Oil tax bill headed to House Resources

Committee heard House version earlier in session, Feige says they’ve done background on issue, will look at what Senate passes

Steve Quinn

For Petroleum News

The oil tax reform bill is back in House Rep. Eric Feige’s court.

The Republican from Chickaloon is in his second term as co-chair of the House Resources Committee and long an outspoken proponent calling for oil tax reform that he believes needs to happen if Alaska is to compete globally for industry investment.

Two years ago, Feige’s committee helped craft the House version of House Bill 110, but the Senate refused to act on that bill last year, so the Legislature and Gov. Sean Parnell started over with Senate Bill 21 and HB 72.

Feige held a few hearings on HB 72, then announced his committee would review other bills while the Senate handled SB 21.

While the Senate began debating its version and subsequent amendments, Feige spoke to Petroleum News about what’s next and committee accomplishments thus far.

Petroleum News: You made a decision awhile back to work with the Senate’s version of the oil tax bill, even though you’ve held a series of hearings. Are you still OK with that and what drove that decision?

Feige: I’m fine with it. I don’t think it was a question that the House will pass a tax reduction. The question was whether the Senate will get 11 votes. When they do, we’ll proceed to do our part with the bill.

Petroleum News: Are you satisfied with the progress so far?

Feige: Yes.

Petroleum News: What do you like about it?

Feige: It retains the net profits system. I think what they did with the $5 barrel exclusion and getting rid of progressivity has done a lot to simply make the rate essentially a flat tax across all price ranges. It will make it easier for the companies to make solid investment decisions. One of the things that came out in our hearings on HB 72, what impressed most or all of our members was BP’s presentation on depending in what order you do the calculations, you get a different result. I don’t think anybody ever intended to do that when they wrote ACES the first time. That’s the collateral damage, one of the unintended consequences of writing the bill that way. If you do it in this order, you get this result. If you do it in that order, you get that result. How is a company supposed to plan and make good investment decisions or make decisions at all, if they can’t predict what the outcome is going to be? Progressivity as a whole was problematic in that regard.

Petroleum News: So let’s talk about the complexities of a tax system. One of the complaints is the current system is too complex. But now there is a sliding scale applied to the prospects of a gross revenue exclusion. Do you think you’re getting back into something else that is too complex?

Feige: No. I’d certainly like it to be simpler, but I think to keep the votes intact, you’re going to have to retain a certain level of complexity. I don’t think anybody has been able to figure out a way to make it truly simple other than diving off a cliff and just making it a flat gross tax.

Petroleum News: Has that been kicked around?

Feige: You know, in theory it’s been talked about. That’s one of those things that becomes an unknown There is always a certain resistance to jump off into the unknown.

Petroleum News: So when the bill lands in your committee, do you pick up where you left off in any way? Or do you pick up SB 21 in its entirety?

Feige: We’ll take it and see how this bill has changed from the original bill. My members are up to speed enough. They have been following the bill. They haven’t been following every twist and turn because we all know it’s going to be different when it finally comes off the Senate floor. But we’ll assess what they’ve done and we’ll proceed accordingly.

Petroleum News: Do you have a timetable established for your committee?

Feige: Not a specific one. I’m not going to dawdle on it. I’d like to get this whole process done before the end of our regular session. That means we have to give Finance a reasonable amount of time to address their concerns with the bill. I’m not going to put a specific timetable on it, but we’re not going to let it collect dust.

Petroleum News: Would an extra 30 days help or is that prolonging an issue unnecessarily?

Feige: I don’t know that it would necessarily help. There’s been an awful lot of effort put into this bill as it is now. In a special session, you have an awful lot of people sitting around twiddling their thumbs. Unless you introduce a number of other pieces of legislation as part of the special session, if we don’t get it done at the end of 90 days, should we go into special session? I’ll leave that up to the governor. For once I’d like to go home at the end 90 days. This would be three special sessions in a row. Come on. Let’s get this done and go home.

Petroleum News: Where do you strike a balance when consultants seem to think there is something workable with the current version and the industry says it’s not quite enough?

Feige: Have you ever seen an oil company embrace an oil tax bill? I don’t expect the companies to embrace it. If it were me, I would be trying to get the taxes down as low as possible. Sitting in this chair, I know that’s their job, so I’ll let them make a pitch. So what we’re going to do with this bill when it comes to our committee is does it make Alaska competitive in the eyes of the world. The companies will give us some indication of that; the consultants will give us some indication; our own observations — the raw numbers — will give us an indication of that. Our main objective is to make Alaska competitive in a way that’s as fair to all the oil companies and the people of Alaska as possible.

Feige: We will, but keep in mind they are kind of consumed with all sorts of other bills — HB 4 (in-state gas line bill) right now, so I’m not going to get the full committee’s attention, but it’s not their job right now. We’ll reach out to a couple individuals to help get them faster and further up to speed and try to give them a little bit of a head start on the bill.

Petroleum News: Moving away from oil taxes, what do you think you’ve accomplished thus far in your committee?

Feige: The permitting was a major piece of legislation that in a lot of little ways that will help the progress of resource development of projects in the state. It’s part of the governor’s long-term plan. Based on the vote of committees, we support him very strongly. We passed out HB 129 the other day that gives us more flexibility in leasing rules and public notice. Basically it reduces a lot of redundant public notice and by taking public comment on the front side of something, it gives you an opportunity to say, these are the public’s concerns and these are the rules. Everybody follows those rules. As opposed to taking public comment and another round that the companies have to react to, or even within the same project they have to react to something new. That system generates a lot of turmoil we don’t need to have. Let’s figure out what it is you want, make the rules, plan and execute the project according to the rules. Things should go a lot smoother and a lot faster. A lot of this stuff, the general public doesn’t perceive it because they don’t deal with it on a daily basis, but all of the companies doing business in Alaska, they will perceive it. That’s part of making Alaska more open for business.

Take the cruise ship discharge bill; I thought that that bill was basically a reflection of reality. We didn’t relax anything; we didn’t allow them to go to any other kind of sewage kind of treatment system. Really the conditions are not going to change. This will continue to let them operate as they have for the future. I thought a lot of the press that came out was somewhat misleading. It made it sound like we were changing the rules to allow direct discharge of sewage into state waters. That was simply not the case.

Petroleum News: Let’s turn to the Arctic. Shell announced exploration delays as the Kulluk gets repaired. What are your thoughts on that development and Arctic exploration?

Feige: It was an unfortunate incident with the Kulluk, but it was unfortunate because of a mechanical failure. That was the drillship to be the backup to the Noble Discoverer. Now it appears the Noble Discoverer has mechanical issues. If you don’t have drillships, you can’t drill. They will adjust and come back in 2014. I do not doubt the will of Shell to continue working. They had an unfortunate setback. That’s life and you drive on.

Petroleum News: On to HB 4. It seems that this debate has gone public with ads on TV and in newspapers. Is the public getting a fair presentation of the debate and the issue?

Feige: I’ve only seen the newspaper ads. The City of Valdez is advocating for something that they want. They are welcome to go forth and make their opinion known.

Petroleum News: Do you believe there will be any meaningful progress to advance any gas line project this year?

Feige: I believe there will be. The companies have been steadily moving forward. I think the companies are waiting to see the results of the oil tax debate. That will affect the economics of their decision. Other than that, there are a lot of little details to be wrapped up before they come out with an announcement. I expect they will continue to wrap up those details.

Petroleum News: Let’s say there is an oil tax bill passed this session. Would it then be time to come back to discuss long-term fiscal certainty the industry has sought? That’s an issue that’s been hanging over the state’s head for several administrations.

Feige: We’ll see what the industry comes up with first. I would say one thing at a time. We’ll deal with oil taxes first. We’ll see where the situation is after that. Hopefully it passes. We’ll see if they decide on a pipeline project. Fiscal terms may be good for that project to go forward. I think it will be incumbent on the folks looking to build a pipeline to come to us and say, ‘this is what we need.’ I’m not going to speculate on what is possible right now because anything is possible. I would certainly like to see a project committed to by the end of the calendar year.

Petroleum News: At energy council, what did you learn about the LNG energy export?

Feige: They had some briefings on the export markets. There were some comparisons worldwide to various types of energy in various markets. It confirmed that the market wasn’t that much different than what I’ve heard and read up to this point. There is a battle in terms of Lower 48. There are a lot of industries who want to keep the very inexpensive gas stateside and be able to use it in manufacturing and chemical processes. It gives those manufacturers a considerable advantage. If you look at the prices of gas in various places around the world, Henry Hub is by far the lowest price. The reason for that is the shale gas and the existing network of pipelines that moves the gas all over the Lower 48. Other places don’t exactly have that.

I’m looking at Korea, Japan and China — maybe Taiwan — as our export destinations because those are the export destinations to be the most economical as far as our ability to compete. Based on the transportation distance we will have a reasonable advantage in that kind of market. There is a window for us. I think we are foolish to drag on. Last week, the Japanese were able to successfully produce methane hydrates off the seafloor of Japan. That’s a huge resource that’s always been limited by the ability to convert it into something they can use in a controlled fashion. If they can produce that gas and do it in a commercial manner, much like shale gas took away our pipeline from Alaska to Alberta, it could displace the market for Japan. So I don’t think it behooves us to wait. It behooves us to act sooner rather than later.