Providing coverage of Alaska and northern Canada's oil and gas industry
April 2018

Vol. 23, No.15 Week of April 15, 2018

Bonding bills move to Finance

Kristen Nelson

Petroleum News

The bills proposed by the administration to bond for payment of oil tax credits, allowing them to be paid off quickly, have progressed through the Resources Committee in both House and Senate. House Bill 331 was awaiting transmittal to the next committee (House Finance) when this issue of Petroleum News went to press; Senate Bill 176 was in Senate Finance, but no hearing had been scheduled.

There was considerable committee discussion, including what companies should have expected and whether bonding for this was constitutional.

Rep. John Lincoln, D-Kotzebue, asked in House Resources how reasonable it was for exploration companies to have thought the credits would be paid.

Deputy Commissioner of Revenue Mike Barnhill said it was impossible to know what the expectations of a small explorer would have been, but he noted the state marketed the credits based on state participation in the life cycle of projects.

His presentation materials included an ad the state used to promote the credits, which says: “We do not just talk big, we follow through big - with cash!”

As to the expectation that the small companies had that payment would be immediate, Tax Division Director Ken Alper said that for many years there was full payment and the expectation of full payment.

Constitutional issue

Sen. Bill Wielechowski, D-Anchorage, questioned the constitutionality of the bonds in the Senate Resources hearing, saying state debt is not permitted under the Alaska Constitution without approval of the voters.

A letter on the subject from the state debt manager in the Department of Revenue and an assistant attorney general in the Department of Law, said that was not the case.

The legislation, they said, authorizes issuance “subject to appropriation bonds which is a form of financing that has been utilized in the past by the state and has not been considered to be unconstitutional state debt.”

House Resources co-Chair Geran Tarr, D-Anchorage, said her concern is that there is already a mechanism on the books to pay off the credits, and said she would prefer finding a way to pay out faster than the statutory schedule, rather than bonding.

The debt is now interest free, she said, but once the state bonds for it, payment on that debt would have to the prioritized over other needs in the state. She said she would prefer to have the state get its fiscal house in order before taking on more debt.

AOGA concerns

The Alaska Oil and Gas Association told the committees that it supports expedited payment of earned credits. It said in written testimony to House Resources that the governor’s plan is an innovative approach to repay a portion of the earned credits at a reduced rate by lowering the refunding rate to cover the state’s bond finance costs.

AOGA said it “has concerns about the steep discount and other provisions of the bill,” but is committed to working to find an equitable solution.

And it isn’t just oil and gas companies - refinery tax credits are also involved. Petro Star told House Resources in written testimony that it and Arctic Slope Regional Corp. made significant investments in asphalt for the Interior and lower-cost fuel for Golden Valley Electric Society, and to date, “have only received a small fraction of the refinery tax credits claimed.”


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