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HB 247 passes; bill now heads to Walker Senate version amended in conference committee to include 4 provisions from House version; narrowly passes House by 21-19 vote KRISTEN NELSON Petroleum News
The long battle over the governor’s oil tax credit reform bill, House Bill 247, ended June 6, but no one was claiming victory.
The administration did not get provisions - such as raising the minimum production tax to 5 percent - which would have provided more revenue.
Gov. Bill Walker said early on that he was not proposing a rewrite of the state’s production tax, passed as Senate Bill 21 in 2013, and those wanting to see a rewrite of the tax were disappointed by the final result.
And industry, arguing that stability was crucial and that changes could hurt the potential for future investment, did not get status quo.
The bill, as passed, attempts to address some of the issues raised by the impact of current low oil prices on state revenues. There was general agreement that when SB 21 was passed, the focus was on the impact of high oil prices, not on the potential impact of a dramatic drop in prices.
From its first hearing in House Resources in early February, HB 247 was in play for just over four months, from the beginning of the regular session of the Alaska Legislature, through an extended regular session and into a special session.
The governor’s original bill was amended in House Resources and House Finance, but failed to gain traction on the House floor, as did a Rules Committee substitute. An amended version sponsored by Reps. Paul Seaton, R-Homer, and Tammie Wilson, R-North Pole, passed the House April 13.
The version the Senate passed May 18 was substantially different from the House version, and failed to win support in the House.
A conference committee version was based on the Senate bill, but included four amendments from the House bill.
That version was able to win enough support in the House to pass 21 to 19 on June 6.
Changes to Senate version The conference committee adopted the House version on information from tax credits, specifying that the Department of Revenue would make available names as well as amounts of those from whom the state purchased tax credits. The Senate version would have disclosed only the aggregate amount of tax credits.
A second amendment deleted a section in the Senate version which would have limited credits available for refinery work to work completed this year, changing existing statute which allows credits for such work through the end of 2019.
Amendment three adopted the House version of a provision requiring preference in allocating available monies for credit repurchase to applicants based on Alaska hire. The Senate version was limited to the applicant’s workforce; the House version includes not only the applicant’s workforce but the applicant’s direct contractors.
The fourth amendment adopted in the conference committee extended credits for drilling in Middle Earth from January 2017 to July 2017.
Cook Inlet changes Both House and Senate versions ramped down credits for Cook Inlet work.
Both versions allow existing exploration credits to sunset July 1 of this year and repeal older dormant exploration credits.
The Senate version reduced Cook Inlet credits: net operating loss credits to 15 percent in 2017 and to zero in 2018; qualified capital expenditures to 10 percent in 2017 and to zero in 2018; and well lease expenditures to 20 percent in 2017 and to zero in 2018.
The Legislature’s consultants have said from the beginning that credits in Cook Inlet, where the state collects no production tax on crude oil and limited tax on natural gas, are unsustainable.
The Senate version eliminates the 2022 tax cap sunset for Cook Inlet natural gas and gas used in-state, and extends indefinitely those taxes at 17.5 cents per thousand cubic feet.
The Senate version also adds a new Cook Inlet oil tax cap of $1 per barrel. There are no sunsets and the working group established in the House version is not included in the Senate version, as these Cook Inlet tax changes are intended to be long-term.
North Slope The House version eliminated net operating loss credits or carry forwards after 2016 for companies producing more than 15,000 barrels per day on the North Slope.
The House version ramps down the NOL to 32 percent in 2017, 29 percent in 2019, 26 percent in 2021 and 25 percent in 2023.
The Senate version retains the limit for cashing credits at 50,000 bpd and the NOL rate remains at 35 percent.
The House version added a 5 percent floor for production taxes at prices averaging more than $70 per barrel over a year and doesn’t harden the floor against additional credits.
The Senate version does not increase the existing minimum tax of 4 percent and does not harden the floor against NOLs, new oil per-barrel credits or other credits.
In both versions, the gross value reduction for new oil can’t be used to increase the size of an NOL.
Both versions limit GVR oil to seven years, but the Senate version eliminated House provisions for high-royalty fields.
Both provide that if the average price of oil exceeds $70 for any three years, the GVR sunsets early, with the production reverting to rates for legacy oil.
The House bill addressed the migrating credits, true-up issue included in the governor’s bill, preventing per-barrel credits not usable in one month due to minimum tax from being applied in another month.
The Senate bill did not include this provision.
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