Independent companies praise parts of oil tax bill, seek some changes
Independent oil companies exploring the North Slope have urged state legislators to retain a capital investment tax credit in the current law and to extend small producers’ tax credits.
Brooks Range Petroleum and Pioneer Natural Resources endorsed the removal of a controversial “progressivity formula” in the current tax, which ratchets up tax rates sharply at high oil prices, in presentations to the House Resources Committee Wednesday.
The formula was removed by the state Senate when it narrowly passed Senate Bill 21 on March 20. The bill is now in the House.
In their presentations to the House committee independent companies agreed with major producing companies, which had talked to the committee Tuesday evening, that the base tax rate in SB 21 is too high, at 35 percent.
Speaking for Brooks Range Petroleum, Ken Thompson, an investor on Alaska Venture Capital Group, one of the owners of Brook Range, said his company has been the most active explorer on the North Slope in recent years, drilling 10 of 36 exploration wells since 2007 and spending about $200 million.
Eliminating the progressivity formula in the tax will simplify tax calculations, “and will be a public relations-plus for Alaska,” with industry, he said.
Thompson agreed with other companies, however, that the base tax rate in SB 21 is too high but that the Legislature could strike a compromise on the base tax rate at 30 percent.
He also urged the committee to return an extension of small producers’ tax credits to 2022 that was in earlier versions of SB 21. As passed by the Senate the bill allows these credits to expire in 2016.
Like other independents and even one major producer, ConocoPhillips, Thompson said the 20 percent capital investment tax credit is important in helping companies offset high costs on North Slope projects.
Brooks Range now has its small Mustang oilfield under development on the North Slope and had assumed the tax credits in the current law would continue, Thompson said.
Pat Foley, Land and External Affairs Manager for Pioneer Natural Resources, which operates the Oooguruk field on the North Slope, praised the Senate version of SB 21 for keeping the tax rate flat across a range of oil prices, for the concept of the Gross Revenue Exclusion as an incentive for new oil, and for allowing the Loss Carryforward provision to be cashed out by the state, which helps independents get cash to continue exploration and development.
On the other side, however, Foley said the higher base tax rate and the loss of the capital investment tax credits in SB 21 increase investor risk. He suggested that the capital credits might be targeted to facilities and well-related costs, and that they might be taken against any payment to the state.
Thompson said small independents like Brooks Range Petroleum need partners and selling Alaska to potential investors hasn’t been easy.
Despite the handicaps, money has been raised over several years and Brooks Range has made three discoveries. One of them, Mustang, is now under development. Brooks Range and its partners will spend $577 million to develop Mustang, which will produce 15,000 barrels per day.
“We’re still seeking capital for Mustang and our three-to-five year exploration program,” Thompson said. “We started fundraising 18 months ago, in September 2011, and sent materials to 210 firms,” he told the committee.
“Only 19 wanted to consider Alaska and after further review only two firms remain interested. The biggest hurdles we heard about are the complex and high government take of the Alaska fiscal regime, and the flow of capital to Lower 48 source rocks. We’re in final negotiations, in the belief that the Legislature will make positive changes,” Thompson said.
Tim Bradner can be reached at email@example.com.