New North Slope exploration rekindles old oil tax debate

Sean Cockerham | Tribune Media Services

Gov. Sean Parnell is getting ready to renew his push to roll back Alaska's oil tax while supporters of the tax are pointing to news of increased exploration and jobs on the North Slope. The latest report getting attention from lawmakers came from Petroleum News. It reported in an Aug. 14 article that "operators on the North Slope and nearshore Beaufort Sea are preparing for what promises to be one of the busiest exploration seasons since 1969, when 33 exploration wells were drilled following the discovery of the Prudhoe Bay oil field."

Legislators opposed to Parnell's attempt to lower oil taxes forwarded the article by email with comments like "amazing news" and "great article." But advocates of lowering the tax say exploration does not necessarily mean production, and that the tax dissuades companies from investing in the development of Alaska fields instead of elsewhere in the world.

Parnell spokeswoman Sharon Leighow said Monday the governor will continue to push for lower oil taxes when the next session of the Alaska Legislature begins in Juneau in January.

Fairbanks Democratic Sen. Joe Paskvan sent a statement to the press soon after the Petroleum News article first appeared. Paskvan is among the skeptics in the state Senate who blocked Parnell's tax cut.

"It appears that Alaska's tax credits under its production tax system are working to promote capital expenditures, including new exploration wells. Good news for the industry and the state, which relies upon the industry for revenues to its treasury. Exploration should mean increased oil production and increased throughput down the pipeline," he said.

Paskvan went on to say he didn't want to be overly optimistic and wanted to learn more from the companies, but that "this is strong evidence that the independents in the oil industry are both looking at Alaska as a place to do business and that they are actually coming to Alaska to develop our abundant oil resources."

The Petroleum News reported that, if all goes as planned, as many as 28 exploration wells could be drilled between October 2011 and mid-2012. The trade industry publication cited exploration by Brooks Range Petroleum Corp., UltraStar Exploration, Repsol, Linc Energy and Great Bear Petroleum.

Leighow, the Parnell spokeswoman, on Monday sent a statement from the governor saying that such exploration is "great news" but that Alaska also needs to get a big financial investment in the currently producing fields just to maintain the existing level of flow in the trans-Alaska oil pipeline.

The flow of oil through the pipeline has been declining since 1988 and is now at about 600,000 barrels per day. Parnell has said he would like to see production up to a million barrels a day within a decade, which he figured would require a $4 billion annual investment from the companies instead of $2.5 billion now.

"If we don't see renewed investment in the legacy fields to keep production on a slow decline, any new discoveries are going to be entering a pipeline with substantially reduced throughput and, therefore, higher tariffs. We need more than new exploration to keep the pipeline full (enough) and functioning well," Parnell said.

Parnell's bill, which the Department of Revenue estimated could result in more than $8 billion in lost production tax revenue to the state over the next five years, passed the Alaska House of Representatives this spring. But state senators resisted and the bill didn't make it very far in the Senate.

Parnell's plan still has little support in the Senate. Some senators cite Alaska Department of Labor employment figures that show oil industry employment up around record levels.

The Senate Finance Committee has paid for a review of what is happening with oil employment in Alaska, including data showing nearly half the North Slope jobs go to nonresidents. The review, by the McDowell Group of Juneau, is supposed to be turned in to the Legislature in December.

Advocates for lowering Alaska's tax attribute the increased jobs to maintenance, rather than production, and say Alaska is missing out on the kind of drilling boom enjoyed by North Dakota.

Anchorage Sen. Lesil McGuire said Monday she's seeking an effective way to get some certainty that the companies would reinvest any Alaska tax reductions in the state.

McGuire said she's heard from oil companies that Alaska has a good tax structure when it comes to exploration, but that at high oil prices the state takes too big a bite from production in comparison to other places they could develop.

Senate President Gary Stevens said he's interested to see if there might be "compromise between what the governor might be thinking and what we're thinking" in the Senate.