Committee to stray from governor's oil tax plan

New version of sliding scale instead of straight percentage

Posted: Wednesday, March 15, 2006

An outline of a committee substitute bill released Tuesday by the House Resources Committee showed that members plan to make significant changes to the oil tax bill, amounting to several hundred million dollars more than the governor's plan.

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But the new version stops short of entirely increasing the 20 percent tax rate that Gov. Frank Murkowski and oil producers insisted on keeping in the bill.

Instead, they will add a provision referred to as a "sliding scale" that collects more of oil companies' profits starting at $50 a barrel.

"We feel that this keeps investment opportunity in Alaska very strong, but balances it out by taking advantage of windfalls in high spikes of oil prices," said House Resources Committee Co-chairman Ralph Samuels, R-Anchorage.

Samuels and the committee's other co-chairman, Jay Ramras, R-Fairbanks, have said during the past four weeks of testimony on House Bill 488 that they wanted to make changes to the governor's plan.

Using the West Texas Intermediate pricing system as its gauge, at $50 a barrel the tax rate will increase by 0.30 percent for every $1 increase in the price. For example, at $60 a barrel the tax rate would be 23 percent and at $70 a barrel it would be 26.5 percent.

In the case of a global oil shock, the rate caps at 50 percent at about $150 a barrel.

Among the total 11 key changes, three others will mean even more money for the state treasury if implemented. Samuels said the changes would at least amount to $500 million annually more than the governor's proposal.

"It looks like an even greater tax increase than before," said Andrew Van Chau, spokesman for BP Alaska.

BP, along with the two other state's major producers, ConocoPhillips and Exxon Mobil, told legislators earlier that they wanted to see a new fiscal policy that fosters more exploration on the North Slope for harder-to-reach areas on their leases.

"The language doesn't do that at all," Van Chau said of the outline handed out by the committee on Tuesday.

Murkowski spokeswoman Becky Hultberg said the committee activity on the governor's bill is a step in the process toward passing the bill.

"Right now, the governor continues to support his original proposal," she said.

In a written statement issued Tuesday, Murkowski said the oil tax bill is key to getting the three major producers to sign a contract to build a $25 billion pipeline.

The committee also wants to scale down the governor's offer of rebates to producers for investments on infrastructure and development made over the past five years. The rationale behind the idea was that investments directly led to the production of oil that will soon be taxed at a higher rate.

"The committee feels this is partly true, but that a full five years of looking back is not appropriate," the committee's report said, adding that cost recovery had already been enhanced by extremely high oil prices.

The committee substitute will allow producers to deduct as costs 75 percent of 2005 expenditures, 50 percent of 2004 expenditures and 25 percent of 2003 expenditures. Samuels said this measure would reduce the $1 billion tax break to $300 million.

The effective date for the bill was moved from July 1 to April 1, the start of the second calendar quarter. Samuels said this move would bring in an additional $200 million in the current fiscal year.

Also, a $73 million tax-free allowance on annual profits was taken out and replaced with an annual $10 million tax credit. Companies cannot claim the credit if they don't pay the tax.

Today, the administration and representatives from the three major producers operating in the state - BP, ConocoPhillips and Exxon Mobil - are scheduled to comment on the changes. Samuels said he expects the panel to vote on a final version of the committee substitute on Thursday.

Rep. Harry Crawford, D-Anchorage, said he will introduce an amendment that gives the scheme a "floor" in case the price of oil drops below $27, at which point the state would receive less revenue than under the current production-tax system.

"We have to make sure we haven't dug ourselves out of a hole that we can't get out of," Crawford said.

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



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