One wouldn't have guessed that there would be any firsts left in Alaska's oil tax debate, which has been raging in the capital city. For more than a year now, lawyers and oil industry experts and oil executives have been grilled during House and Senate committee hearings of the Alaska Legislature about how much of a tax break is enough to increase, or at least stem the tide of declining North Slope oil production.
The executives have said over and over that with the right investment climate, more oil will flow down the pipeline.
The question perplexing lawmakers: what's the right investment climate? Alaska Gov. Sean Parnell thinks that an oil industry tax break of about $2 billion a year will do it. But the industry has been vague. Until Wednesday, the right investment climate, according to them, has always been one that produces more oil.
Damian Bilbao, head of finance for BP Exploration in Alaska, went a step further Wednesday in the Senate Finance Committee when he said that even Parnell's steep tax break wouldn't appease the industry.
Bilbao was one of a four representing the producers -- Exxon Mobil Corp, ConocoPhillips, and BP -- who sat in front of committee members, urging the Legislature to lower the oil tax regime known as Alaska's Clear and Equitable Share (ACES) and championed by former Gov. Sarah Palin.
The Senate's vehicle for oil tax reform, Senate Bill 192, has passed out of the powerful Resources Committee. It decreases taxes on Alaska's oil producers as much as $250 million a year when per-barrel prices are high. It also establishes a minimum level of taxes when oil prices are low.
Parnell's bill merely "chinned the bar" of meaningful tax reform for Alaska's producers, Bilbao testified. Without that change, he said, the company will continue to encourage deeper tax breaks. But that wasn't all. In response to a question from Sen. Johnny Ellis, D-Anchorage, of what would constitute enough tax reform for BP and the other supermajors, Bilbao responded that BP "will always ask Alaska to make its fiscal structure more competitive."
And for BP that means going back to the tax rate proposed by former Gov. Frank Murkowski in 2005, which included a 20 percent base rate on production, he added.
Debate surrounding Murkowski's tax rate, the Production Production Tax (PPT), was at the center of the biggest federal corruption investigation in the state's history -- the one involving VECO Corp. chief Bill Allen, and one that eventually meandered to the late Sen. Ted Stevens's Girdwood cabin.
It was the bill that led to raids, ruined careers, tarnished reputations, and fueled the rise of Sarah Palin. It was an investigation that included a public courtroom scene where the voice of then-ConocoPhillips Alaska President Jim Bowles orders Allen to make sure to get a bill killed that proposed higher taxes than the company wanted to pay.
That is, state oil taxes higher than 20 percent.
It appeared to be the first time that the corruption investigation was brought up in committee this session.
The implication of what Bilbao was proposing was not lost on Sen. Bert Stedman, R-Sitka, co-chair of the Senate Finance Committee. Stedman was quick to point out that discussion of the rate was "unlikely" given that there have been people "that went to federal jail over 20 percent taxes."
That put a screeching halt to the 20 percent discussion.
Exxon takes the stage
Next up was Dale Pittman, Alaska production manager for Exxon Mobil Production Co. This was another first in this legislative session. Until Wednesday, Exxon Mobil executives have been content to send letters instead of appearing in person, and his testimony was anticipated to be the highlight of the day.
Parnell has recently said that if his tax bill, House Bill 110, is passed, North Slope producers have committed to spending $14 billion.
Others, including Sen. Hollis French, D-Anchorage, have questioned such claims.
ConocoPhillips has been most vocal about its commitment to investment in Alaska, in return for passage of Parnell's oil tax breaks. However, because of complex North Slope operating agreements, all such investments must be approved by all three of the companies, including BP and Exxon Mobil.
The head of finance for BP testified that it might take up to 10 years for the companies to invest $5 billion -- a comparatively meager investment amount Parnell had until recently been touting -- and Exxon Mobil has been decidedly silent about any commitments on the low side, to say nothing of Parnell's latest claims of a staggering $14 billion.
But none of this was discussed with Exxon Mobil in front of the committee. No senator grilled Pittman about any investment plans or Parnell's claims. And he remained vague about the numbers. He went as far as to say that safe projects -- re-drilling legacy wells in Prudhoe Bay, for example -- would probably continue, even under the current fiscal structure.
It's those riskier projects, however, that are going to get short thrift.
Parnell's bill "will restore some balance to that risk profile," Pittman said. The Senate's proposal, on the other hand, is only a "slight improvement" and its impacts would "likely be negligible."
Sen. Bill Wielechowski, who is not part of the committee but listened to some of the testimony, said that the lesson of the day for him was that oil companies always have and always will ask for lower taxes.
"Is there any doubt that if you give them $2 billion a year they won't come back for more?" he said. He said that if he had been given the opportunity, he would have asked the question that's been at the heart of all of his questions, all session: "Why should we give you a tax break for something you are already required to do under the lease terms?"
Contact Amanda Coyne at amanda@alaskadispatch.com
Correction: The orginal version said that Sen. Bert Stedman was the chairman of the Senate Resources Committee. He's co-chair of the Senate Finance Committee. We regret the error.