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

Vol. 22, No. 12 Week of March 19, 2017

Competitiveness board changes tack

Group assessing how Alaska’s oil, gas environment compares with other regions delays Cook Inlet report; preparing statewide report


Petroleum News

During a March 10 meeting of the Alaska House Resources Committee, Randall Hoffbeck, commissioner of the Department of Revenue, updated the committee with the status of Alaska’s Oil and Gas Competitiveness Review Board. Hoffbeck said that the board has asked the Legislature to approve the postponement of a report on the Cook Inlet oil and gas industry that had been scheduled for publication in January. Meanwhile, the board and the Alaska Oil and Gas Association have commissioned studies into Alaska’s competitiveness, with a board assessment of the results of those studies expected soon.

Created in 2013

The board was created in 2013 in conjunction with the Senate Bill 21 oil tax bill. The idea was to gather data about the competitiveness of Alaska’s oil and gas industry, from the perspective of taxes on the industry, the regulatory environment and other issues, Hoffbeck said. Ultimately the purpose was to present findings and recommendations in the form of written reports to the Legislature on the competitiveness of the state’s fiscal system, labor pool and regulatory system, compared with other oil and gas production regions.

The board has two public members, not from the oil and gas industry; three state department heads, from the departments of Environmental Conservation, Revenue and Natural Resources; a commissioner from the Alaska Oil and Gas Conservation Commission; three oil and gas subject matter experts: a petroleum engineer, a geologist and a financial analyst; and two industry trade group representatives.

In March 2015 the board delivered an initial report, a general overview of the state’s competitiveness using all of the data that the board had compiled. The report presents an overview of the data rather than an analysis of findings from the data, Hoffbeck commented.

Cook Inlet report delayed

As part of a statutory requirement for the board, another report was due to be published in January of this year, a review of the Cook Inlet tax regime. But since House Bill 247, passed last year, completely restructured the Cook Inlet oil and gas production tax system, with 2017 representing a transition phase for the new tax arrangements, the board saw little purpose in publishing a Cook Inlet analysis at this time and requested a delay until January 2019, by which time the board would have some idea of the impacts of the new tax regime before delivering the report, Hoffbeck said.

But there was another report due in 2021, which some members of the board thought could be worked on and delivered early. That report is intended to present an analysis of the competitiveness of the entire state.

However, the board lacks resources with which to prepare this next report, having only been given one staff position and an allocation of $25,000 per year to carry out its activities. And the staff position was subsequently eliminated. The funding is insufficient to hire the necessary analysts, Hoffbeck said.

Joint effort with AOGA

So the idea emerged of working with the Alaska Oil and Gas Association to contract the preparation of a joint report. The concept recognized the likelihood that some in the Legislature might consider an AOGA report as biased toward the oil industry, while, if the administration prepares the report, some might also consider that to be biased. A combined report would likely have broader acceptance, Hoffbeck said.

The board was unable to progress this concept because of procurement issues in the state administration for a joint effort. So, instead, AOGA has contracted with Wood MacKenzie to prepare an overview of the state’s competitiveness, while the state has contracted with Black and Veatch for a similar report. The board will take the two reports and consolidate their findings as a comparative analysis, highlighting areas of agreement and areas where the findings differ.

Those two reports have not yet been delivered. The hope is to have something before the end of this legislative session, but the board will not be able to deliver anything in time to contribute to the tax decisions that the legislators are about to make, Hoffbeck said.

Voluntary efforts

During a Feb. 1 presentation to the Senate Resources Committee by Hoffbeck and Wyche Ford, chairman of the Oil and Gas Competitiveness Review Board, there was discussion about the challenges of achieving the board’s objectives with little funding beyond what would cover essential costs such as travel.

The original board put in many voluntary hours to prepare the report that came out in 2015, including holding multiple meeting and doing multiple edits of the report, Hoffbeck said. DOR staff compiled the report as “other duties,” he said. Perhaps in part as a consequence of the amount of voluntary effort expended, in 2015 the board started hemorrhaging members. Two commissioners had to leave the board, but five other members left because of personal commitments. By mid-2016 when attention shifted to the Cook Inlet report due in early 2017, the board had been completely reconstituted, Hoffbeck said.

Ford commented that, with resources stretched in the timely preparation of the 2015 report, there were some gaps in the data reported, in particular in the data relating to oil and gas regimes that compete with Alaska. Hoffbeck said that almost all the information about competing regimes related to regions within the United States.

Ford also expressed concern about a lack of evidence that legislators had actually been using the results of the board’s work. What is the method of engagement for having legislative committees use the information that the board had developed, he wondered.

Senate Resources Chair Cathy Giessel responded that, although the original legislation establishing the board had been well intended, legislators seemed to have forgotten that the resource was there.

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