Alaska legislators on Monday questioned oil producer ConocoPhillips executives' fears about a proposed tax hike when the industry is seeing record profits.
Two vice presidents and an economist from the oil producer told the House and Senate Judiciary committees that raising taxes would decrease investment in Alaska and send the wrong message to shareholders.
Still, the company reluctantly will support a tax bill as a compromise.
Brian Wenzel, ConocoPhillips vice president of finance and administration, said his company would oppose such a bill except that it is expected to help producers and the state move closer to building a $20 billion-$25 billion natural gas pipeline, he said.
Last week, the governor submitted a proposal to create a new tax structure for oil and gas that is pumped from the North Slope. The bill would collect taxes on producers' net profits instead of the current system based on production.
The state stands to earn an extra $1 billion a year from the new system, which is being implemented in other oil-rich nations. The governor is asking for a 20 percent tax rate with 20 percent tax credits on investment.
"We believe the tax rate in this bill is too high," Wenzel said.
House Minority Leader Ethan Berkowitz, R-Anchorage, said oil producers told the state not to raise taxes while it ran a deficit a few years ago and now they are asking the state not to raise taxes while there is a $1.2 billion surplus.
Wenzel said it doesn't look good to shareholders when the state raises taxes while it has enough money to pay for "day-to-day things."
The state's other major producers - BP and Exxon Mobil - are testifying on Tuesday, and a handful of other oil companies will speak on Wednesday.
ConocoPhillips said it made $2.5 billion from oil production in Alaska last year. House Resources Committee Co-chairman Jay Ramras, R-Fairbanks, said under the current tax structure, the state collected a 6 percent tax amounting to $150 million.
Under the 20 percent tax rate recommended in the governor's bill, the state would have collected $500 million from ConocoPhillips' profits, Ramras said.
Not all of that money would end up in the state's pockets, because the company would be able to apply for tax credits on certain investments made on Alaska drilling. Last year, ConocoPhillips spent $700 million on capital expenditures in the state, and with the 20 percent tax credit the producer would get back $140 million from the state, Ramras added.
With the tax credit, the state's final cut would have been $360 million, or a 13 to 14 percent rate.
Other countries have higher tax rates than Alaska. Unlike in this state, ConocoPhillips said it is not aggressively investing in development in oil-rich countries such as those in Africa or Central Asia because of political instability.
While the state's crude oil reserves are diminishing, heavy oil will be left for future extraction. ConocoPhillips said the cost of pumping heavy oil is more expensive than crude.
Berkowitz said lawmakers are having a difficult time setting a tax rate when they don't know the producer's target rate of return. ConocoPhillips representatives said that information is a trade secret.
"You can't ask us to make a concession without telling us what you want," Berkowitz said.
Producers are lobbying for an unpopular clause in the bill that repays producers for their "long-term" investments made in infrastructure and exploration in Alaska dating back five years.
"I'm just not buying it," Ramras said. While the producers said those investments were made with a 10- to 20-year outlook, Ramras said some of it must have been short-term fixes.
House Speaker John Harris, R-Valdez, said the committees also will look at how the new system should handle extremely high oil prices at $80 and $100 a barrel. Harris said lawmakers are considering a progressive tax that would increase even more at those prices.
Andrew Petty can be reached at email@example.com.