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Vol. 18, No. 16 Week of April 21, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

Governor’s oil tax change OK’d on Alaska Legislature’s final day

Is it an investment in Alaska’s future which will benefit the next generation, or a drain on the state’s savings? Passage of Gov. Sean Parnell’s oil tax change, Senate Bill 21, which eliminates the progressivity enacted under former Gov. Sarah Palin in ACES, Alaska’s Clear and Equitable Share and changes the way credits are offered, doesn’t appear to be drawing any neutral reactions.

There is agreement among proponents and opponents that the immediate impact will be lower state production tax revenues.

The belief of the governor and legislators who voted for the bill is that because it reduces the government take in Alaska, making the state more competitive with comparable oil and gas producing areas, it will lead to more investment by oil and gas companies in Alaska, ultimately increasing — or at least slowing decline — of North Slope oil production.

But that sentiment isn’t shared by all legislators.

Depending on which post-session press conference you listened to after the Alaska Legislature gaveled out April 14, SB 21 will make — or break — the state’s economic future, leading to more jobs, production and oil taxes from the North Slope, or depleting the state’s savings by lowering taxes while producers take profits made in Alaska out of the state and invest them elsewhere.

And immediate results won’t be easy to point to because, as the administration has conceded, additional investment will take time and additional production won’t come for a few years.

Asked about possible benchmarking for the legislation at a post-session press availability April 15, the governor said the companies have been investing some $2 billion a year to maintain, so amounts above that would be one measure of the success of the SB 21.

ConocoPhillips announced additional investments on the North Slope based on the tax change April 17, although it wasn’t able to cite dollar amounts (see story on page 1).

Close Senate vote

The oil tax bill submitted by the governor at the beginning of the legislative session in January, as modified first in the Senate and then in the House, squeaked through the Senate by a vote of 11-9 on March 21. A committee substitute from the House Finance Committee passed the House by a healthier 24-15 vote on April, numbers which changed to 27-12 when the bill came up for same-day reconsideration.

The final test was April 14, with the Senate voting 12-8 to concur with House changes to the bill.

The vote didn’t end the controversy over oil tax changes, as there was an immediate call for a state-wide ballot referendum to dump the new production tax.

Credit risk eliminated

In a statement after final passage of SB 21 Parnell said: “Alaska’s below-ground resources are world class. Above-ground, we have now set the state for future growth and opportunity for Alaskans. We are signaling to the world that Alaska is back, ready to compete, and ready to supply more energy once again.”

The complicated progressivity under ACES is replaced with a 35 percent base rate and a per-barrel credit, Parnell said, “ensuring Alaska’s treasury is not exposed to the risk of paying $1 billion and more in tax credits when oil prices are low, and keeping the state competitively positioned when prices are high.”

Parnell, majorities in agreement

Parnell called this the “most productive session I’ve seen.”

Republicans in the Senate and House agreed.

In a Senate majority press availability held after the Senate gaveled Republicans noted the success the Senate majority had in achieving its three objectives — more oil in the trans-Alaska oil pipeline, affordable energy to Alaskans and restraint on the budget, as Sen. Cathy Giessel, R-Anchorage, enumerated them.

Senate President Charlie Huggins, R-Mat-Su, highlighted the good working relationship between the Senate and the House, and called it a direct contrast to what he’d witnessed in the last two to three years.

Senate Majority Leader John Coghill, R-North Pole, said Alaskans sent the group to Juneau with the objectives of more oil in the pipeline, making the state competitive and moving on in-state energy. He thanked members in both bodies for work on trucking gas, which offers the quickest solution to high energy prices in the Interior.

Sen. Kevin Meyer, R-Anchorage, co-chair of Senate Finance, said legislators had been working on oil taxes for three years, production is going down and something had to be done.

He said he believes SB 21 will spur production that wouldn’t otherwise occur. As to when new oil would show up as a result of SB 21, Meyer said the Senate Finance version of the bill estimated about 50,000 barrels per day of additional oil would be the crossover point between ACES and SB 21 revenues.

Democrats angry

House and Senate Democrats responded angrily to the oil tax change.

In an April 15 joint press availability Senate Minority Leader Johnny Ellis of Anchorage said there were celebrations between Republicans and the oil industry over what he called the oil wealth legislation, and said Democrats were proud to have stood for the Alaska constitution and development of resources to the maximum benefit of Alaska.

Ellis said passage of the oil tax change it was a reflection on changes which allowed big money back into Alaska politics and partisan reapportionment that rigged districts, resulting in one-party control of the administration and the Legislature.

He called it the worst legislative session in recent history for its impact on the state treasury and said it would be next to impossible to revisit what he called the “oil tax giveaway,” moving money back across the table to a very powerful industry.

House Minority Leader Beth Kerttula of Juneau said she was offended that the state was giving up its resource wealth to industry without guarantees of investment.

House majority enthusiastic

House Majority Leader Lance Pruitt, R-Anchorage, called it an “incredible year” for the Legislature and cited passage of a number of energy-related bills as among those significant: House Bill 4, the in-state gas pipeline bill; SB 23, the Fairbanks natural gas trucking bill; and SB 21.

Rep. Craig Johnson, R-Anchorage, the House Rules chair, said legislators were able to push some things across the finish line that they’d been working on for several years.

On the oil tax issue, Johnson said he always thought ACES was broken and didn’t vote for it. He said newer companies working on the North Slope had said that if ACES had been in place they wouldn’t have come to Alaska. Most, he said, had started work before ACES and were halfway through projects when it was enacted.

The testimony, Johnson said, was that Alaska wasn’t competitive under ACES.

Pruitt said that what he heard was that if ACES wasn’t changed, the state wouldn’t see investment. He said with the changes he expected to see in investment would benefit his children. He called reduction in revenues over the next couple of years an investment in Alaska so the state will see both increases in revenue and jobs in the future.

What if this doesn’t work? If there isn’t investment, Pruitt said, the Legislature can crank the tax rate back up.

—Kristen Nelson

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