Small producers back governor's oil-tax legislation

Posted: Thursday, March 02, 2006

Like the major producers before them, small Alaska oil and gas companies on Wednesday backed the governor's proposal for a new oil tax system - but for different reasons.

Exxon Mobil, ConocoPhillips and BP said earlier this week they grudgingly accept the bill that would raise their taxes because it would help finalize a contract to build a natural gas pipeline.

The handful of smaller producers not involved in the pipeline deal told the House and Senate Resources committees that incentives provided in the new tax system would mean more production down the road.

"We believe the (tax system) as proposed will entice more companies to Alaska and increase competition," said Pat Foley, spokesman for Pioneer Natural Resources.

The smaller producers also sided with the majors in saying they are nervous about the Alaska Legislature setting the tax rate at 20 percent.

Legislators are trying to increase oil taxes to earn more money while oil prices remain high. The new system would tax producers' net profits instead of the amount of production.

"You can get money two ways: from more production and also from tax," said House Minority Leader Ethan Berkowitz, D-Anchorage.

House Resources Co-chairman Ralph Samuels, R-Anchorage, said lawmakers are looking for a balance between giving enough incentives that continue production and exploration and creating a tax rate that earns the state more money that what it gets now from oil and gas production.

"I think we are starting to understand the relationship between the tax rate and tax credits," he said.

Producers are reminding lawmakers the state is also faced with running out of oil over the next several decades.

Representatives from Chevron Alaska, Anadarko, Pioneer Natural Resources and UltraStar Exploration testified before the House and Senate Resources committees. All are considered smaller players on the Alaska oil and gas scene than the three majors - Exxon Mobil, ConocoPhillips and BP.

The new tax system could add hundreds and hundreds of millions of dollars into the general fund for state spending. Many ideas have been suggested for the tax rewrite, but the Legislature is currently using the governor's proposal as a vehicle with some possible modifications.

Democrats have called for a tax rate as high as 30 percent, while Republicans have stated they want a "fair share" but have not given a specific amount.

Anadarko was the only company saying a higher tax rate, such as 25 percent, would also be acceptable. Because the new tax structure includes several incentives, Anadarko may come out ahead, said company public affairs manager Mark Hanley.

Legislators are considering a provision in the bill that would exempt the first $73 million worth of oil pumped each day. Samuels said that amount is too little for the majors, but attractive to smaller producers.

Foley of Pioneer said the clause "will help deliver an investment climate more consistent with the system that initially encouraged Pioneer to explore in Alaska and will help offset the high 'start-up' costs."

The governor's bill also gives producers a 20 percent tax credit that can be used for exploration and building additional infrastructure.

Chevron Alaska General Manager John Zager said if the Legislature's goal is to encourage more exploration, it would be best to lower the tax rate as much as possible while keeping tax credits and other incentives high.

"It's been sort of a silly debate. You would get the most exploration by having a zero percent tax," said Rep. Les Gara, D-Anchorage. He wants to create incentives that will produce long-term revenue that's greater than the amount of taxes the state is giving away.

"I would give $10 million of tax breaks if it's going to bring fields on that will bring in $20 million of revenue. On the other hand, I'm not going to give away $100 million in tax breaks if all it's going to do is produce fields that are bringing us $10 million in revenue," Gara said.

Chevron officials said they wanted to have the $73 million exemption for operations in Cook Inlet and the North Slope, as it is becoming more expensive to drill in both areas, Zager said.

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