In order to continue taking Alaska's oil, oil companies need to up the ante.
In fact, Gov. Sarah Palin wants 25 percent off the top of all profits the companies make in Alaska, up from 22.5 percent and the second hike in as many years. In a special legislative session, oil giants are warning lawmakers that another increase will make the business climate look unstable.
But after Western oil companies have been effectively kicked out of Venezuela and Russia, these could just be hollow arguments.
"The financial impact pales in comparison to what's going on overseas," said Greg Priddy, analyst with New York based Eurasia Group. "In the end, with these oil prices, it will be something the industry is willing to absorb."
Already beset by federal corruption probes into last year's oil tax changes, Alaska is hardly alone in pursuing a greater state share.
Battles between governments and the industry are being played out worldwide. And with oil prices inching toward $100 a barrel - us," said Kevin J. Mitchell, vice president of finance for ConocoPhillips' Alaska operations. "This global phenomena of increased government take continues to increase the cost of doing business"
Throughout the year, governments have aggressively gone after some of the oil companies staggering multibillion dollar profits.
- In April, Royal Dutch Shell PLC was forced to cede control of a project in Russia's Sakhalin island to state-controlled OAO Gazprom at the behest of the government. Shell sold Gazprom 27.5 percent of its stake, leaving it with 27.5 percent
- In May, President Hugo Chavez's government took over Venezuela's last privately run oil field, squeezing out major producers including BP PLC, ConocoPhillips, Exxon Mobil Corp., and Chevron Corp.
- In June, BP agreed to sell its stake in a giant Siberian gas field project to Gazprom. This essentially meant the end of an era when foreign oil companies could control Russia's largest hydrocarbon deposits without a strong state-controlled partner.
And in a less severe blow to the industry in Canada, Alberta's provincial government just last month announced it would bump up its take from the industry by $1.45 billion (1 billion EUR) starting in 2009.
"What you're seeing is a global pattern of governments trying to recoup more of the windfall," Priddy said. "What's happening in Alaska is a really mild form but a clear reflection of that."
In Juneau, the industry is balking at Palin's push to boost the tax rate for the second straight year. Last year the industry pushed for a 20 percent net profits tax or lower; it was the first rate change in 17 years. Exxon Mobil still is pushing for a tax lower than 20 percent.
Today, the stakes remain high for both sides, especially on the North Slope which accounts for close to 14 percent of the nation's domestic production, but is also in a 6 percent annual decline.
Annual net income in Alaska has reached the $2 billion (1.38 billion EUR) mark for companies like ConocoPhillips and BP; Exxon Mobil does not disclose financial information for its Alaska operations.
A second new tax in as many years could create an unstable investment climate in Alaska, industry executives warn.
Companies cite rising costs and harsh arctic conditions in Alaska as inherent risks not found in other regions such as the Gulf of Mexico.
"I do all my investments on an after tax basis, said Claire Fitzpatrick, senior vice president for London-based BP's Alaska operations. "I have to be able to demonstrate that it's a better investment for London to give me the money rather than the Gulf of Mexico or the Rockies, and the tax is part of it."
BP, ConocoPhillips and Exxon Mobil stressed to lawmakers how there are no plans to leave the North Slope, but must still heed their warning at a time when production wanes.
In one case, ConocoPhillips said changing the tax structure could affect six projects currently being evaluated; first production would begin in three years.
Kevin Book, an energy policy analyst with Friedman, Billings, Ramsey & Co., said the impasse often lies with how elected officials whose term expires in two, four or six years, think differently from oil executives who evaluate projects on a 20- and 30-year cycle.
"It leads to self-deflating policy choices," Book said. "It deters production that brings you income, or at least it delays it."
The legislative debate enters its third week of a special session, which has been driven by much more than the need to bulk up the state's coffers. Four members of the state Legislature that passed that law have been indicted on federal bribery charges, and the federal corruption probe has stretched to the state's congressional delegation.
U.S. Sen. Ted Stevens and Rep. Don Young, both Alaska Republicans, have come under scrutiny for their ties to VECO Corp., which last year lobbied heavily for the new tax.
The measure, promoted as a way to provide a stable tax climate in Alaska, was sought by major petroleum producers before they would consider building a multibillion dollar natural gas pipeline tapping vast reserves on the North Slope.
VECO, whose top executives pleaded guilty to federal bribery charges, would have been in line to bid on lucrative construction and maintenance contracts if that project had been built.
The tax passed, but the pipeline deal never moved forward.
The issue of public trust hangs over both the industry as well as the legislature this time, said Republican John Coghill, chairman of the state's House Rules Committee.
"Because of the court action that's going on with those who were involved of the last go around, it's going to be very important," he said. "We have to look at it from a stewardship position and those bring some of the credibility issues."
Bodies of military personnel with American and Polish chevrons on uniforms were found in Avdiivka, adviser to the head of the Donetsk People's Republic said