Industry opposed to HB 111 changes

The House Resources Committee heard a first round of comments from Alaska’s oil and gas industry on changes in the committee’s House Bill 111, and those comments did not favor the bill. The views of those testifying appeared to be that in going after more money from industry to help solve a short-term problem, the long-term impact of the bill could be lower production and less revenue because industry would be discouraged from investing in the state.

The committee heard initial industry testimony Feb. 22 and is scheduled to hear from others Feb. 24.

Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, said AOGA member companies evaluated the bill based on several principles: impact on production, investment, competitiveness and revenue, and the issue of a “fair share” of profits and said the bill was more of a tax increase than credit reform.

Moriarty listed AOGA opposition to changes in the bill, beginning with changes in the interest rate for delinquent taxes, which include those being audited and in dispute. Currently no interest is charged after the first three years, and she said adding six years of compound interest would not be an incentive for the state to finish audits of returns. The state has argued that with interest dropping off after three years, companies have no incentive to resolve tax issues.

AOGA opposes raising the minimum tax from 4 percent to 5 percent, Moriarty said, calling it a 25 percent increase for each taxpayer subject to the minimum tax, but an “infinite increase” for smaller companies and newcomers who do not currently pay the 4 percent tax. She said the change would mean more money paid in taxes, and less money spent on development and exploration and said industry has testified that the increase in the minimum tax would likely lead to the reduction of one drilling rig for at least six months.

The bill’s proposal to harden the floor for the minimum tax, not allowing credits to be applied to the minimum tax, “delays and possibly denies economic recovery,” and is analogous to federal and state governments not allowing companies to apply corporate losses against corporate income tax.

The bill would eliminate what are called migrating credits, which the state has said required it to write refund checks in 2014 when there was a steep drop in oil prices. Moriarty said the change represents a tax increase and makes the system more complex by moving it into more of a monthly tax than an annual tax.

The bill would change the allowable net operating loss from 35 percent to 15 percent and Moriarty told legislators the NOL was an integral part of the state’s net tax system from the beginning and has generally matched the tax rate. She said the change “penalizes companies for investing in Alaska while they are losing money.”

Under the bill NOL credits would no longer be eligible for cash payment from the state and Moriarty called that a “double whammy” when combined with the reduction of the NOL; she said it “severely impacts smaller companies and explorers, especially those who have made significant discoveries.”

The proposed change in the per-barrel credit is a tax increase on the North Slope’s core fields, Moriarty said. She called it a structural element in the tax system, not really a credit.

BP

Damian Bilbao, vice president of commercial ventures for BP in Alaska, told the committee BP views HB 111 as a disincentive for investment, and said that without substantial investment every year on the North Slope production decline would be some 10 percent per year.

Focusing on four principles, he said HB 111 does not encourage more oil down TAPS and it does not extend the life of the Prudhoe and Kuparuk River fields; the economic life of those fields will be shortened he said.

The bill would also push independents off the North Slope because of increased cost and uncertainty and would make losers of any companies investing h Alaska, he said.

Bilbao urged legislators to make changes with a scalpel and not with a hatchet.

Caelus Alaska

Asked about Caelus’ take on Senate Bill 21, Foley said Caelus purchased Pioneer’s Alaska assets, sanctioned the Nuna development and committed to two exploration wells under SB 21, so that bill attracted a new player. He said the company took a bit of a haircut under HB 247, but said under HB 111 the oil price would have to be higher to allow Nuna to go forward.

- KRISTEN NELSON