Increased oil shipping rates on the trans-Alaska oil pipeline could cost the state roughly $102 million a year if they stand, according to an estimate by a state petroleum economist.
With the rate hike, the hit on state revenues would be about 50 percent higher than it would have been under the state’s old oil tax system, said Roger Marks with the Alaska Department of Revenue. The new tax system, however, would still bring in far more revenue than the old, he said.
The Alaska Legislature adopted the new system last year hoping to secure a natural gas pipeline deal with the major North Slope petroleum producers. The gas line deal stalled, but the oil tax revisions remain.
The owners of the 800-mile trans-Alaska pipeline, primarily the three main oil producers in the state, announced in December that they would raise the amount they charge to ship oil by an average of about $1.14 per barrel. The increase was effective New Year’s Day.
Under the state’s old production tax, the state collected about 9 percent of the oil’s gross wellhead value, Marks said. The wellhead value is determined by subtracting transportation costs, such as pipeline shipping tariffs, from the oil’s sale price.
Thus higher tariffs meant less money for the state and the tariff increases announced in December would have cut state income by about $68 million annually, Marks estimated.
New tax on net profits
Under the new tax system, oil companies are charged 22.5 percent of their net profits from North Slope production. The cost of shipping the oil, among other expenses, is subtracted from the taxable profits, again reducing state revenue.
But the effect of higher tariffs is greater under the new tax because the rate to which they apply is greater than the previous system. So the new tariffs would cost the state about $102 million annually, Marks estimated.
That greater loss, however, is overshadowed by an additional $800 million the state would earn as a result of the new tax system, under current oil prices of $58 per barrel, Marks said.
The Department of Revenue predicted in its fall 2006 forecast that the state would earn about $4.95 billion from oil revenue in the fiscal year ending July 1. Of that amount, about slightly more than $2 billion was expected to come from the new production tax.
An almost identical amount was expected from sales of the state’s royalty share of oil produced from state leases. Most of the remaining $800 million was expected to come from corporate income taxes
