Hawker proposes lower base rate oil tax

Anchorage Republican says Alaska needs to maximize benefits of state’s resources to people over time, not in immediate instance

Steve Quinn

For Petroleum News

For eight years, Rep. Mike Hawker built a reputation as a lawmaker willing to do any heavy lifting necessary to advance or limit legislation.

He’s has been on the front lines for major fiscal debates while serving on the House Finance and Legislative Budget and Audit committees.

Hawker’s signature resolve got its greatest test last year when the Anchorage Republican battled cancer, refusing to succumb to a terminal diagnosis.

He begins a fifth term, this time heading LB&A. He’s entrusted with, among many things, finding consultants to assist with upcoming discussion on energy issues.

Hawker stepped up first with a proposed change to the current oil and gas tax structure called Alaska’s Clear and Equitable Share.

He calls HB 17 the FACTS bill — Fair And Competitive Tax Systems. It brings the base rate down from 25 percent on net profits to 20 percent.

It also “brackets” potential surcharges that come with market price increases, a formula akin to the personal income tax approach.

Hawker sat down with Petroleum News to discuss wide-ranging energy issues the Legislature faces in the current two-year legislative session.

Petroleum News: Over the next two years, what can be done with HB 17 or another vehicle (bill) or a combination to strike a balance where the state still has enough money?

Hawker: I’d like to see it pass in 90 days here. It’s an absolute red herring argument when folks are saying, ‘Oh, we’ve got to take all the money that we can right now. We’ve got to take it as fast as we can.’

That presupposes that the well is bottomless and there are no regulators involved in how much we can take over time from that well.

They aren’t looking at all what our mission should be: maximizing the benefit to the people of Alaska from our natural resources over time, not this immediate instance.

As long as we continue to take as much as we can from the industry up front today, we clearly are compromising the long-term sustainability of state funding.

Petroleum News: Critics of this bill want a quid pro quo, promises for some kind of return.

Hawker: They are mistaking the role of government. The role of government is to provide an economically competitive environment so industry desires to come to take the business risk to develop resources here. A quid pro quo agreement means we would be sitting down and discussing a contract with them for the development. That’s code word they want the state to become a national oil company or in this case a state oil company.

Petroleum News: You deemed ACES punitive after it passed. Do you believe that still?

Hawker: To me the most telling fact about the failure of ACES is that if we go back to 2007 before ACES passed and you pull up the future North Slope oil production forecasts — and compare those to the same time frame four years later, the current forecast are in excess of 100,000 barrels a day less than what they were before ACES passed (a 115,040 bpd decline from FY2008 forecast in Fall 2007 to FY 2011 forecast in Fall 2010). I personally see a causal link there.

Petroleum News: There’s a recent consultants report that says upstream investment is on the uptick but Alaska doesn’t seem to be on the industry’s radar.

Hawker: We in Alaska have this arrogant attitude that industry is going to be here and come and do everything regardless of how they are treated. Alaska policymakers just don’t seem to understand we have to be competitive in an international as well as national marketplace.

Petroleum News: There is a second report that encourages the International Oil Companies (IOCs) to work with the National Oil Companies (NOCs) or be left out. Does it concern you that Alaska may no longer be a priority?

Hawker: It’s that simple issue of competitiveness. I keep seeing one of my colleagues screaming they (oil companies) are making profits and we need to take all the rest because they are making profits. We are talking about international competition. It’s not enough for a prospect to simply be profitable. We have to be competitive against other profitable alternatives. That’s not what we are.

Petroleum News: Gov. (Sean) Parnell responded with his own bill that relies on a similar formula to yours. What do you think of his offering?

Hawker: It demonstrates that he and those people I’m working with in the Legislature, that we share the same concerns; we see the problems we have created for ourselves are very similar. I believe we are exactly on the same sheet of music by identifying the problem and imposing one important remedy to the problem.

Petroleum News: Is this something you want to get right so you don’t have to do it a year or two years from now as with past years?

Hawker: We can in some degree compartmentalize oil tax, gas tax, big gas lines, little gas lines. We are not going to come up with one piece of legislation that is the ultimate comprehensive solution to everything.

We do not have any significant commercial gas production. All that gas that is coming up is simply going back down the hole for oil production, which is where all of our state revenues are coming from.

With this continued 6 to 7 percent (annual) decline we are rapidly reaching the point that the TAPS system is no longer technically viable, we have to keep that oil production up.

We must deal with oil tax. I use the word lightly but we can punt gas tax to a future consideration.

Petroleum News: What are your concerns about the progress — or perhaps lack thereof — with a natural gas pipeline. Neither project has come forward with precedent agreements to illustrate a conditional deal between producers and pipeline companies.

Hawker: Those of us who felt that AGIA (Alaska Gasline Inducement Act) was not going to be a viable route forward are sitting here saying, ‘I told you so.’ Likewise

It is the continued clear and convincing evidentiary material that Alaska’s gas remains economically stranded. Until we accept that fact again and the state goes back to recognizing there is a role for the state in working with industry in making our gas economically viable. No one can make it happen unilaterally.

Petroleum News: What do you do if the (currently discussed) in-state gas line is deemed cost prohibitive?

Hawker: This type of project will be cost-prohibitive if the pipe is too small. As long as under AGIA that alternative pipe design is restricted by statue to (less half a billion cubic feet) per day, it will always be cost prohibitive to market the gas. Government has created an artificial constraint that has prevented engineers from developing the most viable and efficient product. The State of Alaska Legislature has got to someday understand that we cannot write the laws of physics and the laws of economics.

Petroleum News: Let’s take that argument and move it to Cook Inlet where last year the Legislature has created laws to stimulate prospective development with a gas storage facility and attracting a jack-up rig for exploration.

Hawker: When we get out of the way and let the marketplace operate, the marketplace responds to the community’s needs. Yes, the Legislature can have a very influential role in the successful development in our oil and gas resources, but we have to be very careful in recognizing our power is so great that we use it judiciously, appropriately and in a manner that fosters development and doesn’t compromise it.

Petroleum News: Do you have any final thoughts?

Hawker: My capstone comment would be, we constantly hear the call that Alaska must get our fair share of our oil. The whole issue is what is our fair share? What I offer is that if we do not give serious reconsideration to what we consider our fair share, very soon, there will not be anything to share at all.