Oil industry officials panned the Senate's oil tax plan Friday, saying it raises taxes at certain prices, complicates the tax structure and won't lead to the kind of investment the state wants to boost oil production.
BP Alaska proposed changes to SB192 in testimony before the Senate Finance Committee. The company's head of finance for developments and resources, Damian Bilbao, said its proposed changes would have the same punch as Gov. Sean Parnell's tax cut plan -- what BP and others in the industry see as meaningful tax change.
That means at $120-a-barrel oil, Alaska would lose $2 billion in revenue, compared with $277 million under the Senate plan, committee co-chairman Bert Stedman said. He said some senators think the Senate plan gives away too much money as is.
He said he would have been surprised if the companies didn't support a bigger tax cut.
The Senate plan represents a structural shift in Alaska's tax system. It does away with the current progressive surcharge triggered when a company's production tax value hits $30 a barrel -- a main complaint of the industry, especially at high oil prices. Instead, it calls for a progressive severance tax that would be levied on gross production after royalties and solely on oil., and accomplishes a goal of Stedman's to decouple oil and gas for tax purposes as well as addressing the current drag on revenues when oil prices are high relative to gas.
The plan also would reward producers in the aging fields for producing oil above projected rates of decline and would address new production by reducing taxes on new fields for the first seven years.
The bill retains the current base tax rate of 25 percent, which Bilbao and others see as too high.
Stedman said Thursday that the bill represents a good solution to what he said most people in the Capitol now see as a problem: progressivity. He also said the committee, with the bill, "significantly moved the needle" on the companies' economics.
Industry officials disagreed.
Representatives from BP Alaska, Conoco Phillips Alaska, Exxon Mobil Production Co., Pioneer Natural Resources and Alaska Oil and Gas Association spoke against the plan.
Scott Jepsen, vice president of external affairs for Conoco Phillips Alaska, said he's not encouraged by what he sees.
Stedman said legislative consultants have said there isn't a problem for companies at $100-a-barrel oil and that the focus should be on adjusting taxes above that. The committee has tried to flatten the percentage of the state and industry take around prices of $120 oil and above.
Bilbao said he couldn't say what BP's project-planning price is, for proprietary reasons, but he said lawmakers would be hard-pressed to find companies using more than $120-a-barrel oil to plan projects. Charts done by consultants have gone up to $200 oil.
North Slope crude closed around $120 Thursday.
Bilbao also took issue with consultant assumptions that industry costs decrease over time. He said that's not been the company's experience and, as a result, the proposal would raise taxes at certain prices and cause the company to re-evaluate existing plans.
Providing different tax rates for different fields or types of production also could have unintended consequences, he said. It could delay projects because companies that share ownership of a field may shift attention to a field they control in order to pursue lower tax rates, he said.
Stedman told reporters it's not the committee's intent to raise taxes and adjustments would be made if it's shown there is, in fact, a tax increase. He said he doesn't agree the changes make the tax structure more complicated, saying they include a "simple calculation" that a "third grader" could do.
The end goal of the oil tax debate is to boost production. Alaska relies heavily on oil revenues but production has been declining. The North Slope's major players are spending money now to try to slow the rate of decline. It could take billions of dollars a year more to eat into the production decline and begin to stabilize production, according to legislative testimony and Stedman.
Earlier in the day, Stedman challenged Revenue Commissioner Bryan Butcher's assertion that the proposal would make the tax system more complicated and represent a move in the wrong direction. The department, in its presentation, said the changes discourage investment and encourage harvest mode, which refers to companies getting as much cash out of a field as possible.
Butcher said under the plan, the economics for high-cost projects, in difficult-to-tap fields, could be worse.
Stedman said he wanted to see the department's numbers showing this, saying claims that it is not an improvement run counter to what legislative consultants are saying.
Butcher also said the Department of Law had raised some constitutionality concerns but he didn't have the details on those.
One of the biggest issues the department had was with the provision that calls for it to collect non-confidential information related to oil and gas exploration, development and production, and make it available to policy-makers and accessible to the public.
Butcher said that would be burdensome on any agency "taken to task" this session for not being fast enough with things like oil company audits, as well as being expensive.
By BECKY BOHRER
Associated Press