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Senate Finance unveils oil tax rewrite

Posted: March 13, 2013 - 12:02am
Members of the Senate Finance Committee listen to discussion on the version of the oil tax plan they unveiled on Tuesday, March 12, 2013, in Juneau, Alaska. (AP Photo/Becky Bohrer)  Becky Bohrer
Becky Bohrer
Members of the Senate Finance Committee listen to discussion on the version of the oil tax plan they unveiled on Tuesday, March 12, 2013, in Juneau, Alaska. (AP Photo/Becky Bohrer)

JUNEAU — A key Senate panel on Tuesday proposed a rewrite of the governor’s oil tax overhaul that a consultant said would make Alaska more competitive for investment dollars but critics see as giving too much to oil companies.

The Senate Finance Committee’s version of SB21 builds off Gov. Sean Parnell’s bill and changes made to it by the Senate Resources Committee. The plan, like the others, would scrap the progressive surcharge triggered when a company’s production tax value hits $30 a barrel. That surcharge has been credited with helping to fatten state coffers during recent years, but companies say it eats too deeply into their profits when oil prices are high, discouraging new investment.

The proposal would raise the base tax rate from the current 25 percent to 30 percent, with a $5-per-barrel credit for oil produced. It also would provide a 10-year, 20 percent tax break, known as a gross revenue exclusion, for oil from new fields and new oil from legacy fields. Bill drafters inadvertently listed the break at 30 percent, though that was expected to be changed to reflect the committee’s intent.

Committee members said they also were looking at trying to gear one of the credits to require that investment be made in Alaska.

House Democrats, on their Twitter feed, said the proposal “punts” the definition of new oil to the administration. It would be up to the Department of Natural Resources to determine which oil from legacy fields qualified as new. The tweet included the hashtag “CanYouSayLawsuit.”

Senate Finance Committee Co-chair Kevin Meyer said much of the oil yet to be produced lies within the legacy fields, long the mainstays of Alaska’s oil industry.

“We felt like, boy, if you exclude them, then you’re missing out on the bulk of the oil that you’re trying to get,” he told reporters.

Meyer, R-Anchorage, said it’s legitimate to ask whether the gross revenue exclusion would apply to oil that companies currently operating in the legacy fields eventually might have produced anyway, like heavy oil or harder-to-produce oil. Meyer said they haven’t gotten it so far and say the reason is the current tax structure.

“So what we’re saying is, OK, fine, now you’ve got an incentive, so you better produce,” he said.

Parnell has billed cutting taxes as a way to boost investment and production. He had pitched a plan that he said would simplify and restore balance to Alaska’s tax structure, including revamping the suite of current tax credits that the administration has said could top $1 billion next year. Parnell’s revenue commissioner has said he’s seen no evidence that credits to oil companies under the current tax structure — passed in 2007 — have resulted in increased production.

Parnell proposed keeping the 25 percent base tax rate and including a 20 percent tax break for oil from new fields, including new areas of the legacy fields. His plan proposed keeping in place credits for exploration but eliminating credits for qualified capital expenditures on the North Slope. Other credits would be geared toward production of new oil.

The Senate Resources Committee, among other things, raised the base tax rate to 35 percent and introduced the $5-per-barrel allowance, which committee members said was geared at concerns raised about Parnell’s plan that the level of government take is too low at higher oil prices and too high at lower prices.

Industry reaction to both versions was mixed, with industry representatives seeing the scrapping of progressivity as positive but complaining about the increase in the base tax rate and lamenting that the gross revenue exclusion would not apply to currently producing areas.

Meyer said his committee listened to the testimony and tried to improve upon what Senate Resources did. The bill remains a work-in-progress, with the committee taking additional testimony and expected to get an analysis Wednesday of the fiscal impact.

During an afternoon hearing, Meyer pointed out a consultant’s slide, saying Alaska would be more competitive under the proposal. “So being competitive, we would hope that we will hear from industry that we’ll see more production,” he said.

One of the Legislature’s consultants, Janak Mayer of PFC Energy, said the proposal would make Alaska much more competitive with other energy-producing regions, including states like North Dakota and Texas. He put government take for new entrants under the proposal around 60 percent and around 62-63 percent for existing producers at prices ranging from $80 a barrel to $140 a barrel.

Another consultant last year told lawmakers government take of 70-75 percent for existing operations was “reasonable,” though maybe slightly high.

Sen. Bert Stedman, a leader of the Senate’s efforts last year to overhaul the tax structure, said the proposal would be “moving too much cash.” He believes government take for existing operations should be around 68-69 percent.

Stedman, R-Sitka, also questioned the jurisdictions to which Alaska was being compared. He said technological improvements — not taxes — were driving development in North Dakota and Texas.

“This will not stand the test of time, in my opinion,” said Stedman, who was one of the senators not on the Finance committee who attended a Tuesday afternoon hearing. “You’re moving too much cash that you don’t need to move. You’ll have to come back, explain that to the public, along with budget reductions. And I don’t think it’s going to go well.”

But he said the overall structure of the bill — including efforts to deal with the tax credits — is improving. Sen. Bill Wielechowski, one of the most outspoken supporters of the current tax structure, said he saw some positive changes, too, like setting a time limit for the gross revenue exclusion. But he said the proposal, overall, represents a step backward and a “big, big giveaway.” Wielechowski, D-Anchorage, said there’s no need to give so much back on the legacy fields.

“BP, Conoco and Exxon have to be very happy with this,” he said, referring to the North Slope’s three major players. Conoco is ConocoPhillips.

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