The state will honor agreements made with North Slope oil companies prior to changing the tax structure for several North Slope satellite fields, Gov. Frank Murkowski said Jan. 27.
"We're not going to go back on deals," he said at a conference of the Alaska Support Industry Alliance in Anchorage.
Murkowski was trying to calm the concerns of oil executives after announcing earlier this month that the state would group six satellite fields with the giant Prudhoe Bay field. The change, which went into affect Feb. 1, will amount to a tax hike of $150 million per year, according to one company's estimate.
Oil company executives say the tax increase creates economic uncertainty and could threaten future development in Alaska.
The six satellite fields had been paying little to no production tax because of a formula variable used to take into consideration unprofitable, mature or developing fields.
Under the change, the fields will be linked with Prudhoe Bay when the state collects the production tax. The new structure reflects the reality that the satellites operate interdependently with the Prudhoe Bay field, state tax officials say.
On Jan. 27, Murkowski told industry officials that he would consider appeals for certain fields within the affected satellites. Also, he said, agreements made earlier not to aggregate other fields would be kept.
But he also said the shock of the announcement during his State of the State speech could have been avoided if the industry had responded to the administration's request for proposals on changing the economic limit factor, or ELF.
The ELF formula was designed to encourage development of marginally economic fields, but Murkowski said it has provided tax breaks to aging but still productive North Slope fields.
Executives with BP, Exxon Mobil and ConocoPhillips - the three major North Slope producers and owners of the Prudhoe Bay field - have said the tax break may make some of the satellite fields unprofitable and would cloud the investment climate in Alaska.
"The events of the last two weeks cast a shadow," BP Exploration (Alaska) Inc. president Steve Marshall said at an industry luncheon this week.
Speaking Jan. 27 to a crowd of the change's biggest critics, Murkowski joked, "I feel a little bit like a pork chop being thrown into a wolf cage."
He said he understood the industry's responsibility to protect its interests and asked them to respect the responsibility of the government.
