Legislator wants tax holiday on new oil to spur development

The idea of a severance tax holiday, raised Monday by Rep. Mike Kelly, R-Fairbanks, comes as North Slope oil production continues to decline and amid concerns about future revenue.

It would apply to new oil into the pipeline; the current severance tax and the progressive elements of the tax would remain for oil that's already been discovered or is under development or in production, he said. Royalties and income taxes would still apply to new barrels flowing into the trans-Alaska pipeline.

Kelly said the proposal, which he plans to introduce in the coming week, would give energy companies what they say they need while not delivering the shock to the state treasury that an overall oil-tax cut would.

"And I think that the good outweighs the bad enough to where I think that risk is something that we should take," he said, with new drilling carrying the potential to bolster production and create jobs. "If we don't, then, stimulate drilling, then I guess that tax wasn't the controlling factor, and we've lost nothing."

Questions about what role, if any, Alaska's current oil and gas production tax is playing on development have taken center stage during the current legislative session. Implementation of the tax structure came during a particularly volatile period for the oil and gas industry, amid a sluggish global economy.

The issue has spawned a spate of legislation during what is also a political year.

While the state Department of Revenue has said the tax is performing as expected when it was created in 2007, it recommended changes to spur new development. Those include expanding tax credits for drilling and the costs of working wells, and Gov. Sean Parnell has asked lawmakers to pass them.

But those don't go as far as some of Kelly's Republican House colleagues have proposed; they're pushing measures including a partial rolling back of the taxes. And others, including House Democrats and members of the Senate's bipartisan majority, have questioned whether they have the time and the information needed to tinker with the system. The 90-day session ends in April.