Lawmaker proposes tax holiday on new oil

State's 10-year break intended to encourage boost in production

Posted: Tuesday, February 16, 2010

The state would give companies a 10-year tax break on new oil under the latest proposal aimed at encouraging development in Alaska.

The idea of a severance tax holiday, raised Monday by Rep. Mike Kelly, R-Fairbanks, comes amid forecasts of slumping North Slope oil production and concerns about future revenue.

It would apply to new oil into the pipeline; current severance tax and progressivity elements of the tax would remain for oil that's already been discovered or is under development or in production, he said. Royalty and income taxes would still apply to new barrels flowing into the Trans-Alaska Pipeline System.

Kelly said the proposal, which he plans to introduce in the coming week, would give energy companies what they say they need while not delivering the shock to the state treasury that an overall oil tax cut would.

"And I think that the good outweighs the bad enough to where I think that risk is something that we should take," he said, with new drilling carrying the potential to bolster production and create jobs. "If we don't, then, stimulate drilling, then I guess that tax wasn't the controlling factor, and we've lost nothing."

Questions about what role, if any, Alaska's current oil and gas production tax is playing on development have taken center stage during the current legislative session. Implementation of the tax structure came during a particularly volatile period for the oil and gas industry, amid a sluggish global economy.

The issue has spawned a spate of legislation during what is also a political year.

While the state Department of Revenue has said the tax is performing as expected when it was created in 2007, it recommended changes to spur new development. Those include expanding tax credits for drilling and well work costs, and Gov. Sean Parnell has asked lawmakers to pass them.

But those don't go as far as some of Kelly's Republican House colleagues have proposed; they're pushing measures including a partial rolling back of the taxes. And others, including House Democrats and members of the Senate's bipartisan majority, have questioned whether they have the time and the information needed to tinker with the system. The session ends in April.

Kelly said he supports exploring the other alternatives that have been raised and believes his proposal would dovetail with them.

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