Exxon concerned with 'lack of urgency' on taxes

JUNEAU — One of the North Slope’s biggest oil producers said Thursday that a Senate committee seems to be dragging its feet on making meaningful tax changes and warned production will keep declining if lawmakers don’t act.

 

In a letter to the Senate Resources Committee, the Alaska production manager for Exxon Mobil Production Co. said the committee’s current bill doesn’t go far enough in improving an unfair tax structure, and that his company is concerned by “the apparent lack of urgency in the committee in making meaningful tax reform to attract new investments.”

“Simply put, Alaska’s total government take is too high to fully develop its vast resources,” Dale Pittman said. “Without meaningful tax reform, Alaska should expect to continue at or likely below the Department of Revenue production forecasts.”

The forecasts show a 4.7 percent decline in production this year and a 3.3 percent decline next fiscal year. The estimates take into account any projects under consideration or development. The Revenue Department estimates a 9.1 percent decline this year among just the currently producing fields.

Committee co-chair Joe Paskvan, in response to Pittman’s letter, said all the committee members are in tune with the issue of making a meaningful change, but he also understands that the definition of meaningful “is across a spectrum.”

The committee has been taking testimony this week on its work-in-progress bill, which would cut oil production taxes but not to the extent that Gov. Sean Parnell’s plan would. Nearly 20 possible amendments have been offered, but they haven’t been acted on yet.

About 140 Alaskans testified over two evenings of public testimony, and committee members have each received “dozens” of emails on the subject, Paskvan said. 

A “meaningful” change doesn’t necessarily come down to a single number or rate, Paskvan said. For example, he said the current plan — which is narrow in scope — has what he considers meaningful changes for the legacy fields. But he said the committee is also focused on incremental and high-cost incremental development, and finding ways to encourage that.

Under the current tax structure, known as Alaska’s Clear and Equitable Share, or ACES, a 25 percent base tax rate and a progressive surcharge are triggered when a company’s production tax value hits $30 a barrel. The industry has said that the surcharge eats too deeply into profits at times of high oil prices and discourages new projects and new drilling.  

Parnell said his proposal sets the bar in the oil debate, noting that companies have pledged at least $5 billion in new investment if it were enacted. Asked if he’d be willing to meet the Senate halfway — his bill has been a nonstarter there — he said he’s open to any ideas capable of inducing that kind of response from companies.

The stated goal of both sides is to get more oil into the trans-Alaska pipeline. 

Senate leaders have said they hope to build consensus around addressing progressivity, then move on to other aspects of the tax structure, like credits and the state’s system of taxing oil and gas production together. The first step in moving forward is getting support within the bipartisan majority caucus on a new committee bill. 

Pittman’s response to the Senate plan is typical of that from the industry, which has rallied behind Parnell’s plan as a first step toward the broader changes it would like. 

Officials from the North Slope’s other major players, BP PLC and ConocoPhillips, told the committee Thursday that its current plan would have minimal impact on the current investment climate. 

Scott Jepsen, vice president of external affairs for ConocoPhillips, said he isn’t wedded to the governor’s plan but would want to see something that had an equal impact.

Critics have called Parnell’s proposal a corporate giveaway, with no guarantees the companies will invest more. Parnell countered Thursday, during a news conference, that if lawmakers don’t cut taxes enough to change North Slope investment behavior, they’ll effectively be giving away money to companies and getting nothing in return.

Pittman said that while some of the possible amendments would help reduce taxes and offer new production incentives, others would raise taxes. He said he fails to understand how that would help the current situation.

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