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Oil industry officials slam proposed hike in production tax

Oil company officials urged Alaska lawmakers on Monday to reject a $225 million production tax increase proposed in the House, saying it will damage the economy and reduce industry investment at a promising time.

"The bill will stall the growing momentum in the industry that has and continues to drive Alaska's economy," said Cory Quarles, Alaska production manager for ExxonMobil, speaking to the House Resources Committee.

"This is the wrong time to disincentivize development," said Scott Jepsen, head of external affairs and transportation for ConocoPhillips Alaska.

Several major projects are in the works, including by ConocoPhillips, Jepsen said. But a significant tax increase could threaten some, such as the Willow prospect, by boosting costs, he said. The company has yet to make a final decision to develop that field, which could produce 100,000 barrels daily.

"We don't have to pursue that," he said.

Reps. Andy Josephson and Geran Tarr, Anchorage Democrats and Resources co-chairs, and Paul Seaton, R-Homer, introduced the bill to boost the minimum production tax to 7 percent, from 4 percent.

The goal was trimming the state's $2.5 billion deficit, Josephson said.

At about $60 a barrel, Josephson said the state is making about $2 a barrel from its production tax while the oil industry is making significantly more.

"We see marked unfairness" for the state when oil prices are between $50 and $70 a barrel, Josephson said. Oil prices have hovered in that range in recent months.

Kara Moriarty, president of the Alaska Oil and Gas Association, said the current tax system has contributed to slight increases in North Slope oil production after years of decline.

The proposal will "negatively impact industry" by increasing costs, she said. It will lead to less investment, lower oil production and state and local revenues, ultimately hurting the state's economy.

Officials at small oil and gas companies told lawmakers one negative effect will be signaling to investors around the world that Alaska is a poor investment. Companies will instead invest in the Lower 48 shale fields and other places where costs are lower.

Alaska has the "reputation of trying to squeeze the oil industry" any way it can, said Benji Johnson, president of BlueCrest Energy, which is targeting a field in Cook Inlet.

The bill may sound like a tweak to just one provision of the production tax, the minimum tax, but it will severely hurt new development, he said.

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