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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2007

Vol. 12, No. 18 Week of May 06, 2007

PPT amendments amended; move on both sides

Kristen Nelson

Petroleum News

An amended proposal to change the petroleum profits tax, or PPT, to prevent companies from deducting costs due to improper maintenance is moving in both House and Senate.

Senate Resources amended Senate Bill 80 April 27 and moved it out of committee; it goes next to Senate Finance.

On the House side, the bill had passed Oil and Gas and been heard and assigned to a subcommittee in Resources. At a May 1 meeting that subcommittee heard amendments and forwarded the bill back to the committee with recommendations from members.

The amendments adopted in Senate Resources deleted a reference to standard practice of the industry and replaced it with good oilfield practice, made technical clarifications and substituted the newly authorized Petroleum Systems Integrity Office in the Department of Natural Resources’ Division of Oil and Gas for the Alaska Oil and Gas Conservation Commission as one of the agencies the commissioner of Revenue could consult in making a determination of costs that would not be allowed.

John Norman, chair of the AOGCC, told Senate Resources that AOGCC is one of the designated agencies that are part of the PSIO working group and said he thought the PSIO would be the most efficient type of coordinating lead agency.

Safety, prevention of waste, primary concerns

Senate Resources had a long conversation with Norman about one provision in the bill which would have added to costs which couldn’t be deducted any “incurred to maintain the operational capability of facilities or equipment shut down because of a lack of or improper maintenance of property or equipment” and finally deleted that provision of the bill.

Norman said he shared the frustration all Alaskans felt over recent events but he said he was thinking ahead of a new operator coming into Alaska in a new basin and trying to figure out how taxes work in the state. He said the proposal was rather novel in his experience based on the relationships that exist between the companies. Partners aren’t responsible for sharing costs in cases of willful negligence or gross negligence — already on the PPT list of costs which can’t be deducted as leasehold expenses. Similarly strict liability is covered in the law, he said: any costs related to spill cleanup can’t be deducted.

But ordinary negligence, the target of the bill, is a way of saying someone made a mistake. There are often young Alaskans working in the oil fields and mistakes can happen, Norman told the committee.

He said oilfield safety and the prevention of waste should be our primary concerns, and the provision which says you can’t deduct costs of a shutdown related to maintenance included in the bill might provide a certain incentive to continue to operate when they otherwise might shut down.






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