Panel analyzing role of Alaska's oil, gas tax

Published on March 4th, 2010

By ASSOCIATED PRESS

A Senate committee is hearing conflicting accounts of how well Alaska's oil and gas production tax is working, with no promise that anything will be done about a nearly 2-year-old tax that has helped swell state coffers but draws complaints from oil companies.

As part of a series of ongoing hearings, industry representatives told the Senate Finance Committee last week that the tax is too high and the regulations too ambiguous to give producers assurances they need in making major investments.

The state Department of Revenue has said the tax, which provides tax breaks for new development, is performing as expected. A consultants' report questioned how great a role the tax was playing on development decisions amid the volatile prices and global economic woes of the last couple years.

Who's right, and what, if anything, will lawmakers do about it before they're set to adjourn in April?

It's tough to sort out, said Sen. Bert Stedman, co-chairman of the committee holding highly detailed, intense hearings on the tax. Companies don't want to disclose information they consider confidential, he said, and the administration's take on the tax is "almost opposite" of that of industry.

The committee is examining the tax amid forecasts of continued declines in North Slope oil production, Alaska's bread and butter, and an approaching open season for a major natural gas pipeline project.

A number of what are seen as corrective action bills have been proposed, ranging from Gov. Sean Parnell's plan to expand tax credits to help encourage new investment to proposals by House Republicans, worried that tax is hindering development, that include a partial rolling back of taxes. House Democrats remain unconvinced any action is needed, saying jobs and investment have increased under the tax scheme.

Under Alaska's Clear and Equitable Share tax structure, passed in late 2007, the base tax rate on the net profits of oil companies was raised from 22.5 percent to 25 percent with a progressive surcharge that's triggered when those profits top $30 a barrel. North Slope crude was trading around $78 a barrel last week.

During the last fiscal year, when West Coast oil prices averaged over $68 a barrel, the system generated $3.1 billion in production tax revenue; in fiscal year 2008, when oil prices and profits were high, it generated $6.8 billion, the revenue department said. Both levels were far higher than the state would have seen under its previous tax regimes, it said.

But the progressive surcharge could be stifling, and can get as high as 75-80 percent, depending on the price of oil, said Marilyn Crockett, the executive director of the Alaska Oil and Gas Association.

Last week, industry representatives said the tax's toll on investment decisions can't be diminished.

Cry for clarity

The system also includes tax incentives for new exploration and investments. But Crockett said there needs to be greater clarity in state regulations - and greater assurances for producers that promised tax benefits will, in fact, be realized.

In a report released in January, the revenue department said capital spending on the North Slope reached one of its highest levels ever in fiscal year 2009, about $2.2 billion. It also said long-term price forecasts, as well as the resources, "have proven to be much more significant driver of industry activity" than the state's tax.

Industry representatives also offered their take on how capital funds were spent - how much was on new investment, as was a goal, and how much was on repairs and maintenance on existing fields.

Wendy King, an official with Conoco Phillips Alaska, attributed that North Slope player's spending increase from between 2005-2008 to extending field life. Maintenance has helped drive employment levels, information she provided showed.

Senate President Gary Stevens said Senate leaders wanted to know how serious the situation actually is; there's no expectation that legislation will arise from the hearings, he said, though it's possible.

Stedman said he hasn't spoken with committee chairs handling the existing tax bills. In the end, though, in his view, "it is a financial issue."