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Oil Industry Pans Senate Tax Plan

By | April 6, 2012

The Oil  Industry on Friday presented harsh comments to the Senate’s re-write of the state’s oil tax regime.  The bill now in the Finance Committee makes a structural change to the current profit-based tax system – replacing it with a tax on the oil’s gross value.    Studies by the committee show that the new tax is a reduction in state revenue from the current plan – although it is not as industry-friendly as the bill introduced by the Governor last year.

However,  B-P’s head of Finance Damian Bilbao told the  committee that in his company’s view,  the tax will not meet the goal of increasing production.

Senate Bill 192, in our opinion – and as shown by your own consultants – within the price range that we look at our business and our projects is a tax increase.  And with any tax increase, it’s going to force us to re-evaluate our existing activity plans.  And just like it’s a tax increase, that means it’s not a meaningful change and it’s not going to lead to additional investment.

So far this session – and last – lawmakers have been unsuccessful in getting the oil companies and their supporters – including the Parnell administration — to give a clear definition of the phrase “meaningful change” that Bilbao used.   Responding to committee questions on Friday,  he explained the term.

Achieving a level of meaningful tax change would return money that would otherwise be going to the state back to the producers that would invest that money – as we’ve said before – incremental to what we’re already investing. Whatever that number is we can look at in more detail.  But I think fundamentally what you’re asking is the magnitude of the reduction.  And yes sir it would be in a magnitude – what I’ve seen–  is at a hundred dollars is about a Billion dollars.

In return for the Billion dollars more in tax cuts Bilbao referred to, he said the state could look at an additional $20-Billion of investment from oil companies.

The Committee also heard similar arguments from Revenue Commissioner Bryan Butcher.   In describing his view of the changes, Butcher predicted the new tax cuts were not large enough to help increase production on the North Slope. Co-Chair Bert Stedman (R-Sitka) asked Butcher how he could define a marginal tax drop from ninety percent to forty percent as –quote – “barely measurable.”

I would just remind you that we’ve been in this game for several years and to be careful what you tell us.   Because if you tell us that that significant change is inconsequential… as you can see we have members here that think it’s humorous.  So let’s try to be a little accurate in our discussion.

The bill is not scheduled for immediate hearings, but it is available at any time that Stedman wants to bring it back before the committee.

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