Panel to hear bill that would split oil, gas taxes

Finance Committee sets public testimony for later this week

Posted: Wednesday, March 10, 2010

A bill that would change Alaska's system of taxing oil and gas production together got its first hearing Tuesday, with consultants giving the Senate Finance Committee a rundown on the separation of the two.

Public testimony is set for later this week, with senators hoping to hear from Gov. Sean Parnell's administration as well.

Sen. Bert Stedman, a co-chair of the finance committee that sponsored the measure, wants to make sure the state doesn't lose out on potential revenue if a major natural gas pipeline comes to fruition to help compensate for the continually dwindling amount of oil being shipped in the trans-Alaska pipeline.

The current taxing scheme generated $3.1 billion in production tax revenue during the last fiscal year. It taxes oil and gas together, with gas calculations based on its energy value relative to oil.

Stedman's bill would separate gas from oil and is intended to do away with a potential "dilution effect" on state revenues, particularly when oil prices are high relative to gas.

Under Alaska's Clear and Equitable Share tax structure, passed in late 2007, the base tax rate on the net profits of oil companies was raised from 22.5 percent to 25 percent with a progressive surcharge that's triggered when those profits top $30 a barrel.

The bill would keep the current oil tax structure as is, consultants said Tuesday. For gas, the taxing rate would be set at 25 percent, and there would be no surcharge.

Stedman, R-Sitka, said this bill isn't setting a gas tax. Lawmakers need more information to do that, he said, and he expects it to be raised later.

Stedman wants to address it now to limit the state's risk as the pipeline project advances. The Legislature is set to adjourn next month and the first open season, when companies behind the project try to secure gas commitments, is tentatively expected for May 1. There's been debate over whether the state would face legal liability if it changes its tax structure in a way companies consider unfavorable after the open season process begins. Parnell doesn't believe the state is legally locked into any tax rate at open season.

He's seemed skeptical of the need to act now, saying recently that he expected companies will ask the state for tax changes as part of the upcoming open season process for a major natural gas pipeline.

He didn't see the need to address taxes twice, and some other lawmakers also have been wary.

But Stedman said Tuesday that he's firmly convinced the state must act - and that potentially billions of dollars in revenue are at stake once gas begins to flow through a major line under the current tax regime.

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