|
Tax bill in Senate Resources by Feb. 10 Decoupling bill already in Senate Finance; administration says compromise possible; progressivity key in proposed ACES changes Kristen Nelson Petroleum News
Two major tax issues — revisions to Alaska’s Clear and Equitable Share or ACES and decoupling — are up for consideration in the Alaska Legislature this year.
Or perhaps continuing consideration would be a better term.
A decoupling bill, which would separate oil and natural gas for calculating the progressivity portion of the state’s production tax, was introduced in Senate Finance Jan. 27.
Decoupling was passed by both houses in 2010, but vetoed by Gov. Sean Parnell, who said the bill represented “a significant overall tax increase” on companies with both oil and gas production in the state.
In a Jan. 27 presentation to Senate Finance, Commissioner of Revenue Bryan Butcher said the governor has concerns about decoupling, but the department believes it can work with the committee and come up with something agreeable to both parties.
Changes to ACES, the state’s oil and gas production tax, were introduced by the governor last year and passed by the House. But the Senate wanted more information, and failed to move the governor’s bill.
The Senate Bipartisan Working Majority has said it will introduce its own tax measure not based on HB 110.
Moving the meter The governor was asked Feb. 1 whether he’d talked to senators about where they were headed on the oil tax issue. Parnell said Senate leadership members have told him a proposal is coming, but no one has offered details.
“My desire is that anything that this Legislature passes significantly increases production investment in this state,” he said, adding that he would be judging legislation on whether it moves “the meter on production significantly like HB 110 does.”
Parnell said the North Slope’s major producers have said they would fund $5 billion in projects within three years of HB 110 passes, and he said that would approximately double the investment at Prudhoe Bay, Kuparuk and Alpine, which are fields with known reserves where production could be increased rapidly, whereas discoveries made by explorers would come on in seven to 10 years.
“There’s no other proposal I know where companies have actually said, we believe this will result in at least $5 billion from our companies. That’s about as … iron-clad a commitment as anyone could expect.”
Progressivity alternatives Senate Resources co-Chair Tom Wagoner, R-Kenai, and Sen. Lesil McGuire, R-Anchorage, described work they have been doing on an oil tax bill at a Senate Bipartisan Working Group press availability Jan. 31.
Wagoner said the vehicle they used to develop the bill what Senate Bill 85, and said he expected the committee to hold its first hearing on the bill Feb. 10.
SB 85 was a tax credit bill offered by Wagoner last year and Wagoner said it would become a committee bill with a progressivity placeholder.
McGuire said she and Wagoner had been working over the interim with the Alaska Oil and Gas Association, the Alaska Support Industry Alliance and the chamber. She said that in addition to the progressivity from HB 110, which will be the placeholder, there will be amendments containing progressivity as proposed by Rep. Mike Hawker, R-Anchorage, and as proposed by Rep. Bob Herron, D-Bethel.
She said she believes that just one part of the state’s fiscal regime — progressivity — is broken.
With the progressivity amendments, McGuire said, there will be options for the Resources Committee to discuss.
Resources a starting point After being heard in Senate Resources, the tax bill will move to Senate Finance.
Sen. Bert Stedman, R-Sitka, co-chair of Senate Finances, said there are two big issues, “one of which is splitting of the profit oil at high oil prices, which is affected mainly by progressivity.
He said the other issue is the credits the state offers, and he said consultants will discuss “the credit exposure we have.”
Stedman said he was concerned that under the current system, “if oil prices go … north of 200 (dollars a barrel), we could be faced with paying over 100 percent of the capital expenditures in the oil basis.” He said the state should not be exposed to that position.
He characterized the issues as “a balance between how we stimulate or offset capital costs and allow accelerated write offs and how our tax structures is on the other end when there’s production and we have high oil prices.”
Senate Finance, he said, will be looking at both ends.
He also said it would be important to hear information from consultants to try to identify the most significant production tax problems the state faces before looking at solutions.
“If we dump solutions on the table before we identify the problem I think we’re going to end up going around the totem pole more often than we need to,” he said.
Scheduling Pedro van Meurs Stedman said they’re working on scheduling Pedro van Meurs to come to Juneau for presentations “so the public around the state can see and hear some of the data” and how van Meurs views that data.
PFC Energy, another consulting firm, is writing analytical models so legislators can understand the impacts of changes in the state’s financial terms, both to the state and to the industry.
He cautioned that changing the production tax system is “extremely complex” and said the Legislature will be making a critical decision. “Making that decision in haste could be very detrimental to the state’s treasury or detrimental to the industry if we get it wrong.”
Trying to achieve that in one 90-day session is an “extremely optimistic” timeline, he said. But with the Legislature in a second 90-day session, Stedman said he thinks that “by the end of this session we’ll have a bill hopefully that — a solution that — both bodies will agree to.”
He said legislators would be asking industry why they aren’t bringing in more production.
“We know where the oil is — it’s sitting in Prudhoe and Kuparuk and Alpine. There’s no mystery there,” Stedman said.
As to why more oil isn’t being produced, he said the issue is what constraints the industry faces and how close it is to getting over the hurdle rate for projects companies want to go after.
“But I can assure you that part of the problem is in the production facilities,” he said.
House timeline In a Jan. 30 House Majority press availability House Speaker Mike Chenault, R-Nikiski, said he wouldn’t argue with the Senate if HB 110 wasn’t the vehicle for oil tax change.
He said he was concerned that the House have enough time to make a decision on legislation sent over by the Senate, and said that he and Senate President Gary Stevens have discussed giving the House a month to work on legislation.
Chenault said the House needs time to work on a bill and pass it or fail it.
But if something comes from the Senate at the last minute, “I think we might be here for a while.”
He said 30 days was probably enough time for the House, as long as a bill coming from the Senate wasn’t a complete rewrite of the state’s oil tax system.
It took all summer to pass PPT, the petroleum production tax, Chenault noted, but ACES, Alaska’s Clear and Equitable Share, passed in less than a month.
He said the House wants a “meaningful bill,” “… meaningful to incentivize industry to make multiple billion-dollar investments.”
Chenault said he thinks that will determine whether “the majority of House members would support it or not.”
| 