|
Oil tax discussion up again in 2013 Administration preparing for January; Armfield calls for ‘Nordstrom model’ — attractions for new customers, benefits for existing Kristen Nelson Petroleum News
The Alaska oil and gas industry is not happy with the state’s present production tax system, neither is the administration of Gov. Sean Parnell. The Alaska Oil & Gas Congress heard from one of the state’s independent explorers, from the Alaska Oil and Gas Association and from the administration on impacts of the 2007 passage of the current production tax, Alaska’s Clear and Equitable Share, or ACES.
Deputy Revenue Commissioner Bruce Tangeman said the administration would be ready to discuss changes when the new Legislature convenes in January.
Tangeman told the Associated Press Sept. 25 that Econ One Research has been hired to advise the administration on oil taxes. Specifically he said Econ One will look at the oil production picture over the last 10 years in Alaska and other oil-producing regions, research which Tangeman said will lay the groundwork for changes to the state’s oil tax structure.
The contract with Econ One is for an amount not to exceed $658,000 and Tangeman told AP that the goal is to keep the firm on through January so they can testify before lawmakers.
Not the same bill Tangeman told the Alaska Oil & Gas Congress Sept. 19 that the previous administration, which enacted ACES, had done good research. But ACES as proposed wasn’t what the Legislature passed, he said, characterizing the bill that passed as a drastic change from what was introduced, with months of work overtaken by changes in the last 36 to 48 hours.
And he noted specifically that the progressivity feature of ACES — progressively higher rates as the price of oil rises — went from a 0.2 percent proposal to 0.4 percent.
He characterized as bizarre economics the premise that as the tax rate goes up there will be more investment.
Tangeman said Alaska looked at the tax issue from a state perspective, deciding what rate of return the state would allow its oil producers. The state was stuck in the mindset that the value of Prudhoe Bay was so great that the companies would come to the state, he said. Tangeman said reality is that the state needed to be competitive, and consider that in company board rooms the returns ACES allowed would be compared to returns allowed by tax rates in multiple other jurisdictions.
AOGA’s view Kara Moriarty, executive director of the Alaska Oil & Gas Association, the business trade association for the industry, told the Oil & Gas Congress Sept. 18 that at high oil prices, the North Slope should be booming — and it’s not.
She contrasted activity in Cook Inlet, where the ACES production tax does not apply: “Cook Inlet is booming right now,” and compared to four or five years ago, people are back to work and excited about opportunities, she said.
Moriarty said whether the activity in Cook Inlet will lead to more production is uncertain, “but at least the first steps are in the right direction.”
She compared production forecasts from the fall of 2007, when ACES passed, with forecasts for this fiscal year. In five years, there has been “a 14 percent adjustment — in the wrong direction,” she said. The 2007 forecast for this fiscal year was 675,000 barrels per day; the current forecast is 580,000 bpd.
The difference is almost 100,000 bpd, Moriarty said, blaming the state’s “very uncompetitive tax rates.”
The ‘Nordstrom’ plan Bart Armfield, chief operating officer of Brooks Range Petroleum Corp., an independent moving toward its first production on the North Slope, said oil taxes have changed three times since the company came to Alaska: Under the original terms, Brooks Range would have taken home $31 per barrel when oil was priced at $100 per barrel.
“There’s been a 26 percent reduction in your net profits under ACES, and it takes us down to $23.29,” he said.
He said he sometimes wonders if the state is “setting the stage for a close-out sale.”
What’s needed? He compared the state to a boutique which has “very high-end expensive goods and a limited market.”
What’s needed, Armfield said, is a merchant plan. His wife, he said, would call it the “Nordstrom model.”
“And the Nordstrom’s model is to attract new customers; provide value incentives for the current customers that we have in Alaska; expand that customer base; promote repeat business. Customer loyalty is probably a key element of that,” he said.
Armfield said he considers Texas and North Dakota to be Alaska’s domestic peers: They’re “holding anniversary sales.”
And their production is headed in the right direction, up.
“We can’t afford even one more year of delay on ACES reform,” he said, and encouraged Alaskans in the audience to let their elected representatives know they “strongly support a change.”
| 