An about face on exploration tax credits
Can you guess who said this?
“We need to incentivize. We need to do on the North Slope what we did in Cook Inlet. We incentivized specifically for more companies to come in on the front end and created the credit program.
“I worry about heavy oil. I worry that the biggest known resource on the North Slope is heavy oil. We have to incentivize that. I want to see 50 or 60 companies on the North Slope, as they do in Norway.
“They have a much higher tax structure in Norway but they have 50 or 60 companies because they help on the front end, on the exploration credits. We need to level the playing field so smaller companies can come to Alaska. It’s very expensive to do business on the North Slope.
“We’re fortunate to have the large companies we do have, but we need to look for ways we can reduce the costs so it’s more economic for the smaller companies to come to Alaska, create jobs, create opportunity and drill for oil. We need more wells drilled outside the legacy fields to get more oil for the pipe.”
Followers of Alaska politics will recognize the reference to the idyllic oil regime of Norway is a giveaway that the speaker is Gov. Bill Walker, who is always pining for the fjords when it comes to measuring our tax policy against other resource states.
Walker made those comments in one of the last debates against former Gov. Sean Parnell hosted by the Anchorage Rotary last Oct. 28.
The answer was in response to a specific question asked of Walker about what he would do to increase production in the face of falling oil prices that at the time were $82 per barrel for North Slope crude and have since declined to less than $60.
While the price picture has gotten uglier, the state budget situation was clear at the time with several years of multi-billion dollar deficits facing the next governor.
In this issue we carry Walker’s defense of his $200 million veto of the exploration tax credit appropriation to cap this fiscal year’s spending on the program at $500 million.
Walker asserts his move — which came with no warning to explorers who have earned the credits and made investment decisions based on them — is in response to Alaska’s “new” fiscal reality.
Either Walker hasn’t been paying attention — which we know isn’t the case — or he’s hoping the public hasn’t.
There’s nothing about Alaska’s fiscal situation that wasn’t known last October when he made his comments to the Rotary. Or when Walker submitted his budget to the Legislature in January. Or when Democrats were pitching this exact move in May while the first and second special legislative sessions were ongoing.
Once again, Walker is winging it and in this instance his mouth is writing postdated checks that can’t be cashed. As he concedes in his column, the veto does nothing to change Alaska’s “new” fiscal picture, it simply kicks a $200 million can down the road one fiscal year.
The about face on exploration tax credits that incentivize production is particularly ironic given Walker’s opposition to Senate Bill 21, passed in 2013 and upheld by voter referendum in 2014, which repealed the far more generous tax credits under the previous system known as ACES.
Under ACES, which had a 20 percent capital expense credit, the state would have been on the hook to ExxonMobil for $800 million in credits based on the estimated $4-billion cost of the Point Thomson project set to begin production in 2016.
That’s leaving out the fact the state took in more revenue under SB 21 than it would have under ACES at these depressed prices.
If Walker had his way on SB 21, the state budget situation would be worse than it is today. Now that he has gotten his way with his veto pen, next year’s budget situation is worsened by his deferral of $200 million in tax credit payments that will have to be paid sooner or later.
In exchange for these non-existent savings and weakening industry confidence in the state’s word, Walker gets to start another “discussion.”
What a deal.
Myopic doesn’t begin to describe it.
Andrew Jensen can be reached at [email protected].