Industry testifies on plan to cut Alaska oil taxes
Thursday, February 17, 2011
JUNEAU, Alaska (AP) — Oil industry leaders delivered a stinging rebuke of the production tax that became a hallmark of Gov. Sarah Palin’s administration, telling a legislative committee Wednesday that it has discouraged investment and made Alaska a less attractive place to do business.
Representatives of BP Alaska, ConocoPhillips, Exxon Mobil and Pioneer Natural Resources said the tax cut and expanded tax credits proposed by Palin’s successor, Gov. Sean Parnell, is a positive step toward encouraging greater activity and boosting oil production.
BP, ConocoPhillips and Exxon Mobil are the major players on Alaska’s North Slope.
While officials made no guarantees that the moves would lead to more investment or jobs for Alaskans, saying a number of factors influence their decisions, they made clear that Alaska runs the risk of being further overlooked in favor of other states or countries with more favorable tax regimes if the Legislature doesn’t act.
But some lawmakers question whether the tax needs to be tweaked and wonder if Parnell’s proposal is more than a give-away to the industry. The state Revenue Department, in a report released last month, found that repeated changes to the oil and gas tax the last few years has made it difficult to draw any conclusions about how the tax is affecting industry investment decisions.
Others, though, see the need to act urgently amid forecasts of declining production. Oil is undeniably king in Alaska, largely responsible for keeping the state running.
Claire Fitzpatrick, chief financial officer for BP Alaska, told the House Resources Committee, said BP committed $20 billion in net investment to large projects around the world last year. She said none of that was in Alaska, though it wasn’t for lack of drilling opportunities.
Three words on the front page of her presentation to the panel summed up industry sentiments during the nearly four-hour hearing: “Alaska is uncompetitive.”
“It’s a choice,” she said. If Alaska wants to work with industry to get more oil flowing through the 800-mile trans-Alaska pipeline, she said changing the fiscal regime is a step in the right direction.
The current oil and gas production tax, known as Alaska’s Clear and Equitable Share, or ACES, features a base rate of 25 percent; there’s also a progressive surcharge, triggered when a company’s net profits top $30 a barrel.
Part of the idea is that when times are good and prices are high, Alaska should share in that.
But ConocoPhillips’ Wendy King said the surcharge knocks the “risk/reward” equation out of balance. When the tax structure eats away at a company’s profits, it affects future investment decisions, she said.
While increased corporate investment from 2005 to 2008 often is attributed to ACES, King said it was actually tied to maintenance, repair and replacement work. During that same period, drilling and development projects were virtually flat, she said.
The Alaska Oil and Gas Association cited figures showing that just one exploration well is expected to be drilled on the North Slope in 2011.
Parnell’s plan would change the progressive surcharge subjecting only the incremental amounts above $30-a-barrel net profits to higher taxes. For units now in production, the plan would cap the surcharge at 50 percent when oil prices top $92.50 a barrel; for new fields, the cap would be at 40 percent at higher-priced oil.
By one estimate, the tax-rate change alone would cost the state treasury more than $5 billion over five fiscal years. Parnell has said he wants to grow the economy, not government savings accounts, which now stand around $11 billion.
Pioneer’s Ken Sheffield told lawmakers that having a tax system in place that achieves a greater balance will be a major factor in whether his company expands its Ooogaruk site.
But Rep. Scott Kawasaki, D-Fairbanks, said he heard no “convincing evidence” that companies would invest or explore more or hire more Alaskans.
Marilyn Crockett, executive director of the Alaska Oil and Gas Association, said the one of her only concerns is with the effective dates. She said having the provisions take effect more immediately will give companies the peace of mind that they’re already on the books and not subject to change. She said the concern did not rise to the level of her group opposing the bill.
The committee, in the midst of several weeks of hearings on the issue, took no action on the measure Wednesday.
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