Homer Alaska - Business

Story last updated at 3:44 PM on Wednesday, March 21, 2012

Parnell urges Senate to act on tax changes

The Associated Press

JUNEAU — Gov. Sean Parnell said Tuesday that it's right to question whether oil companies will follow through on pledged investments if oil taxes are cut. But he said right now, his plan is the only one that's elicited any pledges. And there's $14 billion on the table, he said.

That figure includes $5 billion that BP and ConocoPhillips have talked about collectively. For projects at Prudhoe Bay, Exxon Mobil Corp. also would need to buy in; the company hasn't publicly weighed in but BP has said it's customary for the companies to agree on economic projects. Exxon's buy-in would not be needed for big projects at Kuparuk, where ConocoPhillips sees potential for new investment, company spokeswoman Natalie Lowman said.

Armstrong Oil and Gas Inc. also has said that $9 billion in investment is possible between it and Repsol E&P USA Inc. with a change on the order of what Parnell has proposed.

Parnell told reporters that any legislation that passes must have some kind of investment guarantees or commitments behind it. The current Senate plan, SB192, has none, he said.

"We're not even discussing whether investment guarantees that have been spoken about (with) SB192 are valid or not," he said. "They don't exist."

Sen. Hollis French, D-Anchorage, called Parnell's argument "stunning."

"He's saying my fake agreement is better than their nonexistent agreement," French said.

The debate is reminiscent of a year ago, when Parnell was calling on the Senate to act on his plan, and Senate leaders refused to be rushed into a decision.

Parnell's plan stalled in the Senate after clearing the House last year. It remains a nonstarter in the Senate.

The current tax structure features a 25 percent base tax rate and a progressive surcharge triggered when a company's production tax value hits $30 a barrel. The idea, when the law passed in 2007, was that the state would help companies on the front end and share profits with them when oil flowed and prices were high.

But industry says the surcharge eats too deeply into profits when oil prices are high and discourages new projects and drilling. Industry has spoken in favor of Parnell's plan, which goes further than SB192 in cutting taxes, though it's still seen merely as a good first step by industry officials.

The Department of Revenue estimates the Senate plan would cost the state between $100-$125 million next year, $205-$230 million in fiscal year 2014 and $175-$200 million in fiscal years 2015-2018. It lists as indeterminate the impact of provisions that would reward new production and separate oil and gas for taxation purposes.

The department has said the new production perk would reduce revenues to the state by less than $25 million total for all companies, for all years. It has said decoupling oil and gas — a provision vetoed by Parnell two years ago as a tax increase — would decrease revenue to the state by less than $10 million a year prior to a major gas sale but could increase revenue by over $1 billion with a major gas sale.

By contrast, Parnell's overall plan would reduce revenue to the state by $1.3-$1.5 billion next year, $1.1-$1.3 billion in 2014 and up to $1.45-$1.65 billion in fiscal year 2018, according to the department. That is based on the fall revenue forecast and assumes no new investment or production. Revenue Commissioner Bryan Butcher has said that he couldn't imagine the governor or Legislature standing by and not changing the tax structure again if it failed to spur new development.

The Senate bill will change. Senate Finance Committee co-chair Bert Stedman said Tuesday that a focus of the committee will include reworking the oil reward provision or scrapping it in favor of a similar concept, as well as progressivity, or the splitting of profit oil at higher oil prices. He said those are areas in which the committee will try to reach resolution before moving on to other aspects.

He said a new version of the bill is at least a week away.

"I think it's in the state's best interest to get a resolution to as many issues as we can this year, without giving," he said, catching himself before adding: "remembering we're an owner state."

But he acknowledged that everything that needs to be looked at when it comes to oil taxes won't be done this session.

Whatever ultimately passes the Senate would still have to go to the House.

Parnell said he remains optimistic that a meaningful tax bill can be achieved, echoing the comments of the Senate president. Parnell said 26 days — the number remaining in the session as of Tuesday — is a lifetime in terms of the legislative process.

The Legislature is scheduled to adjourn April 15.