Official stops short of endorsing House oil bill

Parnell official stops short of endorsing House oil tax bill, adds 'indications are positive'

Associated Press

JUNEAU, Alaska (AP) -- The Parnell administration remains concerned that the current proposal to overhaul Alaska's oil tax system will leave the state too vulnerable at low prices, a deputy Natural Resources commissioner said Tuesday.

Asked if the administration supports the latest version of SB21, Joe Balash said he wouldn't go that far yet, but he said "indications are positive."

The proposal, like the version that passed the Senate last month, would fix the base tax rate at 35 percent and provide a $5-per-barrel credit for oil produced. But under the version being considered by the House Resources Committee, that credit would only apply to what would be considered new oil and production that also would qualify for a 20 percent tax break, known as a gross value reduction.

Areas that don't qualify for the gross value reduction — likely the "vast majority" of the legacy fields, Balash said — would have a 35 percent base tax rate and a per-barrel allowance on a sliding scale. The allowance would be as high as $8 a barrel at oil prices less than about $90, according to one calculation, and down to nothing at higher prices, around $160 or above.

In presentations to the committee, consultants said that under the plan, the effective tax rate on oil at $60 a barrel would be zero.

Gov. Sean Parnell proposed an oil tax overhaul as a way to boost investment and production. One of the tenets of the original SB21 was to provide "more downside price protection for Alaskans in exchange for more upside price revenue to the companies," according to Parnell's office.

House Resources co-chair Eric Feige has said that having a "slightly lower" level of government take at lower oil prices "should greatly enhance" project economics for companies. But he said there's a sense that the state "should have a little bit more of a bite" at higher prices.

An analysis of the bill, based on the last forecast for oil prices and production, said the state could lose up to $4.8 billion under the plan through 2019. That fiscal impact — a mix of impacts on revenue and the state operating budget — is based on a forecast that assumes continued production declines and oil prices of between $109 a barrel and $118 a barrel through 2019. The hit is about $1 billion less, on the high end, than the bill that passed the Senate. An updated revenue forecast is expected within days.

The analysis is billed as something of a worst-case scenario that doesn't account for possible increases in production that might result from the plan.

Representatives of the North Slope's major players — BP, Exxon Mobil Corp. and ConocoPhillips — said the plan is a good step forward that would make Alaska more competitive. Damian Bilbao, head of finance for BP Alaska, and Scott Jepsen, vice president of external affairs for ConocoPhillips Alaska, told the House Resources Committee late Tuesday that they believed the bill, if passed, would lead to additional investment and production. Neither quantified that.

Industry representatives also said there was some room for improvement. For example, they told the committee the base rate is too high.

Feige said the committee is scheduled to take up amendments Wednesday, with a goal of advancing the bill to House Finance for additional review. The Legislature is scheduled to adjourn April 14.

Critics, including House Democrats, have questioned what would qualify as new oil under the plan being considered by House Resources. The bill's provisions, for example, would allow for production from lands not in a unit on Jan. 1, 2003, to qualify for the gross value reduction. Balash said that means oil from the currently producing units of Oooguruk and Nakiatchuk would qualify. He said that's seen as something of a matter of fairness.

Balash said those were either sanctioned or in the process of being sanctioned when the state was going through tax changes seven or so years ago. He said companies made their commitments in the "swirl of all this, without the certainty of what the tax rate would be ultimately" and what credits might affect them.

Balash said he expects the number of barrels that qualify for the gross value reduction to be "relatively small" to start with. He said there might be a way for the proposed I-Pad project to qualify for the tax break, as well as ConocoPhillips' project known as CD-5.

"That's where we think these changes are going to result in positive investment decisions on projects like those," he said.

He also said he expected any production from Point Thomson, which the Department of Natural Resources refers to as Alaska's largest undeveloped oil and gas field, would be eligible. The state last year reached a settlement in a long-running dispute over leases to develop the Point Thomson gas fields, clearing the way for additional progress on a major gas pipeline project.

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