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Senate passes oil tax bill aimed at production hike

Posted: April 15, 2012 - 12:11am

JUNEAU, Alaska — The Alaska Senate on Saturday passed a bill intended to encourage new field oil production, just days after an overhaul of Alaska’s oil tax structure stalled in the Senate’s bipartisan majority caucus.

A piece of that overhaul was a tax break for oil production in new fields. On Saturday morning the Senate Finance Committee grafted a version of that from the stalled SB192 onto a House bill intended to encourage more oil and gas drilling in select basins around the state.

The bill, which passed 17-3, must go back to the House, which would have to agree to the changes or the bill would go to a conference committee. House Speaker Mike Chenault said early Saturday afternoon that it would be a large policy call to make with one vote on the floor and no hearings on the changes on the House side. He said the House majority would have to take a look at what it wanted to do.

The House also could just keep the bill in what’s known as the limbo file — and let it die.

The Legislature is scheduled to end Sunday, and other issues still in play include the state budgets, additional education funding and an in-state gas pipeline bill.

Parnell said earlier this week that he would call a special session if the Senate passed an oil tax bill in the Legislature’s last days to give the House time to vet the legislation. The bill passed by the Senate Saturday afternoon looks far different from SB192.

The new version of HB276 represents the Senate’s best stab at oil tax changes in a session in which it delved deeply into the tax issue but wasn’t able to find enough agreement within the bipartisan caucus for more sweeping changes.

Nonetheless, some senators saw the bill as significant progress; Sen. Lesil McGuire, R-Anchorage, for example, declared the bill “awesome,” and said she believed it would “create a stampede” of companies coming to Alaska.

But Sen. Cathy Giessel, R-Anchorage, one of the no votes, said the new-oil provision in the bill lacked the punch needed to turn around the oil production decline in Alaska. She noted that the Department of Revenue projected no impact on state revenues until fiscal year 2018. She said in 7-10 years, the time it could take for new production to come online, oil throughout in the trans-Alaska pipeline could be half of what it is today.

All 16 members of the bipartisan majority voted for the bill, as did Senate Minority Leader John Coghill, R-North Pole, who sought unsuccessfully to amend the bill to extend the new-oil tax break to existing fields. He said he hoped the bill would lead to more production.

Joining Giessel in voting no were fellow minority members Sens. Fred Dyson, R-Eagle River, and Charlie Huggins, R-Wasilla.

An end goal of the oil tax debate is to get more oil in the pipeline. Alaska relies heavily on oil revenues to run.

Senate Finance Committee co-chair Bert Stedman, R-Sitka, has said that one of the stumbling blocks among senators has been deciding how to address oil in legacy fields, like Prudhoe Bay and Kuparuk, long the mainstays of Alaska’s oil industry, where production has been declining.

A concern among some senators was giving too much money to oil companies, particularly for oil they would have produced anyway. Others felt a tax cut was needed to boost incremental production.

Before the floor debate, Sen. Bill Wielechowski, D-Anchorage, said the Senate moves represent a substantial incentive, and meaningful tax change that will “super-charge” new oil production on the North Slope and bring in more independents — companies in addition to the slope’s current Big Three players.

An analysis by PFC Energy, a consulting firm that’s been working with the Senate on the oil tax issue this session, found that total government take would be around 64-66 percent for new field production at various cost-to-produce scenarios at $120-a-barrel oil. Under the current tax structure, government take at the same price point and scenarios would be 77-78 percent.

The state take, meanwhile, would be 49 percent under the three scenarios at $120-oil under the new-field provision. Under the current tax structure, it would be 65-68 percent.

Parnell’s spokeswoman, Sharon Leighow, said the new version of HB276 “maintains status quo decline for at least 10 years. We can’t afford that. In order to get more oil now, we need to address legacy fields too, as well as new fields in the future.”

Kara Moriarty, executive director of the Alaska Oil and Gas Association, told senators in a memo that the bill is “incomplete,” in part because it “does not provide any relief or incentive for existing or incremental production where almost all of Alaska’s production will come from in the next 5-7 years.”

Sen. Hollis French, D-Anchorage, said the new Senate approach fits with his philosophy: No reduction in oil taxes without more production.

He also questioned why critics would flat-out reject the plan. “Why say no to something that goes part of the distance you want to go?” he said.

Heading into the floor debate, at least nine senators had signed on as cross-sponsors to the earlier version of HB276, from Rep. Steve Thompson, R-Fairbanks. On the floor, Sens. Linda Menard and Dyson asked to have their names dropped, while Sens. Albert Kookesh, Johnny Ellis, French and Wielechowski asked to have their names added.

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