New, less costly oil tax bill emerges from Senate committee; producers say breaks aren't big enough

ldemer@adn.comMarch 14, 2013 

— Sticker shock over how much the Senate Finance Committee's version of Alaska Gov. Sean Parnell's oil tax bill would cost the state led senators to regroup and roll out a new bill late Thursday afternoon that doesn't cut taxes as deeply.

Just before 8:30 p.m., the new version cleared the committee. Senators expect to debate it on the floor Monday.

Earlier, executives with the three major oil producers on Alaska's North Slope testified Thursday evening that the fresh proposal doesn't provide big enough tax breaks and said they couldn't promise big new investment in Alaska if it passes. But representatives of BP, ConocoPhillips and ExxonMobil also said the measure makes Alaska more attractive than the current tax regime, though they differed on some particulars.

Consultants told legislators they are on the right track.

"I hear a combination of excitement and 'Gee, can I get a better deal?' " Barry Pulliam, managing director of Econ One Research, the Parnell administration's oil consultant, testified.

But legislators expressed disappointment that they couldn't get commitments of more Alaska investments -- and therefore more Alaska oil production -- from the industry representatives in return for the tax breaks they were offering.

"It's a tough lift for some of us," freshman Sen. Click Bishop, R-Fairbanks, told ConocoPhillips representatives, who like the other executives testified by phone. "You need to understand the position that I'm in."

"When are they going to stop saying they want more, in your opinion?" Sen. Lyman Hoffman, D-Bethel, asked Pulliam.

"They view this as a process. They want to have the best possible rates they can get," said Pulliam, who has worked as an oil economics adviser for Alaska for a couple of decades.

The newest Finance Committee measure would cost the state treasury between $465 million and $665 million the first full year and as much as $1.3 billion by 2019, according to estimates by the state Department of Revenue. That compares to $1 billion to $1.8 billion a year under the bill presented earlier in the week. The previous version was the most expensive oil tax bill proposed so far this legislative session, even more than Parnell's measure.

"Clearly yesterday, there were a lot of pale faces at the table," Sen Bert Stedman, R-Sitka, said Thursday afternoon. He has been watching from the sidelines after being the Senate's leading player on oil taxes in the last Legislature.

At least 11 senators, more than half the Senate, sat in on Thursday evening's Finance Committee hearing. Sen. Lesil McGuire, R-Anchorage, isn't on the panel but at one point sat at the committee table to urge the group to include her proposal for an "oil and gas competitiveness review board" that would make written recommendations to the Legislature annually. The committee did so.

The new Senate Bill 21 sets a 35 percent flat tax for the first three years, along with a $5-per-barrel credit, the same as what the Senate Resources Committee had proposed. But after three years, long enough for some new sources of oil to be produced, the flat tax would drop to 33 percent.

The earlier, bigger proposed tax cut set a 30 percent flat tax rate. BP's Damien Bilbao reminded the Finance Committee that its own consultants said the 30 percent rate put Alaska in the middle of the pack among other oil-producing regions.

The current tax system, known as Alaska's Clear and Equitable Share, starts with a 25 percent base rate that increases as oil prices rise.

Parnell wants to cut oil taxes to spur oil companies to invest in new projects and reverse a decline in production. But skeptics, including a number of Democrats in the Legislature, say the state may give the oil industry huge tax breaks with no guarantee of new production. The House is waiting for the Senate to act.

Sen. Bill Wielechowski, D-Anchorage, said that under the new version of the bill, oil companies still would get huge tax breaks for producing barrels of oil that already are in development plans.

While the latest version is better, "you're still giving away billions of dollars," Wielechowski said. "It's still a massive giveaway, in my opinion."

To make up for $5.7 billion in tax cuts in the first six years, oil companies will need to produce more than 90,000 additional barrels a day that could be taxed under the new regime, Pulliam told legislators Thursday night.

Members of GOP-controlled caucus that runs the Senate met earlier Thursday to discuss the bill.

Thursday's version "will appease the majority. Whether we'll get everybody, it's doubtful," Sen. Kevin Meyer, a Republican from Anchorage who co-chairs the Finance Committee, said in a briefing with a couple of reporters Thursday afternoon.

But Senate leaders also thought they had a deal on oil taxes last year, only to see it crumble.

Meyer and Sen. Anna Fairclough, R-Eagle River and a member of all three committees that have considered the oil tax legislation this year, met earlier on Thursday with representatives of BP, ConocoPhillips and ExxonMobil.

"We were telling them, 'look, dammit. We need something to hang our hat on,' as to if we make these changes, what are you going to do?" Meyer said.

The most controversial aspect of the tax measure continues to be an additional tax break for oil production from new areas that Wielechowski said works out to an additional 40 percent cut by excluding a portion of the new oil revenue from taxes. Under Thursday's proposal, that new tax break would last forever.

The Senate Finance Committee proposes to extend that benefit even to the aging giant fields of Prudhoe Bay and Kuparuk. Democrats say it's too far generous. House minority leader Beth Kerttula, D-Juneau, calls it a ticking time bomb.

Joe Balash, deputy national resources commissioner, said his department will be responsible for evaluating oil company requests for that extra tax break, called the gross revenue exclusion.

For the giant legacy fields, the operators will have to submit current 3-D seismic data and that from years earlier to prove that the new wells won't extract oil already part of the currently producing reservoir, he said.

 

 

 


Reach reporter Lisa Demer at ldemer@adn.com or 952-3965.

 

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