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House Resources tackles tax cut proposal Governor’s bill gets first hearing; committee hears from Revenue, will hear from industry before discussing changes to HB 110 Kristen Nelson Petroleum News
Addressing progressivity, promoting infield drilling and development of new fields are the goals of the governor’s proposed changes in Alaska’s oil and gas production tax, Commissioner of Revenue Bryan Butcher told the House Resources Committee Feb. 7.
Butcher led off the committee’s discussion of House Bill 110. Resources co-Chair Eric Feige, R-Chickaloon, said the committee would be interested in aspects of the bill that put more oil in the pipeline.
Feige said at a House Majority press availability on Feb. 8 that the committee planned to hear from producers, explorers and contractors in the second week of hearings and would then begin making changes to the bill.
On Feb. 9 the committee heard a presentation by Roger Marks, an economist who is a consultant for the Legislative Budget & Audit Committee, on the history of oil taxes in Alaska, and on Feb. 11 the committee was scheduled to hear an oil and gas production tax status report from the Department of Revenue.
Dropping in attractiveness Butcher discussed the state’s declining oil production, down 68 percent from a peak in 1988. He said the decline has averaged 5 percent and is expected to be 3-4 percent a year over the next 20 years. In addition to the loss of production tax revenue, lower production also leads to higher per-barrel tariff costs, which reduces the wellhead value.
He cited The Fraser Institute’s 2010 petroleum survey (see sidebar to story) to illustrate where Alaska falls in attractiveness within North America — it is close to the bottom in terms of attractiveness to the industry.
Fraser identified Alaska’s weaknesses as: environmental regulations; cost of regulatory compliance; uncertainty concerning protected areas; disputed land claims; and tax regime.
The tax regime, Butcher said, is something the state can do something about.
Compared to other North American jurisdictions, Alaska ranks behind only California, the U.S. offshore Pacific, New York and Florida on tax regime attractiveness.
Another angle While the governor’s bill addresses progressivity, the tax cap, tax credits and the base tax rate, a bill introduced in the Senate Feb. 7, Senate Bill 85, proposes that for new production outside of existing units the state would grant a production tax holiday.
Sen. Tom Wagoner, R-Kenai, the bill’s chief sponsor, said “it’s designed to be competitive with what they’re doing in Alberta.”
Speaking at a Senate Bipartisan Working Group press availability on Feb. 8, Wagoner said the “holiday goes for five years or until they pay back the expenses to get to production, whichever comes first.”
He said the state’s “biggest concern should be getting more oil in the pipeline to limit the amount of decline we’re having,” and the bill is designed to encourage production because companies don’t get anything from the state “until they go into production.”
Wagoner said companies that have seen the bill like what it does. The state has other incentives for exploration and SB 85 is planned “to take that up to 100 percent from the time they start exploring and doing seismic work until the first barrel of oil comes out of a well.”
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