Oil industry boosting Alaska spending

Posted: Tuesday, November 30, 2010

Alaska's oil industry is boosting its spending in the state more than expected, which may be good for future oil production and jobs, but is limiting the state's profit from rising oil prices.

The state's official oil production tax estimate for the current fiscal year is now $2.6 billion, down about $250 million from last year.

A combination of declining production and increased industry spending kept the state from profiting from the price rise as much as it would have otherwise, however.

Alaska's oil production tax, from which it gets the bulk of its oil industry revenues, is called Alaska's Clear and Equitable Share, or ACES, and was adopted over industry objections. Last year, the oil industry failed in an attempt to roll it back, but renewed efforts are expected in the next legislative session beginning in January.

Alaska's other oil revenues come from royalties, corporate income taxes and property taxes. Together with production taxes, Alaska is expecting to receive $4.67 billion from oil this year.

Critics of ACES, including numerous candidates running in the Nov. 2 election, said the high tax rate was stifling development.

The state's official revenue forecast, released by the Department of Revenue last week, would appear to indicate that's not happening. Spending on oil development is increasing, and is increasing faster than projected.

According the revenue forecast, industry spending for operational and capital expenditures last year was $4.7 billion, this year it is anticipated at $5.1 billion and next year is projected to be $5.5 billion. Those numbers come from expenditure forecasts companies submit to the Department of Revenue, the forecast said.

"That's good, that's what we wanted to see," said Rep Beth Kerttula, D-Juneau, of the rising oil industry investment in Alaska.

Kerttula, who is also the House Democratic leader, helped pass the ACES tax and said it was designed to provide an incentive to development.

The production tax the industry pays per barrel of taxable oil is declining, the revenue forecast is projecting. Last year the state collected $14.10 per barrel, but this year expects to collect $13.40 per barrel this year.

Part of that comes from an industry tax credit system which allows those companies making certain expenditures, such as for exploratory wells, to get direct tax credits for the amounts they spend. And companies without profits to take the credits against can sell them to other companies.

Last year Alaska handed out tax credits totaling $600 million, but expects to those to cost $830 million this year.

Kerttula said that was becoming a concern.

"We don't want to have incentives and credits wipe out the taxes," she said.

Last year Gov. Sean Parnell proposed additional tax credits, but while some Cook Inlet credits were approved by the Legislature, it took no action on new credits for the North Slope.

The Department of Revenue, where Commissioner Pat Galvin pushed for the additional credits last session, was unavailable for comment Monday.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.



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