Oil companies appeal proposed tax increase

Producers also worried about voter initiative to raise fees

Posted: Friday, March 25, 2005

The Prudhoe Bay oil producers are appealing a new Alaska tax hike and are chary of proposals on the horizon for much larger increases, including one that could end up as a voter initiative in the 2006 general election.

BP Exploration (Alaska), ConocoPhillips and Exxon Mobil earlier this month filed an administrative appeal to February's change in how Alaska assesses oil production taxes for six Prudhoe Bay satellite oil fields.

That change raises the producers' taxes between $150 million and $190 million per year when oil is at $42 per barrel. North Slope crude closed Thursday at $50.96 per barrel.

Six satellite oil fields were combined with the giant Prudhoe Bay field in calculating the economic limit factor, a complex formula used to provide tax relief for smaller fields or wells that produce less oil.

Those six fields, which produce a combined 85,000 barrels per day, had paid little or no production tax because of that formula, known as the ELF. But, state officials say, their ELF calculations were changed to be included with Prudhoe Bay because they were acting as one unit with the large oil field.

BP spokesman Daren Beaudo said the companies' appeal covers three general areas: Two of the satellite fields produce viscous oil, which Gov. Frank Murkowski had said would be exempt; changing the ELF hurts Alaska's investment climate; and the oil companies invested in those satellite fields based on the previous way the ELF had been calculated.

ConocoPhillips spokeswoman Dawn Patience said her company does not believe the state has the authority under Alaska law to raise the tax.

Dan Dickinson, the director of the state tax division, said the producers' appeal will go through an informal conference, which typically takes months to conclude but has lasted as long as seven years in one case.

Even bigger tax hikes for Alaska oil producers could be coming. An application for a ballot initiative was certified this week by Lt. Gov. Loren Leman. The initiative would completely remove the ELF from calculating oil production taxes.

If the ELF is repealed, all the state's oil fields would have to pay the full production tax, which is 12.25 percent for the first five years and 15 percent afterward. No field in Alaska now pays the full percentage.

Ray Metcalfe, one of the initiative's sponsors and the chairman of the Republican Moderate Party, said the ELF allows oil companies to collect a much larger profit in Alaska than just about every other oil-producing region.

"Why on earth would anybody want to give away their oil?" Metcalfe said. "We should get world market (returns) for our oil and we're not."

With Metcalfe's initiative application certified, he and the other sponsors must now collect 31,451 votes by the beginning of the next legislative session in January to include the measure on the November 2006 ballot.

That's 10 percent of the total votes cast in last year's election. A new law also requires signatures to be collected from at least 7 percent of voters in 30 of the state's 40 House districts.

Metcalfe said it should not be a tough sell, based on his queries of passers-by at last year's state fair.

"I asked several of them if they'd be interested in rolling back the tax breaks the government had given the oil companies over the years," he said. "They're beginning to get it."

Rep. Les Gara and Sen. Hollis French, both Anchorage Democrats, have filed bills that would restructure the ELF and raise production taxes far above February's changes. Gara said he does not buy the producers' claims that changing the ELF makes it less economical to operate in Alaska.

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