House Finance Committee laboring through oil tax bill
JUNEAU — The House Finance Committee has spent five days laboring through Gov. Sean Parnell’s proposal to revamp the state’s oil and gas production tax, and committee co-chair Rep. Bill Stoltze, R-Chugiak says he hoped to move Senate Bill 21 on its way soon.
Stoltze said Tuesday he wants to get the bill out of committee and the House to give the Senate time to review changes made in the bill. The Legislature adjourns next Monday, April 15.
Major oil producers said in hearings Monday that passage of the latest version of Senate Bill 21 would be a big step forward in making Alaska more competitive for investment.
The new version, developed by the House Resources Committee, has a 33 percent tax rate on company net revenues and two sets of per-barrel production tax credits, one a sliding-scale credit for producing, or “legacy” fields, and a flat $5-per-barrel credit plus a 20 percent tax reduction for new fields or clearly-defined new projects in existing fields.
Damian Bilbao, BP’s Alaska vice president for finance, said the bill could be a “game changer” for the industry.
For BP, a key part of the bill, is that it “balances a higher 33 base tax rate (the current tax is 25 percent) with credits for production,” Bilbao told the Finance committee.
“The 33 percent base rate and a per-barrel allowance (tax credit) on a sliding scale, which is higher at lower prices and nonexistent at higher prices of around $160, is important to legacy fields like Prudhoe Bay,” Bilbao said.
“This allowance only applies to fields that don't qualify for the gross value reduction credit,” an additional tax reduction that is for new fields, but not the large producing “legacy” fields, he said.
The key advantage of the per-barrel tax credit is that it “links (tax) credits to production, not to spend as the failed ACES tax credits,” which are linked to a company’s capital investment, he said.
“The (production tax) credits in the latest version of SB 21 are balanced with a high base (tax) rate and cannot be delinked, he said.
Last Friday, State Natural Resources Commissioner Dan Sullivan and Joe Balash, the deputy commissioner, warned the House committee that the decline of production from the North Slope is accelerating.
Citing U.S. Energy Information Administration data, Sullivan said Alaska production declined 7.1 percent between 2011 and 2012 and 6.8 percent between 2010 and 2011, while 13 other oil producing U.S. states in EIA’s survey showed gains, with North Dakota increasing by 55.7 percent in 2012.
“Comparing year-end 2011 and year-end 2012, there were about 40,000 fewer barrels of oil per day flowing through TAPs. That is approximately 14.6 million barrels a year, or $1.46 billion in lost economic activity and value,” Sullivan told the committee.
In a presentation Saturday, Mike Pawlowski, the Department of Revenue’s tax advisor, said the cost to the treasury of the latest version of SB 21 could range from $680 million to $730 million in state fiscal year 2015 to between $1.08 billion and $1.13 billion.
However, scenarios of possible new oil developments developed by the revenue department showed the gain from new production, and revenues, offsetting the cost of the tax change by 2018.
Econ One, a consulting firm, told lawmakers that the addition of 40,000 barrels per day of new production would offset the cost of the tax.