Homer Alaska - Business

Story last updated at 3:45 PM on Wednesday, March 21, 2012

'Still a lot of work to be done' on changes to Alaska's oil tax



By Tim Bradner
Morris News Service - Alaska

With less than four weeks left in the 2012 legislative session, state senators are on the slow track in their work on changes to the state's oil production tax.

The Senate Finance Committee took up Senate Bill 192 on March 13, a bill passed out of the Resources Committee on March 2. Sen. Bert Stedman, R-Sitka, co-chair of the Finance Committee, said the panel will continue working on the bill through the end of this week.

"A lot of the major areas to be dealt with are in the bill (passed from the Resources committee) but there's still a lot of work to be done," Stedman said in a briefing by Senate leaders.

If the Finance Committee moves the bill out, for example on March 23 or March 26, and the Senate passes the SB 192 promptly, the state House would have less than three weeks to consider the Senate's proposal.

The House passed its version of oil tax reform last year, in House Bill 110. The Senate bill, as it is shaping up, is much different than the measure passed by the House.

Senate President Gary Stevens, R-Kodiak, had hoped to have the Senate's bill to the House by mid-March, but he is supporting his colleagues taking their time.

"This is a process we have to go through, and we have to be cautious and understand every change we make. It's important that we do it right," Stevens said.

Even with three weeks there would still be time for the House to deal with the bill, he said. "The House is watching what we're doing. I believe there will be enough time."

On the House side, however, Rep. Bill Thomas, R-Haines, who co-chairs the House Finance Committee, is leery of the Senate oil tax bill being piled onto "50 bills stacked up in our committee, plus the capital budget," he said.

If it happens, it means some things just won't get done before the required April 15 adjournment. The deadline, on the 90th day of the session, is set in state statue, and there are provisions for an extension if needed.

Legislators, or the governor, can also call a special session to deal with a specific topic, such as resolving differences over the oil tax.

The version of SB 192 passed from the Senate Resources Committee makes an adjustment in the "progressivity" formula of the production tax, a formula that escalates the rate of the tax as crude oil prices climb.

In the current law the tax rate increases at a rate of 0.4 percent for every $1 increase in a producer's per-barrel net profit above $30 per barrel, with a cap in the tax so that the state tax will not exceed 75 percent of a producer's profit.

The bill pending in the Senate Finance Committee would reduce the rate of increase to 0.35 percent, and also lower the cap to 60 percent of net profits.

Alaska's production tax is a net profits-type tax that starts at a base rate of 25 percent of net profits and increasing according to the progressivity formula.

As it now is written, SB 192 makes other changes including lower rates of tax for "new oil" developed by a producer above the existing production, a so-called minimum tax based on gross revenues, intended to protect the state if oil prices fall, and a "decoupling" of the state tax on oil and natural gas.

The two are now joined so that both are taxed on the basis of the combined energy value, which was done because much of the gas on the Slope would be produced at Prudhoe Bay, an oil field.

Since gas and oil would be produced in the same wells, the costs of production would have to be apportioned in the net profit tax calculation. Taxing the combined energy value would make this administratively easier.

However, because the two have sharply differing values — oil now has a market price that is high and gas is at record lows — the combined method of taxation could result in substantial losses of oil revenues once commercial production of gas begins.

On other matters, the state House is continuing its work on House Bill 9, which would give the state's Alaska Gasline Development Corp. more flexibility in pursuing a 24-inch gas pipeline built from the North Slope or joining in a partnership with private companies to build a bigger project.

The House Finance Committee held hearings on the bill March 13. Earlier versions of the bill raised concerns over a proposal to require municipal governments to supply free sand and gravel to a pipeline built or controlled by ADGC.

Current versions of the bill would have the state corporation pay the prevailing rates for sand and gravel to municipalities.

There were also concerns raised over provisions in HB 9 which limit the authority of the Regulatory Commission of Alaska over the project, and which exempt the project from state and local property taxes.

Changes are being worked to the regulatory provisions but the tax exemption, which would last only during the construction phase, is still in the bill.

The ADGC's 24-inch pipeline is in an engineering and planning stage with a Draft Federal Environmental Impact Statement out for public comment.

It is intended as a backup plan to bring North Slope gas south to Alaska communities in case a proposed large 48-inch pipeline project is not built.

If the large pipeline is built the ADGC project could become a "spur" pipeline, bringing gas from the large pipeline to Southcentral Alaska.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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