GUEST COMMENTARY: State-owned oil company is a bad idea
Watching the collapse in oil prices, the gaping hole in state revenues, the cutbacks in oil company spending on new production — and the likelihood that Alaska’s future will suffer under all of the above — some suggest state government should step up to the drilling rig, put on a hard hat and get to work.
It’s time that the state become a real owner, they say, just like ExxonMobil and ConocoPhillips. Just like BP has been for almost 60 years on the North Slope.
The low-price opportunity awaits Alaska, they say.
Watching Hilcorp struggle to raise the billions it needs to buy up BP’s Alaska assets while the collateral for the loan — the oil in the ground — isn’t worth nearly as much as it was last year, some say the state should step in front of Hilcorp, borrow and invest to pick up BP Alaska on the supposed cheap.
Haven’t we learned anything in 40 years of well-intentioned but ill-conceived state investments based on the unproven theory that if we own it, the profits will come?
Does anyone think this time will turn out any different?
Supporters of state investment, state ownership and state control like to point to Norway, which is rich beyond Alaska’s wildest dreams. But the Norwegian government poured billions of dollars into covering its equity stake, its share of exploration and development expenses for years before ever starting to earn a serious profit a decade later.
Can Alaska afford to gamble today, betting that profits may flow in 2025, 2030 and beyond? Does the state have any money to invest?
Oil companies, such as ConocoPhillips and Oil Search, both active in North Slope exploration, use their profits from ongoing operations to fund new developments. They spend today’s cash flow for tomorrow’s investments. If you look at the state checkbook, there’s not enough cash coming in these days to cover next year’s schools much less investments in next year’s drill pipe.
And why, if Hilcorp, with hundreds of thousands of barrels a day of actual oil and gas production spread across several fields in several states, and with years of profitable operations, is having trouble signing the deal with hesitant bankers, what makes Alaskans think that the state, with years and years and years of budget holes, with no general tax revenues, with constant political pressure to pay out an unaffordable dividend to its residents, would be able to raise billions of dollars against the same devalued oil in the ground.
The state’s credit rating is OK for now, but only because the rating agencies believe we will do the right thing and raise new revenues, protect the Permanent Fund and not overspend. Turning around and borrowing billions on a bet that the state knows more than anyone else which way oil prices are heading, that the state knows the future of oil production, and that the state knows a good deal when it sees one, is sure to cause the rating agencies to wonder whether a piece of drilling pipe fell on our heads.
Sure, instead of borrowing all the money to buy up BP Alaska, the state could write a check on the Permanent Fund. But due to investment losses from the crashing stock market, the fund’s earnings reserve already is in danger of falling too low to help pay for schools and other public services next year. This is not the time to overdraw the account.
Instead of doubling and tripling down on oil as the sole savior of Alaska’s finances, the state should be looking to diversify our public revenues. Or we could play the slots in Vegas. Makes as much sense as an overly oil-dependent state betting solely on oil, more oil and nothing but oil. No offense to oil.
Larry Persily is a longtime Alaska journalist, with breaks for federal, state and municipal service in oil and gas and taxes, including deputy commissioner at the Alaska Department of Revenue 1999-2003.