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May 2007

Vol. 12, No. 19 Week of May 13, 2007

PPT amendments clear Senate Finance

House bill moves on to Finance Committee after additional reference to Judiciary; amendment adds violation of PSIO regulations

Kristen Nelson

Petroleum News

Senate Bill 80 and House Bill 128, amending last year’s petroleum profits tax, may have a chance of passage in the waning days of the Alaska Legislature.

The bills — aimed at ensuring that any costs resulting from repair or replacement due to lack of maintenance or improper maintenance cannot be deducted as lease expenses in calculating the oil and gas production tax — are a reaction to the transit line corrosion at Prudhoe Bay where field operator BP has said it will replace the corroded transit lines. The Senate version was sponsored by Tom Wagoner, R-Kenai; the House version by Kurt Olson, R-Kenai. There are 17 cosponsors to the Senate bill, 20 in the House.

SB 80 cleared Senate Finance May 8; HB 128 cleared an added referral to House Judiciary May 7. The House Judiciary referral was added to get the bill out of Resources, where it initially failed to garner enough votes to clear the committee. Members who were concerned about legal issues agreed to move the bill if House Speaker John Harris agreed to the addition of the Judiciary referral; he did and they did.

HB 128 still has to clear Finance, which currently has the governor’s Alaska Gasline Inducement Act on its plate. The session ends May 16.

The bills as introduced were identical and as the administration and committees worked on them, similar changes were made to both, clarifying language and which agencies would be involved.

Senate Finance added back in a provision deleted in House Resources including among the costs that cannot be deducted under the PPT as leasehold costs those “incurred to maintain the operational capability of facilities or equipment shut down because of improper maintenance of property or equipment.”

That provision is in section 19 of the listing of items which cannot be deducted.

One difference in current versions

The only difference in the current versions of the bill is an addition to the House version of a 20th item, “costs related to the maintenance of oil and gas facilities, equipment, and infrastructure that are incurred as a result of a violation of a regulation adopted by the person in the Department of Natural Resources who is the lead person for exercising oversight over the maintenance of oil and gas facilities, equipment, and infrastructure in the state.”

This is a reference to the newly created PSIO or Petroleum Systems Integrity Office in the Department of Natural Resources’ Division of Oil and Gas. The head of the PSIO, along with the commissioner of Environmental Conservation and the commissioner of Natural Resources, are those designated to consult with the commissioner of Revenue under section 19 in determining whether or not costs in that subsection can be deducted as lease expenses.

Industry has opposed the bills, telling legislators that it is too soon to start making changes in PPT, that maintenance issues are already covered in the subsection 18 deduction of 30 cents per barrel from lease expenditures otherwise deductible under the PPT and that the provision will lead to litigation as auditors identify and challenge costs which they believe fall under the proposed new subsection.






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