Major oil companies testify on oil tax change

Associated Press

JUNEAU, Alaska (AP) — A proposed overhaul of Alaska’s oil tax structure would be a vast improvement over the existing system and should lead to more investment, but it has some problem areas, industry representatives told the House Resources Committee on Tuesday.

Dan Seckers, tax counsel for Exxon Mobil Corp., said SB21 would make Alaska more competitive — a point that’s been underscored by consultants to the Legislature and Gov. Sean Parnell’s administration — and it should lead to more investment. But he said he “would love” for Alaska to become more attractive than it would be under the proposal.

The committee is working on SB21, which is aimed at making Alaska more competitive for investment dollars and increasing oil production. The North Slope’s major players — BP PLC, ConocoPhillips and Exxon Mobil — testified Tuesday evening. The committee planned to hear from smaller producers and explorers Wednesday.

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Committee co-chair Eric Feige has said he hopes to advance a bill sometime next week. The bill would then go to the House Finance Committee. The Legislature is scheduled to adjourn April 14.

Alaska relies heavily on oil revenues to run. Production has been on a downward trend since the late 1980s but higher prices in recent years have helped mask the impact of the decline.

Some of the testimony went beyond talk of whether SB21 would make Alaska more competitive to whether it would make Alaska attractive enough to draw the kind of investment the state wants to see.

Damian Bilbao, head of finance for BP Alaska, said the bill would put Alaska “back in the game” but agreed with the other industry representatives that changes to the bill would make it better and reduce uncertainty for the companies.

Alaska’s existing oil tax structure, passed in 2007, features a 25 percent base tax rate and a progressive surcharge that’s triggered when a company’s production tax value hits $30 a barrel. The idea when it passed was that the state would help companies on the front end with things like tax credits and share profits on the back end when oil flowed and prices were high.

Companies have said the surcharge — credited with helping fatten state coffers in recent years — eats too deeply into their profits when prices are high, discouraging new investment. Alaska’s revenue commissioner has said he’s seen no evidence that tax credits to oil companies — which could top $1 billion next year — have led to increased production.

SB21, which narrowly passed the Senate last week, would eliminate the surcharge and revamp the suite of tax credits with a goal of focusing incentives on production. The latest version of the bill would raise the base tax rate to 35 percent, provide a $5 credit for each taxable barrel of oil produced and provide a 20 percent tax break, known as a gross revenue exclusion, for oil from new fields and new oil from legacy fields, long the mainstays of Alaska’s oil industry.

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Seckers and representatives of ConocoPhillips said the bill is an improvement over what is now in place. But they said the tax rate under SB21 is too high and they wanted greater clarity on what oil would qualify for the gross revenue exclusion, an issue also raised by Bilbao. Seckers also questioned whether a $5-per-barrel allowance was enough to balance other provisions of the bill, like the base tax rate.

Bob Heinrich, vice president of finance for ConocoPhillips Alaska, said the proposal would represent a tax increase at lower oil prices. Given Alaska’s high-cost environment, he said the bill doesn’t go far enough toward improving Alaska’s overall competitiveness.