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Sen. committee advances oil tax bill, special session all but certain

Posted: April 12, 2012 - 12:09am  |  Updated: April 12, 2012 - 6:44am

JUNEAU — The Senate Finance Committee advanced a bill late Wednesday that would change Alaska’s oil tax structure, virtually guaranteeing a special session on the issue.

Gov. Sean Parnell said earlier in the day that he would call a special session if the Senate passed an oil tax bill by Sunday, the Legislature’s scheduled adjournment date. The Senate has been working on the issue since February, and Parnell doesn’t want the House to rush in considering it.

The Senate still must vote on the bill before sending it to the House.

Senate leaders have said that one of the challenges in crafting the bill has been arriving at a measure capable of getting enough buy-in within the Senate’s bipartisan majority. It’s unlikely a bill will be scheduled for the floor unless it has the votes to pass.

Committee co-chair Bert Stedman, R-Sitka, said he thinks there is sufficient support for the bill but he is preparing for a floor debate Thursday.

Changes dealing with new and incremental production were made in the bill the committee adopted Wednesday. For example, a tax break for production in new fields was extended from seven year to 10 years.

The end goal of the whole tax debate is to boost now-flagging production. Alaska relies heavily on oil revenues to run.

Overall, the plan represents a structural shift in Alaska’s tax system. The bill retains the current base tax rate of 25 percent but does away with the current progressive surcharge triggered when a company’s production tax value hits $30 a barrel. That’s been a main complaint of the industry, especially at high oil prices.

Instead, the bill calls for a progressive severance tax that would be levied on gross production after royalties and solely on oil, thereby decoupling oil and gas for tax purposes and addressing the current drag on revenues when oil prices are high relative to gas.

It also would reward producers in the aging legacy fields for maintaining production above certain levels.

Damian Bilbao, BP Alaska’s head of finance for developments and resources, said the company needs to do its own analysis of the bill. But he said what he heard from the Legislature’s consultant was that the bill didn’t go far enough on the incremental production piece to be competitive internationally — and he said he didn’t feel good about that.

Stedman said the effect of the incremental production tax break depends, in part, on what a company’s capital costs are. He was pleased with what the committee produced.

“I’m confident that when the House engages our consultants and puts the effort in that the Senate did, that they’ll draw similar conclusions” to the committee, he said.

Sen. Lesil McGuire, R-Anchorage, who encouraged extending the tax break on new field production from seven years to at least 10, said there’s room for changes in the House.

She said this kind of time spent on an issue — gathering the kind of information the Senate has — isn’t something that should be wasted.

She said it should be put into a bill, with lawmakers taking their best shot at things like reducing the percentage of government take and increasing Alaska’s competitiveness for investment dollars.

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