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Rocking the NS investment boat: another effort to raise oil taxes
Kristen Nelson Petroleum News
An initiative was filed Aug. 16 to put what backers are calling the “Fair Share Act” on the Alaska ballot in 2020, increasing what the group calls “Alaskans’ share of production revenues from the sale of our oil.”
This is the second oil tax related initiative Alaska has seen in recent years. The current initiative would enact oil tax legislation; the 2014 initiative would have repealed oil tax legislation.
“Alaskans should receive their fair share from the sale of our oil,” said Robin Brena, one of the current initiative committee members. The group proposing the initiative said the tax increase would only apply to the largest and most profitable fields and also said the proposed legislation would require filings by producers on costs and revenues to be public.
Kara Moriarty, president and chief executive officer of the Alaska Oil and Gas Association, called news of the initiative no surprise, “but,” she said, “the proposed ballot measure would dramatically increase taxes on the heart of Alaska’s oil patch. No industry in Alaska can sustain an increase of this magnitude without causing a disaster for our state’s economy.”
“While the initiative is only two pages long, it represents an extreme policy shift that would undoubtedly have an impact on industry, the level of which we are still evaluating.”
Moriarty said the increase on production taxes would be more than 90%.
Company response BP Exploration (Alaska), in a statement provided by spokeswoman Megan Baldino, said: “The state realizes the benefits of SB21 through a thriving oil and gas industry: more oil flowing down TAPS than forecasted, jobs, additional new developments, and years of life added to backbone fields like Prudhoe Bay and corresponding state revenues for years to come.
“We are still reviewing the initiative, but our initial analysis shows a $1-$2 billion tax increase to industry. These costs will stunt investment and make Alaska far less competitive.”
ConocoPhillips Alaska spokeswoman Natalie Lowman said ConocoPhillips is “still reviewing the language but the initiative appears to propose a very substantial increase in oil taxes that would make investing here less attractive. As a company, we have responded to the positive investment climate created by SB21: we have brought new projects on line, adding rigs to our North Slope rig fleet, provided hundreds of construction jobs, done significant exploration in NPR-A, and increased our production in the years since SB21 took effect. The current base tax structure is working to keep Alaska competitive for investment.”
Proposal the ‘Fair Share Act’ The proposal, called the Fair Share Act, a two-page bill, would make changes in the production tax system enacted in 2013 in Senate Bill 21, under then-Gov. Sean Parnell.
SB21, the “More Alaska Production Act,” replaced ACES, “Alaska’s Clear and Equitable Share,” passed in late 2007 under the administration of then-Gov. Sarah Palin.
Continuing investment had been a concern as legislators worked on ACES.
After ACES was enacted, oil prices spiked and so did state revenues. But production levels dropped, as did investment, at a time of high oil prices when investment logically would have grown.
That led to SB21.
Which led an initiative effort to repeal SB21 which failed in 2014. Had that repeal been successful, ACES would have been put back in place.
The act under the current initiative would apply to large established North Slope fields, specified as: “oil produced from fields, units, and nonunitized reservoirs north of 68 degrees north latitude that have produced in excess of 40,000 barrels of oil per day in the previous calendar year and in excess of 400,000,000 barrels of total cumulative oil production. For other oil production, the tax shall be unchanged by this Act.”
Minimum of 10% The initiative act says that for production taxed under the act (i.e. large established North Slope fields) the tax due each month will be no less than 10% of the gross value at the point of production when the average price for Alaska North Slope crude on the West Coast is less than $50, and an additional 1% for each $5 increment in the average price of ANS crude, with the maximum tax rate not to exceed 15%, which would be reached when the price per barrel is equal to or exceeds $70.
This appears to change the net tax concept currently in law, which allows specified costs to be deducted from the gross value of oil at the wellhead before the tax is calculated.
The initiative act specifies: “No credits, carried forward lease expenditures, including operating losses, or other offsets may reduce the amount of tax due below the amounts calculated in this section.”
Information would be public The initiative act also goes after information.
It states: “All filings and supporting information provided by each producer to the Department relating to the calculation and payment of the taxes set forth in Sections 3 and 4 shall be a matter of public record.”
This is a change from existing statute, which restricts the Department of Revenue to only releasing information “if aggregated among three or more producers or explorers, showing by month or calendar year and by lease or property, unit, or area of the state:” including production amounts; taxes levied; effective tax rates; gross value of oil or gas at point of production; transportation costs for oil or gas; qualified capital expenditures; exploration expenditures; production tax values; lease expenditures; other adjustments to lease expenditures; and tax credits applicable or potentially applicable.
Comments from promoters In its statement on the initiative the proponents said the act would increase production revenues by $1 billion per year which, they said, would: “Permit commonsense solutions for funding essential services, capital projects, and our PFDs.”
“We should not be giving away tax breaks and credits when we are unable to fund essential services such as education, universities, senior services, public safety, rural electrical equalization, and the ferry system,” said Jane Angvik, one of the initiative committee members.
Merrick Peirce, one of the initiative committee members, said: “We should be doing much better than we are, and if we are able to keep more of our production revenues within Alaska, it should help our economy, save and create more jobs for Alaskans, help fund capital projects throughout Alaska, and help fund our PFDs.”
AOGA opposes initiative “This initiative raises taxes on over 90% of Alaska’s current production,” Moriarty said in AOGA’s statement, adding that the act is being proposed “at a time when Alaska is just barely crawling out of a recession.”
Moriarty disagreed with the statement of sponsors that new fields would be held harmless, saying “any successful production, such as production from ANWR or large new discoveries will eventually be under this new system. Make no mistake, the entire industry is at jeopardy with this initiative.”
She said this may seem like an easy fix to the state’s fiscal problems, but “this is bad policy and it is irresponsible to put forth a major policy proposal like this where impacts have not been properly evaluated. Smart policy should encourage new oil production from all fields in Alaska which puts more oil in the pipeline. More oil means more revenue for the state, and that’s the best longterm approach to helping the state’s fiscal problems.”
Governor not interested Gov. Mike Dunleavy, a Republican, has said he is not interested in raising taxes but the administration has contracted with economist Ed King to study oil taxes.
The Associated Press reported in July that the contract with King involves the study of potential tax changes and their impact on the oil industry. Revenue Commissioner Bruce Tangeman told AP: “I know the Legislature is geared up. If they gear up, I have to gear up.”
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