Industry association comes out against Palin's oil tax plan

Posted: Friday, September 07, 2007

FAIRBANKS - The head of the Alaska Oil and Gas Association presented Gov. Sarah Palin with a long list of concerns regarding her new oil tax proposal.

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Marilyn Crockett said Wednesday that the proposal could decrease investment in the state by raising the tax burden on companies.

Crockett also said it would replace a tax that isn't broken and has not yet had a chance to work.

"The industry does not want to have a special session," she told members of the Alaska Support Industry Alliance at a luncheon in Fairbanks.

Members of the oil and gas association include some of the largest producers on the North Slope.

ConocoPhillips, which is not an association member, also had reservations about Palin's plan.

"We agree with the governor's approach to stay with a PPT-based tax structure, however, we are concerned that the tax rates proposed will make every single project look less attractive for us to reinvest," Kevin Mitchell, vice president of finance and administration for ConocoPhillips, wrote in an e-mail to the Fairbanks Daily News-Miner.

Palin this week restated her intention to call a special legislative session next month to revisit the oil production tax passed last summer. She also presented an outline for a new tax that would increase the tax rate.

Palin said the current petroleum profits tax, or PPT, "isn't working as promised."

Revenue Commissioner Pat Galvin has said that revenues from the PPT will likely come in a little short of expectations in the fiscal year that just ended and very short of expectations next year.

Instead of bringing in an additional $1 billion over the old tax system, the PPT will likely bring in about $250 million more in fiscal year 2008, according to department figures.

Crockett pointed to fiscal year 2007, in which the new tax is expected to add about $1 billion in state revenues over the old tax.

"Is PPT working? I would say that it is," she said.

Galvin said Wednesday that cost increases faced by the companies explain the reduced revenue estimates.

Capital costs are now expected to be about 50 percent higher in fiscal year 2007 than was thought when PPT was passed, and about 100 percent higher in fiscal year 2008, he said.

PPT allows companies to deduct operating and capital costs and receive credits on certain capital costs.

Crockett encouraged the state to look at how to encourage companies to invest in the state and keep production levels up, ensuring future tax revenues as well as revenues from royalties and property and corporate taxes.

"What we need to be focusing on is keeping that pipeline full," she said.

Oil production has dropped from a peak of more than 2 million barrels a day to less than 800,000 barrels a day, she said, and maintaining production levels will require significant new investment.

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