Providing coverage of Alaska and northern Canada's oil and gas industry
May 2017

Vol. 22, No. 21 Week of May 21, 2017

HB 111 rolls to special session

The Alaska Legislature gaveled out May 17 without passing capital or operating budgets, a fiscal plan or House Bill 111, the oil tax and credit bill.

Those items are among those listed on Gov. Bill Walker’s call for a special session beginning May 18.

HB 111 originated in the House Resources Committee and a House Finance Committee substitute for the bill passed the House April 11.

Senate Resources substantially amended the bill, which was further amended in Senate Finance. That bill passed the Senate May 15, and the House, as expected, rejected the Senate version May 16.

On day 121 of the regular session, May 17, the Senate voted against rescinding its amendments to the House bill.

Legislation passed last year, HB 247, ended the refundable credit system for Cook Inlet. A goal of all versions of HB 111 has been ending refundable credits on the North Slope.

The Department of Revenue fiscal note for the Senate Finance CS describes the bill as “a comprehensive attempt to reform and reduce the cost of Alaska’s current program of providing direct tax credit rebates and other advantages to oil and gas companies.”

State repurchase of credits began in 2007, with some $8 billion in tax credits received by companies through the end of fiscal year 2016, including credits against tax liability and credits repurchased by the state.

Revenue said the Senate Finance CS would provide additional revenue up to $12.5 million per year, with no new additional revenue expected in FY 2017 due to phased implementation.

The department said changes in the bill would require “somewhat substantial reprogramming of the Tax Revenue Management System and Revenue Online tax portal,” at an estimated one-time cost of $1.2 million.

Revenue said the CS repeals certain credits and closes loopholes with the carried forward annual loss credit reduced to 15 percent and sunset in 2018 for Cook Inlet and Middle Earth. Unlike previous versions, the CS does not create a Cook Inlet legislative working group but instead extends the current Cook Inlet tax cap, averaging 17.5 cents on Cook Inlet gas, indefinitely, and establishes a new tax, not to exceed $1 per barrel, for Cook Inlet oil.

The CS keeps the current North Slope $70 million per company cap on annual credit certificate repurchases, but allows only the first $35 million to be repurchased at full face value, with the remainder at 75 percent. A company can also choose to carry the second part forward.

Operating losses for larger companies continue to be carried forward against future taxes.

The gross value reduction for new oil only applies for the first seven years of production and is lost on Jan. 1, 2023, for fields receiving it prior to the bill’s effective date. The GVR can be terminated early if the price of oil exceeds $70 for three years of production.

Revenue said the Finance CS also repeals several older and currently unused exploration credit programs and authorizes the department to use credit certificates to offset a company’s other obligations to the state prior to repurchase.

Reactions to Senate version

Alaska Oil and Gas Association President and CEO Kara Moriarty said in a May 15 statement that the Senate CS is “the seventh change to Alaska’s oil tax structure in 12 years. It eliminates cash payments to companies, and adds $1.2 billion to the State of Alaska’s treasury over the next 10 years.”

Moriarty said the state takes in more revenue than industry “at every oil price - at high and low oil prices.”

HB 111 originated in House Resources, co-chaired by Rep. Geran Tarr and Rep. Andy Josephson, both Anchorage Democrats.

“The Senate version of the bill follows the lead of the House in stopping the unsustainable practice of the State of Alaska paying for tax credits,” Tarr said in a May 16 statement.

“However,” she said, “the Senate version of the bill has major problems that we just could not accept.”

Tarr cited changes in the House version designed “to make Alaska’s tax system work better in the current low oil environment.”

“The Senate Majority took our good bill that was developed in the open, with advice from the experts and the input of Alaskans, and replaced it with a bad bill that continues many of the flaws that have placed Alaska in our current precarious financial position,” Josephson said. “The best course of action is to take this bill to a conference committee where an acceptable compromise can be reached that protects the state during these low oil prices, while still keeping Alaska competitive as a place for future oil industry investments.”

Senators have argued that any substantial rewrite of the state’s oil tax system requires time and expert testimony than time allows this year.


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