor could selectively tell supporters to “bid what ever it takes” “get the leases you want” “I’ll change the terms later” “I’ll do what ever it takes to make it lucrative”.
Any Governor could easily bankrupt resource developers if they were not contributing to his or her campaign. Any Governor could lavish contributors with extreme wealth.
The Knowles Administration told the press that it would only cost the State about $9 million to expedite Northstar’s development. But that dog just won’t hunt. Alaska’s own Division of Oil and Gas told the Senate Resources Committee that other oil producers would possibly bid as high as $225 million for the rights given to BP. (See page 12 & 13 of the April 26, 1996 Senate Journal Supplement) That’s a lot more than $9 million; its enough to add $500.00 to every Alaskan’s Dividend check.
This attempted gift of Alaska’s resources is an act that is specifically barred by Alaska’s constitution. The resources of Alaska are owned by its citizens. They remain so until such time that they are disposed of in a manner that offers all persons an equal opportunity to participate in their purchase, disposal, and harvest.
Northstar was first offered for lease in 1979. Much to the displeasure big players, it was offered in a manner designed to make it easier for smaller players to compete. The State introduced a new system of biding, designed to attract more competition at auction. Under the new system, the bidders could bid a much smaller amount of cash now. In exchange, the bidder would promise to pay the State a much larger share of the profits in the event oil was discovered.
Amerada Hess Co., won the bid by bidding $15 million plus a promise to pay 89% of the net profits to the State. At the time, the Division of Oil and Gas estimated the value of the lease to be $268 million if it were put to bid under the old fixed royalty formula.
The State stood to lose $253 million if oil was not discovered, but stood to gain $billions if it was.
We the People of the of the State of Alaska rolled the dice on a big gamble and won. Now Tony wants to give the windfall of our gamble to BP by returning to the old formula. The formula that would have cost BP $268 million back in 1979.
Had such a payment been made and deposited in to the permanent fund in 79, it would have grown to over $700 million today.
In early January of 1995, Amerada Hess sold its rights to develop the oil field they discovered to BP. The terms of development remained the same for BP.
To continue, it was necessary for BP to submit a development plan to the state. The plan had to be consistent with the rights BP had purchased from Amerada. The deadline was January 23, 1995. If not submitted, the lease would terminate and Northstar would once again be available for auction.
An acceptable development plan was submitted on the day the lease rights would have terminated and BP was awarded a three year extension. BP later told the Senate Resources that, although it would be profitable to develop Northstar as proposed in their plan, they had no intention of implementing it.
Either BP was a bluffing to cajole the legislature into giving along with what the Governor was proposing, or they gained an extension with a development plan that was made in bad faith. In either case, the lease should have been canceled once the bad faith was known.
BP and or the Governor’s office claim that the state looses only about $9 million unless the price of oil goes up or the field turns out to be a bigger than 135MB (million barrels) recoverable.
If my memory serves me correctly, when Prudhoe Bay was first discovered, the first estimates of recoverable reserves were around 7.8 billion. By the time they started pumping, estimates were closer to 9 billion. We just passed the 10th billion and current estimates exceed 14.5 billion. That’s an 86% increase. It’s a pattern followed in almost all cases of Alaska’s oil production.
If oil prices remain the same and Northstar only increases by 75% that’s another 100MB of oil. At $20 a barrel, that’s $2 billion in production that, under either formula, will occur long after the developing oil company has recovered its investment and received a fair return. Alaska would get 89% of the net profits earned on that portion if developed as Amerada Hess agreed.
BP told the Senate Resources Committee that it would cost $2.90 per barrel to develop and produce Northstar’s oil. I’m not a rocket scientist but lets see now; we get a 20% royalty off the top under the original formula. That leaves 80MB at $20 per barrel, minis $2.90 production equals $17.10 per barrel. 89% of that is $15.22 per barrel to the state. 80MB barrels times $15.22 equals one $billion, two hundred seventeen million six hundred thousand dollars. That’s over $2,000.00 for every man woman and child in Alaska but Tony Knowles wants to give that money to a few people who own a multinational based in London.
Now, if I’m wrong, what’s all the fuss about? I mean, If I’m wrong and Tony’s right, and its only going to cost BP $9 million to do it on the terms they bought the lease on. Why not just do it? BP probably spent more than that just doing the shut down that made so much press a few weeks back that made vilified Clyde Baxley and I as the litigants responsible for BP’s decision to shut down the development of North Star.
When Tony first threw the Northstar deal in the Legislatures lap, a majority of the Legislature took one whiff and harmonized Pee-uuu, so loud it could be heard as far away as BP’s London headquarters.
To mask the stench, the oil bill was quickly slathered it with scented palm oil, (essence of contribution) just enough to mask the stench and hold some hearings.
Nearing conclusion, the bill still stunk and the votes weren’t there. It needed something added; something a legislator could hide behind if he or she had to run for cover. They sprinkled the bill with “Alaska Hire.” Alaska hire of the non binding vintage. They then voted and told us it was a birthday present.
Now I’m all for Alaska hire, in any way we can get it. However, the non binding vintage and fifty cents could probably get a cup of coffee at the Beans Cafe.
Special favors often leave victims in their wake. Had Amerada Hess been offered similar terms, financing the field’s development might have been much easier. Amerada could have received a much higher price from BP, if they could have offered it on the terms BP secured later. Amerada might not have sold had they been able to secure the same gift.
If such gifts of resources are allowed to stand Alaska’s future will be plagued with the growth of a special class of people; a privileged few with exclusive access to our States resources, and in turn, the wealth to fund the elections and reelections of politicians willing to continue the gifts.
Politicians committed to the maintenance of a level playing field for all Alaskan’s, will be unable to compete and forced from political office. The unleveled playing field will force smaller resource developers like Amerada out of state and out of the business.
Any future Governor could say, “Buy that lease from those from those guys, and once you own it, we’ll do whatever in necessary to make it more profitable.” It’s what I call the “Wrong Owner Syndrome,” or the syndrome of “This dog won’t hunt, or at least it won’t until it’s controlled by someone who backs me.” A talent Governor Knowles perfected while he was mayor. In those days, he was dealing with real estate developers. Now, its oil companies and the only thing that has changed is the number of zeros in the deals.
Sincerely
Ray Metcalfe
ELF Article revised to 639 words for the Anchorage Daily News, who would not print my “trickle down theory” article until I rewrote it into the tongue-in-cheek format below.
It was printed in the Daily News July 12, 2004.
Trickle down theory
By Ray Metcalfe
Dear Editor:
Between a rock and a hard spot. That’s where the Legislators are and that’s where we need to keep them until they reverse a little known tax break for oil known as ELF.
Passed in the 1970s, revised in the 80s, ELF refers to “The Economic Limit Factor,” which is a mathematical formula designed to provide oil producers with a tax cut that increases automatically every year.
Having eaten away at Alaska’s original 15% severance tax for nearly 25 years now, Elf has reduced Alaska’s severance tax on most of Alaska’s North Slope oil fields to zero.
If oil producers were paying any less for Alaska’s oil we’d practically be paying them to haul it away.
Although most Alaskan Lawmakers are well aware of this, they are also refusing to fix it. The reason they are refusing to fix it seams to have something to do with “The Trickle-Down Theory.”
Hypothetically speaking, “The Trickle-Down Theory” works kind of like this:
Without competitive bid, a North Slope oil producer hands a big oil service company a “gravy contract” that pays mega bucks for peanut work.
The service company then pockets a large helping of mega bucks for peanuts and subs out a healthy portion of gravy to yet smaller companies.
Then, about this time of year, (campaign season, tax issues, special sessions, things like that) the North Slope oil producer takes an inventory of which legislators are either ignorant of oil tax issues or willing to sell their fellow Alaskans down the river.
The oil producer hands the list to the service company who arranges a big fund-raiser at maybe someplace like The Petroleum Club, (Not necessarily The Petroleum Club, were only speaking hypothetically here) sending invitations to all those executives of all those smaller subs who rode last year’s gravy train to the bank.
Those smaller company executives wanting tickets for next year’s “gravy train” show up in droves with pockets full of peanuts for elephants. (Over Stuffed Legislators “Elephants”)?
Hence, the trickle-down theory. Our entire Legislature... bought for peanuts and you get the empty shells.
Many books have been written about the carpetbaggers who robbed Montana of is copper wealth and Kentucky of its coal. In both cases, outside interests used ill-gotten gains to fund campaigns for local politicians willing to bilk their fellow residents in exchange for their day in the political sun. Someday there will be a similar book about Alaska’s oil.
The majority of the world’s oil is drilled, pumped and delivered to refiners at a cost of between $4 and $6 per barrel “including Alaska’s.” Kuwait and Saudi each spend about $4 per barrel for the services they get from oil companies. When oil is fetching $40 a barrel, they take home about $36 a barrel. When Alaska’s oil sells for $40 a barrel, we keep less than $12.
Over and over oil producers say “A deal is a deal,” to defend the fat hog they’ve cut here in Alaska. If “A deal is a deal,” then let’s go back to the deal we had before the oil producers used our money to buy our Legislature.
If we do so sufficiently before the oil runs out, Alaska’s Permanent Fund could still grow to the approximate $60 billion required to sustain dividends and government services without taxes, for generations to come.
If we don’t, we will eventually raid the fund, spend it down, and loose it all.
To see a spreadsheet detailing ELF’s effects and a chart comparing oil taxes worldwide, visit - site no longer available - and click on the banner inviting you to help “repeal ELF.” From there you can also find charts detailing what ELF costs Alaskans and a chart that shows how Alaska’s oil taxes compare to the rest of the world.
Ray Metcalfe
