Senate Presents Its Version of New Oil Taxes

An oil tax bill is finally on the table in the Senate Finance Committee.   The committee today released a draft of its re-write of the bill the Resources Committee passed to them nearly a month ago.

The committee has had eighteen hearings on the bill – with input from consultants, the oil and gas industry the Parnell administration and the public.   Committee chairman Bert Stedman (R-Sitka) says he anticipates having a few remaining issues quickly worked out and ready for a floor vote by this weekend.

Stedman has scheduled one more hearing from the oil industry,  but he says he expects they will recognize the bill as significant.

This goes to the core of the structure of our oil taxes and addresses some of the bigger concerns that have been pointed out by our consultants. And some of these issues were never even addressed or focused on in either the House version or the governor’s bill.

The structural changes Stedman refers to is the base of what is taxed.  The new tax regime would be based on the gross value of production – basically, the market price of oil minus the state’s royalty.  Rate increases would be calculated from that point.

And that would be on the gross value before the gross value of expenditures,  which helps solve some of he embedded problems we have with our oil tax structure.  We have an exposure now with very high oil prices where the state and federal government could offset some of the capital expenditures in excess of a hundred percent.   By making this non-deductible,  this would bring that down to a level of about sixty five.

Among other changes in the bill is a removal of all references to what’s called “decoupling” – the statutory link between oil taxes and gas taxes. The new gross value structure means that the state would never have to reimburse companies when there were price discrepancies.  In another change —  the tax rate increases until oil sells for $125 a barrel. At that point the rate remains more or less constant

Stedman says there’s one major issue still pending – what sort of incentives it will take to increase production in the Prudhoe Bay and Kaparuk fields.

Because quite frankly, if you want to increase oil production, you want to go where the oil is and the oil is sitting in Prudhoe Bay – and Kaparuk would be next.  So that is an area that we couldn’t quite get our hands around and discussions are under way.

The House is prepared to deal with the bill once it is finished.  Schedules already include hearings on the measure.  However, considering that delivery is expected less than a week before adjournment,  members are not committing to getting through in time.