Oil Rents and Political Economy in Alaska

Abstract

Oil and gas development has played a central role in the economic and political history of Alaska. This paper analyzes the evolution of fiscal relations between the petroleum industry and the State of Alaska s both landowner of the major oil fields and sovereign in a federal system. the analysis of the fiscal regime focuses on three dimensions: the state's take, its "distance" of administrative relation, and its "immunity" to oilfield financial risk.

The paper finds that the state's distance from the industry has diminished steadily in its land management policies and fiscal dispute resolution practices over the past two decades, moving from primarily arms-length transactions-- lease auctions and litigation-- to negotiated terms and settlements. The state's willingness to share oil development risks increased markedly along with the government take in the early years of North Slope oil production, but then declined as the industry matured.

That paper then explores the extend to which major economic trends might explain the pattern of change in the change in the state's administrative distance and financial immunity. Over the past 30 years, the state accumulated large savings in a Permanent Fund and reserve accounts, gradually becoming less financially dependent on current oil revenues. Neither the oil-price shifts nor financial exigencies appear to explain the pattern of change in the state's distance and immunity. Instead, the pattern appears to be explained more by the progress of industry in gaining support and influence among elected officials. The proposed BP-ARCO merger tests the limits of the new regime of state-industry accommodation.