Senate passes oil tax reform bill

Measure offers 30 percent discount on taxes for bringing new fields on-line.

Anchorage Daily NewsApril 14, 2012 

Sen. Bert Stedman, R-Sitka, speaks during floor debate Saturday, April 14, 2012 in Juneau on a bill intended to encourage new oil production. The Alaska Senate passed a version of HB276 Saturday. Stedman voted with the majority in support of the bill.

BECKY BOHRER / ASSOCIATED PRESS

JUNEAU -- The Senate on Saturday grabbed a modest, slow-moving bill encouraging petroleum drilling in the state's Interior, boosted it to the top of its agenda and stuffed it with a key piece of the oil tax reform it had been unable to pass in a much larger bill.

By 6 p.m., the bill, now a stripped-down version of the tax measure that struggled in the bipartisan caucus since Wednesday, passed the Senate floor on a strong 17-3 vote, with all 10 Democrats and seven Republicans voting in favor.

Rather than the broad tax reform the Senate attempted but couldn't accomplish, the measure was directed at new oil fields, offering a 30 percent tax discount to companies that bring fields into production.

"This is truly going to create a stampede for Alaska," Sen. Lesil McGuire, an Anchorage Republican, said in ringing endorsement ahead of the vote. "I know there are people who say this isn't enough because this oil is maybe six to 10 years away from development. But that's precisely why we should incentivize it," she said.

The bill will go to a House that will be disappointed it doesn't do more, like lowering taxes on the existing major fields owned by BP, Conoco Phillips and Exxon. And it will arrive on the last day of session.

But because of what it does accomplish -- providing deep tax cuts not only in new fields on the North Slope, but for exploration all over Interior Alaska -- it will be a tough measure for the House to ignore.

Anticipating criticism that the bill didn't go far enough, McGuire said there will be time in the future to address tax relief for the so-called legacy fields of Prudhoe and Kuparuk as well as the state's broader oil tax structure, the Palin-era Alaska's Clear and Equitable Share.

"ACES is a taxation system that is in need of repair," McGuire said. "It is a massive undertaking. There are parts and pieces of it that are weighty and heavy and we will come back and continue to look at this issue, but for today, this is what we can do, and it is a significant repair."

The only senators to vote against it were three of the four members of the Republican minority caucus, Fred Dyson, Eagle River; Cathy Giessel, Anchorage; and Charlie Huggins, Wasilla. Dyson incongruously described the measure as "a good bill" that did no harm before he voted against it, and also complained that one of its provisions, promoting drilling in basins in western Alaska, would produce oil that would be hauled to market by ship, not the trans-Alaska pipeline.

At least one senator said passage of the bill should eliminate the need for a special session.

The day began with a well-planned parliamentary move in the Senate Finance Committee that had been brewing for at least a day. The Senate's original oil tax measure, Senate Bill 192, has been stumbling in caucus between Democrats and Republicans unable to find a compromise on the big bill.

The Finance Committee saved the new field incentives in 192 by merging it into House Bill 276. The new field component was popular with Republicans and Democrats and had gotten strong support from an independent North Slope company, Armstrong Oil & Gas, which described the reform as "meaningful."

"This should avoid the special session," Sen. Bill Wielechowski, D-Anchorage, one of the original authors of 192, said as he left the Finance Committee room.

"This is significant, meaningful change," he said. "I think this makes new oil extremely attractive. This will incentivize a boom on the North Slope."

Wielechowski said the measure, as House Bill 276, should quickly be back in the House, where it was originally introduced in January and passed in its more limited form April 10.

Before Senate Finance transformed it, 276 was a tax incentive bill with strong bipartisan support from the "Middle Earth" region, the band of Alaska south of Prudhoe and north of Cook Inlet, where there are many unexplored or partially explored oil and gas prospects.

But on the House side, where Republicans had sought much broader tax cuts in a bill strongly backed by Gov. Sean Parnell, the initial reaction to the Senate's move was far less enthusiastic.

Rep. Mike Hawker, R-Anchorage, a key House strategist on oil measures, said his preliminary calculations showed the bill may result in some "unanticipated consequences." In any event, the measure will have to be "fully vetted" by the House, he said.

"It's certainly not any kind of a complete tax proposal that makes any kind of meaningful change," Hawker said.

The Associated Press reported that House Speaker Mike Chenault said he couldn't see the Legislature finishing work by adjournment deadline Sunday on oil taxes or another House priority, a small-diameter gas pipeline from the North Slope to Southcentral Alaska.

In a prepared statement, Gov. Sean Parnell's spokeswoman, Sharon Leighow, said, "HB 276 maintains status quo decline for at least 10 years. We can't afford that. In order to get more oil now, we need to address legacy fields, too, as well as new fields in the future."

In abandoning the bulk of their oil-tax reform bill, the Senate walked away from months of testimony, consultant work, computer modeling and negotiations. It also left behind the bulk of the original measure: a modification of ACES that reduced taxes on oil when prices are high; another that detached oil and gas accounting for tax purposes, a major goal of the Finance co-chairman, Sen. Bert Stedman, R-Sitka, for the day when gas can be sold down a pipeline; another that set a minimum tax in case oil prices drop. Also lost: new information reporting requirements for industry that would better help the state monitor its assertions.

And there was something in that bill for the major producers in legacy fields: reduced taxes if they could beat the natural decline in production. But that issue proved contentious, because the so-called decline curve upon which the lower tax rate was based was strictly an estimate.

Some Democrats thought the curve was too easy for the industry to beat, resulting in lower taxes for drilling and other enhancements they would anyway to extract high-price crude. Some Republicans thought the curve was too tough, setting a goal that was so difficult to achieve that industry wouldn't try and would do their new drilling in other states or countries.

Industry representatives pushed hard to change the numbers in their favor in testimony before the Finance committee, in lobbying, and in rallies and advertising. When the Finance Committee passed the full 192 out of committee Wednesday, the Alaska Oil and Gas Association said it failed to provide "meaningful reform."

That was the same bill that the independent company, Armstrong, found to be meaningful.

Wielechowski, the Anchorage Democrat, said that had industry supported 192, the bill might not have died in caucus and the majors would likely have gotten "hundreds of millions" in tax credits -- far more than he would have liked, even if it was less than they sought, he said.

Now, they're getting nothing.

In an email released Saturday, Kara Moriarty, AOGA's executive director, said industry will be back.

"The bill is incomplete as it only addresses these two areas of the state (new production and 'Middle Earth') and does not provide any relief or incentive for existing or incremental production where almost all of Alaska's production will come from in the next 5-7 years," she wrote. "AOGA will continue to advocate for additional meaningful tax reform for the entire North Slope."


Reach Richard Mauer at rmauer@adn.com or (907) 500-7388.

Anchorage Daily News is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service