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Oil firms urge no change to tax bill

Exxon, BP say OK of 20 percent rate will lead to gas-line contract

Posted: Thursday, March 02, 2006

For the second time in two days major oil company executives on Tuesday told Alaska lawmakers that a proposed 20 percent tax on net profits is high enough.

They did not directly answer whether a higher tax would end their support of a deal to build a North Slope natural gas pipeline, though.

Testimony concluded from the state's three largest oil producers, which also are locked into negotiations with the state to build a $20 billion natural gas pipeline. Exxon Mobil and BP spoke in front of the House and Senate Resources committees on Tuesday and legislators heard from ConocoPhillips on Monday.

Producers said Gov. Frank Murkowski's proposed 20 percent tax balances producers' needs with the needs of the state, though it's at the "outer fringe" of reasonable taxation.

"We also need to be very frank with this Legislature by saying up front that we do not believe the 20 percent rate will maximize investment, or in turn, maximize long-term production," said Ken Konrad, vice president of gas for BP Alaska.

Legislators are trying to determine what rate of taxation is appropriate to earn more money in an era of high oil prices, while not chasing away future investment from producers.

At 20 percent -minus a 20 percent tax credit on investments in Alaska - the state would take in hundreds of millions of dollars more each year when the price of oil is high. If the price were to dip below $26.50 a barrel, however, administration economists say the state would take in less than it does under its current production-based tax.

BP executives said they lobbied last month for a rate of 12.5 percent during talks with the administration. The governor's chief consultant suggested 25 percent earlier last month, but when the bill was introduced last week, the rate was set at 20 percent.

Producers plan to move forward with the gas pipeline contract if the current rate stays at 20 percent, said Richard Owen, vice president of production for Exxon Mobil in Alaska.

Upon hearing that, a handful of lawmakers asked if that meant the producers would not sign a contract if changes are made to the bill. Exxon Mobil's Marty Massey did not answer the question directly, but said his company wanted to wait for the bill to pass before finalizing the contract.

House Resources Co-chairman Ralph Samuels, R-Anchorage, during the meeting cut off lawmakers from asking questions about the connection between the oil tax bill and the pipeline contract. Samuels said for now the new tax structure should be considered on its own before legislators vote on adding it into the contract.

But several lawmakers continued to fire away questions about how this system relates to the pipeline discussions.

"I don't intend to vote for this bill until I know how it affects gas," said Rep. Harry Crawford, D-Anchorage.

Democrats introduced their own bill last month with a rate of 30 percent, and Republican legislators say they want a "fair share," but have not named a specific percentage.

Producers say reserves in the North Slope have been decreasing and extracting heavy oil on leases will require new technology and more money.

"This is especially true for the Polaris and Orion viscous oil developments, with oil that literally flows like molasses," Exxon Mobil's Owen said.

Senate Minority Leader Johnny Ellis, D-Anchorage, said oil companies have used such scare tactics before when lawmakers were forming the current tax system based on oil production, known as the economic limit factor (ELF).

"In 1989, they told us if we adjusted ELF, they would pack up their bags and leave," Ellis said. "They'll leave when the last drop of profitable oil is gone."

• Andrew Petty can be reached at andrew.petty@juneauempire.com.



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