Tax change steams oil companies

Industry says it wasn't warned

Posted: Monday, January 17, 2005

Oil industry representatives are crying foul over a plan by Gov. Frank Murkowski to increase taxes on some North Slope oil fields, arguing the governor gave them no warning before announcing the decision.

The administration said Murkowski solicited recommendations from oil industry officials on changing the oil production tax last year, but they responded by requesting that the state simply not change the tax.

ConocoPhillips estimates the decision to group six smaller oil fields with North America's largest oil field Prudhoe Bay and increase the production tax will cost the companies about $150 million a year. The six fields affected pay little or no production tax.

The administration plans to release an official estimate early this week, according to Murkowski advisor Mike Menge.

"This took the industry 100 percent by surprise," said Larry Houle, general manager of the Alaska Support Industry Alliance, a trade association made up of oil industry contractors and engineers.

Houle acknowledged that there has been more discussion recently of changing the oil production tax known as the Economic Limit Factor, or ELF, but added, "No one ever sat down to negotiate on ELF."

Murkowski spokesperson Becky Hultberg contradicted the charge, saying Murkowski met with industry officials with the Alaska Oil and Gas Association on Nov. 17.

"The industry was aware that the governor was interested in the ELF issue," Hultberg said. "He invited them to put forward their ideas on the ELF."

She said the administrative action taken by the governor, changing the tax structure on Feb. 1, is an authority the state has "and in this case it was appropriate to use that authority."

But a letter sent to Murkowski on Dec. 16 from AOGA Executive Director Judith Brady said the idea of changing the tax structure needed more study and recommended no change at all.

"As you know, AOGA does not support any change to ELF," she said. Brady said the state should not raise taxes just because oil prices are high.

"Higher prices are benefiting investment opportunities outside Alaska just as they benefit the ones here," she said. "Raising taxes will not make the Alaskan investments more competitive."

Dawn Patience, a spokesperson for ConocoPhillips, said she is unsure whether the company will appeal the decision.

"We will also need to consider the increased costs and risks when assessing whether to go forward with future developments," according to a statement released by ConocoPhillips.

Meanwhile, members of Murkowski's own Party have criticized the decision, while some Democrats have lauded the governor.

Rep. Vic Kohring, R-Wasilla, released a statement saying raising the tax sends the wrong message to "an industry that has been the center piece of Alaska's economy for a generation."

"Let's not hinder and industry that has brought so much wealth to Alaska and has been the engine driving the state's economy for decades," Kohring said.

Friday in the Senate, Anchorage Democrat Hollis French called the decision a "bold step," considering that the state does not face a fiscal gap this year.

"He didn't have to do it," French said. "We're in flush economic times and there's certainly no pressure to balance the state budget this year. It looks like we're going to have a surplus."

French also applauded Murkowski's call for lawmakers to continue reviewing the ELF tax structure during the session.

• Timothy Inklebarger can be reached at

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