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Bill extending Cook Inlet gas credit moves House Oil and Gas passes out bill to extend, expand, tax credits for gas development; bill faces work in House Resources Kristen Nelson Petroleum News
House Bill 294, amending and extending Cook Inlet natural gas tax credits enacted in 2003 in HB 61, was amended and moved out of the House Special Committee on Oil and Gas Jan. 31, headed for House Resources.
HB 294 was introduced by Rep. Mike Chenault, R-Nikiski, in April.
The bill would increase the amount of the exploration and development incentive tax credit for natural gas south of the Brooks Range from 10 percent to 25 percent. The bill would also remove a 50 percent limitation in the amount of credits that can apply in a single year; remove the “successful efforts” requirement that developers must find and deliver new gas resources to market to qualify for the credit — allowing the credit to apply to dry holes; extend the sunset date of the investment tax credit from Jan. 1, 2013, to Jan. 1, 2020; and extend the sunset for use of the credit from the end of 2017 to the end of 2024.
The bill is supported by Marathon Oil Co., a major Cook Inlet natural gas explorer and producer.
John Barnes, the manager of Marathon’s Alaska business, told the committee at the bill’s first hearing Jan. 26 that Alaska projects are not considered solely on their merits and HB 294 “will strengthen these incentives” from HB 61. He said more exploration is needed in Cook Inlet and the additional incentives in HB 294 will help level the playing field between Alaska projects and others. Barnes referred to the U.S. Department of Energy’s study of gas resources in Cook Inlet. The department said an expenditure of $500 million would be required to find 1.4 trillion cubic feet of gas, and $5 billion to $6 billion for exploration and development of 6-8.5 tcf of resource, he said.
Asked by Rep. Vic Kohring, R-Wasilla, the committee chair, why the tax credits should be increased and the 50 percent limit for credits that can be applied in a single year removed, Barnes said the bill has only been “moderately successful.” The level of exploration hasn’t increased enough to benefit the state, he said.
Rep. Lesil McGuire, R-Anchorage, said she was “leery of eliminating the 50 percent” annual limitation for use of credits. She said it “strikes a good balance ... between rewarding investment while still getting revenue.” McGuire said she was also concerned about extending use of the credit out to 2024. Barnes: investment needed to replace gas Barnes said there was a need to “have an ongoing spend profile in the Cook Inlet” and the goal of the bill was to provide “a very, very stable picture of a reward that could be there for ongoing investment.” He said it takes quite a bit of time to get a field online and producing. Cook Inlet uses 150-200 billion cubic feet of gas per year, he said. If reserves could be found and replaced at $1 per thousand cubic feet, it would take a $200 million per year capital program in Cook Inlet to replace the gas being used, “and to keep that level of activity you have to create an environment that draws that investment in.”
Barnes told the committee Jan. 31, when the bill came up again, that numbers in the bill “were designed to be a starting point for discussion.” He said he expected that the Department of Revenue would do some modeling to help the Legislature “calibrate the amount of incentive that they would seek.”
The original bill, HB 61, applied only to areas south of 68 degrees north latitude, and Rep. Norm Rokeberg, R-Anchorage, proposed an amendment to HB 294 to exclude from the bill gas delivered from the North Slope to tidewater below 68 degrees north latitude, ensuring that the credit applied only to gas produced south of the Brooks Range, and not to facilities related to North Slope gas shipped south. The amendment was adopted and the bill was moved out of committee.
Kohring, Rokeberg and Rep. Ralph Samuels, R-Anchorage, all said Jan. 31 that the bill would receive further work in House Resources. Samuels, who co-chairs House Resources, was interested in having the Department of Revenue do some modeling on the incentive increases proposed in the bill.
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