Despite some senators' nervousness about a potential cost to the state of as much as $100 million a year, Gov. Frank Murkowski's proposed tax credit for oil exploration could come up for a vote in the Senate today - three days after it was introduced.
The bill would provide a severance tax credit of 20 percent of the cost of exploration wells drilled more than three miles from an existing well. Explorers would get a 40 percent credit for wells drilled more than 25 miles from existing oil production facilities.
Murkowski says Alaska isn't doing enough to encourage the hunt for new oil, compared to incentives other countries are offering.
Sen. Robin Taylor, a Wrangell Republican, said he supports spurring oil development, but he worries about the cost of the tax credits when lawmakers are talking about a state sales tax to cover a budget shortfall.
"I sure hope you boys are right because the people are going to pay one hell of a price for having $100 million less revenue next year and the year after that," Taylor said at a Senate Finance Committee hearing Tuesday. "This is not a little concept. This is major."
Murkowski administration officials responded that $100 million is the highest cost expected.
The program would have been very successful at spurring exploration if companies rack up that much in tax credits, said Dan Dickinson, director of the Department of Revenue's tax division. He said a $50 million annual cost is more likely.
The proposed tax credit would apply to exploration work done between July 1, 2003, and July 1, 2007.
Murkowski initially said it would apply to work begun in 2004, but later said the credit would apply to this year's work so companies would not put off projects they had planned this year.
The tax credits could be sold by a company that does not pay severance tax to one that does. Credits could be applied to tax bills starting July 1, 2004.
Administration officials do not expect to see any new money from oil discoveries spurred by the credit during the next four years. But ultimately they predict the program will bring more oil into production and bring more money to the state treasury.
The administration has presented information from consultant Pedro van Meurs showing that 20 other countries or provinces pick up more of the tab for exploration than Alaska does.
In Azerbaijan, for instance, the government foots 95 percent of the bill for exploration, and in Norway, the government picks up 78 percent of the cost. In Alaska the government picks up just 35 percent, and that's a result of the federal tax code, not state incentives, Dickinson said.
Murkowski's exploration tax credit was attached to a bill by Sen. Tom Wagoner, a Kenai Republican, that granted royalty relief to platforms nearing the end of their productive life in Cook Inlet.
That section of the bill would allow the state's share of oil produced - called a royalty payment - to drop to as low as 5 percent on the inlet platforms, depending on how much their production declined. The state's usual royalty share is 12.5 percent.
Oil and Gas Division Director Mark Myers said the hope is that by letting companies keep more of the oil they produce, they will delay shutting down the platforms. Loss of that infrastructure would greatly increase the cost of developing new fields in the future, making it less likely to occur, Myers said.
That section of Senate Bill 185 could cost the state $719,000 a year.
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