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Resources CS for SB 21 moves to Finance Revenue estimates fiscal impact at $465 million to $940 million per year from fiscal year 2015 through FY19; new oil rate modified Kristen Nelson Petroleum News
House Resources completed its work on the oil tax bill in the early morning hours of April 4, passing a committee substitute for Senate Bill 21 on to House Finance.
A preliminary analysis by the Alaska Department of Revenue done April 2 — before House Resources took amendments to the bill — provided an overview of the House Resources committee substitute, or CS.
The bill retains the repeal of progressivity (from the governor’s bill), the base tax rate of 35 percent and the accompanying 35 percent net operating loss credit (from the Senate Finance Committee CS) and the elimination of qualified capital expenditure credits after this year (from the governor’s bill).
A gross value reduction, GVR, replaces the gross revenue exclusion, GRE, in the Senate Finance CS. This provision is intended to provide a tax reduction, set at a 20 percent exclusion of gross value at the point of production, for new oil.
The first two ways to qualify for the GVR — production from land not in a unit Jan. 1, 2003, and production from a participating area established after Dec. 31, 2011, in a unit formed before Jan. 1, 2003 — remain unchanged.
The third way to qualify was changed in the Resources CS to acreage added to an existing PA after Dec. 31, 2012, and requires the operator to demonstrate that the qualifying volume is from acreage added to the PA, convincing the departments of Natural Resources and Revenue, and being able to count the barrels.
Mike Pawlowski, advisor to the Revenue commissioner, told House Resources April 2 that meeting that third way to qualify for the GVR would not be easy but was doable.
Credits The $5 per barrel credit for taxable barrel of oil production subject to the GVR is retained, but for oil not eligible for the GVR there is a sliding scale based on the gross value at the point of production, the wellhead value, starting at $8 a barrel at wellhead prices up to $80 per barrel and dropping to zero at wellhead prices of more than $150 per barrel.
This, Pawlowski told the committee, adds a slightly progressive feature to the system, providing more government take as oil prices rise
The competitiveness review board is retained from the Senate CS, but the frequency of the board’s reports to the Legislature is changed from once a year to once every four years.
The Revenue estimates that Pawlowski presented for the Resources CS as introduced, based on the fall 2012 forecast, would range from a reduction in state revenues of $465 million to $515 million in fiscal year 2015, the first full fiscal year of implementation, to a reduction of $890 million to $940 million in FY2019.
At Revenue’s forecast price for Alaska North Slope crude oil, but with additional oil coming online, state revenues could exceed those projected under the current tax system by FY 2017, according to the Revenue projections.
Competitiveness issue Janak Mayer of PFC Energy, a consultant working on the oil tax issue for the Legislature, said the introduction of the variable production credit in the House Resource CS increases the progressive effect, reducing rates at oil prices below $110 per barrel and increasing them at higher prices. He said the rates with the fixed $5 per barrel credit and the GVR are lower.
The government take for new oil under the Resources CS puts Alaska in a competitive government-take range compared to Lower 48 regimes, according to the PFC chart. For existing oil, the government take is higher, but still well below what it was under ACES.
And, unlike ACES, new oil fares better under the proposed changes than existing oil, a reversal of the situation under ACES, where the PFC chart shows the rate for new oil at the highest among competitive regimes.
Barry Pulliam of Econ One, the consultants working for the administration, compared projected state revenues from the Senate CS with revenues under the Resources CS. At the Department of Revenue’s forecast price state revenues are projected to be the same, although they would be higher under the Senate CS at lower oil prices.
As the Alaska North Slope West Coast price rises to $120 a barrel and above, state take under the Resources CS would be higher than that under the Senate CS.
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