Oil Companies Continue Push For Tax Cuts

The state’s major oil companies today continued to promote their requirement that they must see meaningful tax cuts before the state sees meaningful production increases.

Conoco-Philips Alaska Vice President of Finance Robert Heinrich told the Senate Finance Committee that the bill before them – SB1-92 – would not lead to any change in the production decline.

“Not to say the numbers don’t seem big on a dollar basis. Our industry works in big numbers.   Conoco-Phillips has invested over $25 billion in Alaska since 2000.   The reduction is almost $300 million to producers.  But in the context of the taxes paid – of nearly $15 billion – it’s immaterial.  That’s less than a 2 percent reduction.”

His estimates were calculated with oil priced at $130 a barrel.

Heinrich also complained about the proposed cap on the progressivity element – that part of the tax that increases the rate as prices increase. He said that has the biggest impact on long-term cash flow and cash generation.

“Between $100 and $130 the producer’s share doesn’t move much. That’s the part that makes Alaska investment less competitive – or less attractive as prices increase.  Another component of this is the cap on the production tax rate at sixty percent.  It doesn’t help much in the price environment we’ve seen.  It takes a price of $230 before the cap would kick in – and we don’t expect to be in that price environment for quite some time.”

Heinrich also strongly encouraged the committee to include the older, already producing wells in any tax incentives.  He said those wells are the base of the companies’ income and would give the quickest return on increased production.  Committee co-chair Bert Stedman said a cap on progressivity is one of the topics the committee will discuss.

Basing his presentation on a description of the current tax regime as “broken,” BP’s Alaska Head of Finance Damian Bilbao presented a worst case scenario based on projections made by the Parnell Administration.  He said the state faces a crisis that must be dealt with quickly.

“In fact, if you consider the break-even price for the state remains over ninety dollars a barrel, the bottom line is that the policy that is in place is not delivering the future that Alaska needs to support its infrastructure, the needs of its population and as well as all the other additional requirement I know you guys spend a lot of time discussing.”

Stedman assured Bilbao that the legislature does review the administration’s projections – as well as those produced by the legislature itself.

“But we don’t accept them blindly as that’s what’s going to happen in the future. Because noone in their right mind would run the state straight into the ground.”

Bilbao said BP will take a look at the final committee bill before considering whether it meets the company’s needs.

Exxon’s Production Manager Dale Pittman said his company will support decisions on investments made by the operators of the fields in which it works – Conoco-Philips and BP.

The committee will continue its work on the new tax plan tomorrow morning.

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