Oil execs say tax bill is 'game changer,' make no promises

rmauer@adn.comApril 8, 2013 

JUNEAU -- Representatives from Alaska's three largest oil producers continued Monday to refuse to commit to new projects if they get a big cut in oil taxes, but they told a House committee that the state's investment climate would change.

"Senate Bill 21 is a game changer. It's a signal that Alaska is ready to compete for investment," Damian Bilbao, BP's head of finance in Alaska, told the House Finance Committee.

But when it came to specifics, there wasn't much from Bilbao or the officials from ConocoPhillips and ExxonMobil.

"How many years are we going to have to wait to find out if we're right this time?" Rep. Tammie Wilson, R-North Pole, asked Bilbao.

"A more attractive investment climate in Alaska, the first thing you would expect to see is activity shifts to increased investment around equipment. The first thing we could do as producers is drill more -- or work to find additional rigs to drill more," Bilbao said. "I think we should expect to see a shift in activity within the next -- let me give myself some wiggle room -- the next one or two years."

Rep. Cathy Munoz, R-Juneau, asked Bilbao if he would be willing to repeat the promise made by BP and ConocoPhillips in response to last years' oil-tax bill. That bill died in the Legislature's waning days.

"In 2012, Conoco and BP testified there were $5 billion in projects that could become economic with HB 110," she said. What about now, she asked?

Bilbao said he didn't want to "rerun the economics" for the current bill until it was final. Instead, he repeated his general statement: "We can tell, just looking at the high-level financial impact of the bill, is that it would present an environment that makes Alaska competitive for more investments."

Bilbao and the other officials said the best part of the new bill as amended by the House Resources Committee -- or any of its earlier versions -- was that it eliminated the progressive tax scheme in the current ACES regime. That structure -- Alaska's Clear and Equitable Share -- was pushed in 2007 by Gov. Sarah Palin and a coalition of Democrats and some Republicans, in part as a response to the corruption that accompanied passage of the previous tax scheme only the year before.

Under the progressive regime, oil companies pay an increasing percentage of tax as oil prices rise, leading to complaints that they don't benefit enough from windfall prices.

"We're going to roll back taxes somewhere around $1.5 billion a year," Rep. Les Gara, D-Anchorage, said to Bilbao. "Of the money you're going to get back from us, erasing progressivity, what portion of that are you going to reinvest in Alaska, and what portion are you going to take out of state?"

"As the data shows, investment flows to where the best opportunities lie," Bilbao responded. "If Alaska becomes more competitive, we'll spend more here. If it doesn't become more competitive, we'll continue to spend what we have in the last few years."

The administration released its latest fiscal note Monday for the most recent version of the bill. It showed the cost to the treasury would be under $1 billion a year through 2016. By 2017, when it jumps past the billon-dollar mark, tax-change supporters say that new production should be offsetting the revenue the state would have gotten under ACES.

But ExxonMobil's Dan Seckers said the cuts don't go far enough.

"Does the proposed committee substitute make Alaska more competitive? Yes, we think it does," said Seckers, ExxonMobil's Anchorage tax counsel. "We believe the bill represents a very strong improvement over the current ACES structure, and if it's enacted in its current form, we believe, and we would expect, investment activity in Alaska to increase substantially, resulting in more work and benefits to Alaskans."

But Seckers asked for more.

"Does it make Alaska more attractive than your competition along all prices? And this is where we have a little pause of concern," he said.

One of this gripes was that the new version of the bill restores a progressive tax element by using a sliding-scale credit. When oil prices are low, producers can take a greater credit and thus pay lower taxes. When prices are high, the credit drops and taxes go up. Seckers said he didn't like that. And he also didn't like the base tax rate of 33 percent, which he described as "too high."

Responding to criticism that oil companies were shipping Alaska-earned profits to developments elsewhere, Scott Jepsen of ConocoPhillips said that's normal.

"You know, North Slope wasn't built with Alaska dollars -- it was built with revenues generated in Texas and other places around the world," Jepsen said. "Cash is going to come in, cash is going to go out. It's all going to be a function of opportunities."

Bilbao said that regardless of the bill that passes, BP wouldn't be exploring for undiscovered oil in Alaska. Its current leases were too good, he said.

"There's more than 2 billion barrels of oil remaining in the legacy fields," Bilbao said. "We scour the Earth to find fields with that type of opportunity. The fact that Prudhoe Bay remains the largest oil field in North America means that we don't have to go look for new fields."

 CORRECTION: This story has been revised to eliminate a reference that said Gov. Sean Parnell quoted Bilbao in his Twitter feed. The Twitter feed was actually from a news site named "@SeanParnellNews" and not from the governor himself.

 

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