At today’s prices, Alaska’s oil tax system can be compared to those of Norway, Russia, and Venezuela in terms of how much money it puts in state coffers. A plan introduced by the Senate finance committee today would change that. It’s a new version of a bill Gov. Sean Parnell introduced earlier this session to bring down taxes on oil companies with the intent of curbing a decline in production.
Under the Senate finance committee’s substitute, companies would pay lower taxes on oil from the North Slope than they do on shale from the Eagle Ford formation in Texas, the Haynesville formation in Louisiana, or the Bakken formation in North Dakota. PFC Energy, a consulting firm, presented charts showing as much before the finance committee on Tuesday afternoon. Their analysis prompted a question from Co-Chair Kevin Meyer, a Republican from Anchorage.
“You’ve proven the point anyway that we’re competitive,” said Meyer of the new legislation before the committee. “Now, the next concern will be what’s it going to cost us to get there?”
Over the next few days, the finance committee will be working to figure just that out.
Their new bill in some ways is a mix of Gov. Sean Parnell’s initial bill to cut oil taxes and a rewrite done by the Senate’s resource committee in February. The finance version would bump the base tax rate on oil production from 25 percent up to 30 percent, instead of all the way to 35 percent like the resources committee wanted. But like the resources bill, it gives oil companies a $5 credit for every barrel they produce. And like both earlier versions of the oil tax plan, it scraps a mechanism known as progressivity, which increases taxes as the price per barrel goes up.
The new version of the bill also gets rid of a change to increase a tax break on oil from new fields. It keeps what’s called the “gross revenue exclusion” at 20 percent, like the governor initially proposed. But their bill does make it so the credit can be applied to new oil from fields that are already developed.
Meyer says that’s to encourage new production no matter where it happens.
“If it’s new oil that’s not currently being produced, then yes, it doesn’t matter to us if it’s coming from a legacy field or from outside the legacy field.”
That specific change prompted criticism from some Democrats. Sen. Bill Wielechowski of Anchorage has been stumping on the issue of oil taxes, and he thinks that tax break doesn’t need to be applied to legacy fields.
“In new fields, it’s a good thing. In new participating areas, it’s a good thing. You don’t need it in the legacy fields,” says Wielechowski. “The legacy fields are where 90 percent of our oil projections for the next decade are coming from. The Senate finance version gives them a massive tax break for oil they’re already planning to produce.”
Wielechowski also says any version of oil tax reform that passes the legislature should keep the progressivity mechanism intact, and he has concerns that the bill hasn’t been properly vetted.
The next step for the finance committee is getting an analysis from the Department of Revenue on what their bill does to the state’s treasury at forecasted levels of oil production. This week, they’ll also be taking testimony on the bill from the public and industry players. Meyer says that because he hasn’t seen hard projections on just how their bill will affect production, testimony from oil companies will be especially important to him.
“Obviously, if we’re not going to have increased production then we’re kind of wasting our time here,” said Meyer before the finance committee. “But I know that’s a hard forecast for you guys to make, and that’s why I’d like to hear from industry.”
The governor’s office is still reviewing the finance committee’s version of the oil tax bill and does not have a comment on their proposal yet.
Finance is the third and final committee to hear the bill. Meyer says that a final version could be on the Senate floor as early as next week. After that, it will be sent to the House.
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