Since the mid-2000s, oil and gas activity in Cook Inlet stood to benefit from lucrative tax credits and incentives meant to boost exploration and development, and stabilize the natural gas supply. If Gov. Walker signs the Legislature’s compromise on oil and gas tax reform, those credits will come to an end.
House Bill 247 passed the Legislature on June 6. While it doesn’t go as far as Gov. Walker originally proposed in rolling back financial perks for the oil and gas industry, it does address one of his priorities — cutting the tax credits available in Cook Inlet.
They were instituted to incentivize exploration and development, which was diminishing in the region. Southcentral Alaska was also facing natural gas shortages for utility uses.
Investment in Cook Inlet did see an uptick, but the amount the state was paying out in credits also rose — between $260 million and $400 million a year since fiscal year 2014.
HB 247 would roll back the credits in 2017 and end them in 2018. It also stipulates that only companies currently operating in the region are eligible for the reimbursements while they last.
That will save the state money, but will it negatively impact the Kenai Peninsula Borough? Not likely anytime soon, said Larry Persily, oil and gas specialist for the Borough.
“I don’t think it’s really going to have any kind of near-term impact in Cook Inlet. I don’t know of anyone who’s going to say, ‘Well, because those credits are gone, I’m going to shut everything down,’” Persily said.
Furie Operating Alaska and BlueCrest Energy are currently the two biggest recipients of the Cook Inlet tax credits. Their projects are already in production, with the bulk of their investment already made.
The loss of Cook Inlet incentives might put a damper on future investment, though Persily said he doesn’t know of any prospects on the immediate horizon that might now think twice about finalizing their endeavors.
A bigger limiting factor in the inlet, has to do with markets, Persily said. Tesoro is a convenient option for oil production. But natural gas is more difficult.
“Right now the utilities have their gas needs met mostly through 2023, so even if you knew gas was there and you got the money and you invested and you explored and you developed and produced it, there’s no place to sell it,” Persily said.
Agrium has indicated an interest in reopening its Nikiski plant, but would need a large-enough volume for a long-enough contract at a price it finds amenable.
“You’re not going to go look for something, even with tax credits, if no one wants to buy what you find,” Persily said.
Persily doesn’t expect the phase-out of Cook Inlet credits to be felt by residents, at least, not any more than the slowdown in the industry is already being felt.
“You’re not going to notice it on utility bills, you’re not going to start worrying about gas supply for winter heat. Certainly Kenai Peninsula businesses and workers have profited from the pickup in activity,” Persily said. “But, yeah, there’s less spending and we’re seeing it, and I think it will get worse before it gets better. We’ve got those problems regardless of the tax credits. It’s just, when oil’s really cheap, it’s not like anybody’s got a lot of money to spend.”