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Seeking answers 15 lawmakers ask Parnell if state oil tax policy helps or hurts Alaska investment Wesley Loy For Petroleum News
A group of leading state legislators on Dec. 4 asked Gov. Sean Parnell for a raft of information they want to use to evaluate whether the 2007 oil tax reform is helping or hurting industry investment in Alaska.
The 15 members of the House Majority Caucus posed nine questions covering such areas as lease sale results, oil and gas employment and requests for drilling permits.
The tenor of the group’s letter to Parnell was one of skepticism that the tax change, known as Alaska’s Clear and Equitable Share or ACES, is working to the state’s advantage.
“We think that there are some issues there with the ACES language and we’d like to get some clarifications on the rules so that we can determine if the legislation is working properly, or if we need to make changes,” said House Speaker Mike Chenault, R-Nikiski. “We’re focusing on how it affects job opportunities and exploration opportunities today, versus when it was enacted.”
Pat Galvin, the state revenue commissioner and one of the architects of ACES, told Petroleum News on Dec. 9 the administration was happily compiling the information the lawmakers requested. He also said he believes industry investment has been robust under ACES, even as it rakes in more revenue for the state.
Election year perils The request from the mostly Republican lawmakers sets up an interesting situation with Parnell, also a Republican.
When the Legislature passed ACES in a special session in November 2007, Parnell was lieutenant governor under then-Gov. Sarah Palin, and the administration had huge popular support at that time for pushing the tax reform.
Oil prices and company profits were extraordinarily high at the time. And Palin and many legislators regarded a prior oil tax overhaul only the year before — the Petroleum Production Tax or PPT initiative — as tainted because some legislatures were hit with federal corruption charges in connection with that legislation.
Palin, of course, has moved on and Parnell took over as governor on July 26 after she resigned.
Parnell is running for re-election next year, as are legislators. So the idea of reopening the huge subject of oil taxes, possibly to make some concessions back to oil companies in hopes of spurring more exploration or development spending, is tricky business politically for elected officials.
What they’re saying Aside from Chenault, the other lawmakers who signed the data request to Parnell include Rep. Alan Austerman, R-Kodiak; Rep. Nancy Dahlstrom, R-Eagle River; Rep. Bryce Edgmon, D-Dillingham; Rep. John Harris, R-Valdez; Rep. Mike Hawker, R-Anchorage; Rep. Bob Herron, D-Bethel; Rep. Kyle Johansen, R-Ketchikan; Rep. Craig Johnson, R-Anchorage; Rep. Charisse Millett, R-Anchorage; Rep. Cathy Munoz, R-Juneau; Rep. Jay Ramras, R-Fairbanks; Rep. Paul Seaton, R-Homer; Rep. Bill Stoltze, R-Chugiak; and Rep. Peggy Wilson, R-Wrangell.
Most of the legislators contributed a comment to a “quote sheet” distributed with the four-page letter to the governor. A sampler:
“Alaskans who are losing jobs that were dependent upon a robust oil patch economy want to know if the significant tax increases enacted by ACES are attracting or discouraging the new oil field investment needed to put them back to work. The administration needs to hear these questions and provide tangible evidence supporting their answers,” said Hawker, the House Finance Committee co-chairman.
“As a returning legislator not involved in the nitty-gritty of the ACES debate, and listening to those legislators who were involved, I’m of the opinion that it’s time to take a look at it as a potential detriment to the state of Alaska and the investments in our oil patch,” said Austerman, the House majority whip.
“While we enjoyed the short-term bump to the state treasury, we need to focus on the long view in light of recent decisions coming from the companies on the North Slope. It is clear the oil and gas industry has changed the way they approach Alaska business decisions, and we need to make sure those long-term investments come back on track for future generations,” said Millett, the House Special Committee on Energy co-chair.
In their letter to Parnell, the legislators noted recent “disconcerting” announcements from oil companies. For example, ConocoPhillips, historically the state’s top North Slope explorer, said it will not drill any new exploration wells for the first time since 1965, the letter said. And a BP executive said other areas of the world, such as the Gulf of Mexico, are more attractive for capital investment.
Plans by some companies to explore Alaska’s Outer Continental Shelf is good news, the letter said, but “we all know those leases are in federal waters and will not result in any production tax or royalty for the state.”
The data requests The legislators pose nine questions seeking information from the revenue, natural resources and labor departments and the Alaska Oil and Gas Conservation Commission, which regulates downhole activity.
Among the data requests and questions:
• The average number of bidders and average dollar amount per acre in state lease sales from 2005 through this year.
• Actual and forecasted employment numbers attributable to the oil and gas industry in recent years.
• A read on whether the number of new drilling permits has fallen since enactment of ACES and PPT.
• The number of active drilling rigs and new holes drilled per month from 2005 through the current year.
• A read on whether the industry has “increased its level of exploration and development in general,” especially with respect to smaller fields.
• Considering the tax rates and credits under ACES, is the law fostering new exploration, development and enhanced recovery projects?
• What recommendations does the administration have for changing ACES?
Galvin’s take Revenue Commissioner Galvin told Petroleum News he believes it’s “completely appropriate” for the legislators to pose the questions now that ACES is two years old, and the global economy has been in such upheaval.
But Galvin said he believes ACES is working well, and that some people are overstating the state’s oil production decline to “create a sense of crisis.”
Yes, oil production has been declining in recent years, but nothing indicates the decline is accelerating, he said.
The administration is heartened by the level of “lease expenditures” oil companies are claiming today and expect to claim in the future, Galvin said. Operators provide the state with their projections of operating and capital spending for up to five years into the future.
“That number is significantly higher than it was a few years ago,” he said.
The Department of Revenue, in presenting the state’s new revenue forecast on Dec. 10, said spending on the North Slope is expected to continue at or above current levels with lease expenditures of $4.5 billion and $5 billion in fiscal years 2010 and 2011 respectively.
Galvin added: “We’ve got companies that have never been on the North Slope drilling wells.” This is typical of mature oil provinces that lose the interest of the majors but subsequently see a “renaissance” as smaller companies move in, he said.
Asked flatly whether the state oil production tax is too high, Galvin said: “I don’t believe so based on the evidence of today.”
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