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BP Exec: Alaska should change oil taxes

Posted: March 14, 2012 - 10:57pm

JUNEAU — The president of BP Exploration Alaska on Wednesday called the state’s current oil tax structure “a going out of business policy,” saying that without changes, investment by his company will stay flat, at best, in the short term and be scaled back in the long run.

John Minge is in Juneau, making a pitch for more sweeping changes to oil taxes than the Senate has proposed. He spoke with The Associated Press Wednesday.

Under the current tax structure, known as Alaska’s Clear and Equitable Share, or ACES, there is 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 the 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 Gov. Sean Parnell’s plan, which goes farther than the Senate plan in cutting taxes but is still merely seen by Minge and other industry officials as a good first step.

The Senate Finance Committee plans to spend at least two weeks on the oil tax issue. On Wednesday, Revenue Commissioner Bryan Butcher said Parnell’s plan, a non-starter in the Senate, isn’t the only way to meaningful change that will cause companies to invest more. But his suggested improvements to the Senate bill, SB192, were all elements of Parnell’s proposal.

Critics have called Parnell’s plan a corporate giveaway, with no firm guarantees the companies will invest any more in Alaska if their taxes are slashed. Parnell has countered by calling the Senate plan a giveaway, saying it cuts taxes but not enough to change investment behavior.

Minge said he’s not wedded to Parnell’s plan but wants to see a bill of the same overall magnitude. 

BP and ConocoPhillips, two of the North Slope’s main players, have talked about $5 billion in new investment — gross, among companies — if tax changes on the order of what Parnell is proposing are enacted. The other major player, Exxon Mobil Corp. also must agree under terms of the Prudhoe Bay operating agreement but has so far been publicly silent on the figure. 

Minge said there’s never been a problem getting all the companies to agree on economic projects. He said $5 billion would be just the start. 

That level of new investment won’t happen under ACES or the Senate plan, he said. 

“We will lobby against a tweak to ACES because we don’t believe that’s the right thing for Alaska,” he said. “We believe that’s a giveaway ultimately. It’s up to our elected officials to make a choice.”

Some lawmakers see progressivity as being out of whack; others see ACES as working as it was intended to work. 

Minge said the aim of ACES seems to be to “rip out as much money” as possible from the industry. An overhaul of ACES now would be the best thing for the state, he said.

“The state of Alaska and the producers are in the same business: We’re in the oil business,” he said. “We make billion-dollar investments early, and we take our returns over many years. So in the short term, the state does pretty well under ACES, but it’s a going out of business policy.”

If changes aren’t made, in the long term, “we would have to start to adjust, and take the necessary steps, which would include starting to shutdown infrastructure, not working on certain projects. So we would definitely react,” he said. “But in the short term, at best, I think we’d stay flat” with investment.

He did not define short term or long term.

“What we need is a tax policy that creates a sustainable, 50-year future,” he said.

Minge wants to see progressivity bracketed, so that different portions of the production tax value would be taxed at increasing incremental levels. The Senate Resources Committee, in crafting the current version of SB192 earlier this session, rejected efforts to bracket. 

Minge also thinks the base tax rate is too high. That issue isn’t addressed either by Parnell’s plan or the SB192.

There has been talk during Senate presentations about tax breaks for the more difficult or expensive to-get-at oil, like heavy or viscous oil. Minge said that’s picking “winners and losers” and doesn’t help companies now.

“We need tax reform on the base business to allow us to be more economic,” he said. “We know how to pick the winners and losers. We know how to pick the right investment at the right time. That’s what we do.”

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kksalm 03/29/12 - 11:12 pm
Oil prices will not stay above $100 forever?

Granted, forever is a long time. Does anyone seriously believe oil is going to be less than $100 bucks a barrel in the future?
My prediction is science of the future will find a miracle of the complex carbon chain of the remaining oil in our Earth and future generations will be addressing the question " What were those 21st century people thinking? " They meaning us, a generation of well meaning beings at the mercy of profit driven corporations having nothing to do with our personal well being.
I knew I'd have to clarify.
Have a nice day.

Norseman 03/30/12 - 07:48 am
kenai kid

Your last several statements have been pretty much been in defense of big oils profits that they have not all been from Alaska.

#1 what portion of those profits were the result of Prudhoe Bay Operations?"

What you fail to disclose or perhaps you are not aware of is a convienient tax loopholes that big oil lobbied for and gained more than 20 years ago.
In a nutshell what they did was gain tax loopholes that provides them with writing off any losses that resulted in ANY COUNTRY, and use them as write offs in our great state of Alaska.
So when Venezuela gave them the boot and took over all of their assests, guess what, they wrote it off as a tax loss in ALASKA. So Alaskan's lost that tax revenue so we could bail out big oil. Not North Dakota, not Texas, but Alaska got stuck with the write offs.
The projected loss of tax revenue to our state over the past twenty years has been projected at over 58 BILLION dollars.

If you are willing to go to another country and do business, why should Alaska be stuck for bailing you out when that country decideds to run you out?

There are other shamefull tax writeoffs that big oil has lobbied for and received that the average Alaskan isn't aware of.

Some of our legislatures are aware of it and are trying to put a stop to this fleecing of Alaska.

If we do not put a stop to this fleecing now, then we as a state will always be nothing more than a pawn for big oil.
The future is grim when it comes to oil and gas.
China, India, and Brazil were all riding bikes to work 20 years ago. Today, they are driving cars and the amount of oil and gas needed is projected to quadruple in the next 10-15 years.

All countries are scrambling for every drop of oil they can get their hands on. The prices will continue to rise to meet that demand. That oil in the ground in Alaska is like one great big piggy bank. Supply and demand.
Whichever country is the first to wean itself off from oil, will become the next superpower. Those that lag behind will never have any energy security.

We deserve nothing less than receiving our fair share and are in the drivers seat to insure that happens. Time to take control back from big oil and send them the message that they will play by Alaska's rules.

If not, then they are free to go back to Venezuela and see what kind of deal they can make.

kenai_kid 03/30/12 - 08:55 am
Venezuela Right off???

I have found nothing to substantiate your claim that BP, Exxon and ConocoPhillips were able to write anything off against Alaska's share of the oil. I did however, find a 20% clause in the Federal tax code. Please reference where I may find this tax loophole that affects ALASKA's share of the oil.

kksalm, I remember a time when we were riding high on $30 a bbl oil (AK crude) and everyone was saying "nowhere but up from here!" Six months later, oil was at $9.00. Oil is one of the most volatile commodities traded and is subject to rapid fluctuations. Oil will be under $100.00 per barrel as economies, especially ours, begins to cool again.

While I do appreciate the debate on this blog, I am not finding anything that supports comments such as Norseman's. I am not saying they are not truthful, but I am saying I am unable to find anything that supports those statements in relation to Alaska's tax structure. I've looked in the previous four re-writes of our tax structure which would date back to 1986 and find nothing that mentions a tax write off against Alaska's production tax. If there is a place you found such information, please include a link so I too may become better informed.

Please, keep those references coming that support your position. They are such an easy read!

Average oil prices including an inflation adjustment are shown below.

Norseman 03/30/12 - 09:16 am
My last post stating the tax

My last post stating the tax writeoffs for big oil stemmed from a segment on the KTTU evening news. I sometimes forget that just because I make it a habit to watch the local news each evening, not everyone else does.

Please watch the short video titled , Oil Tax Lobbying".
Here is the link that backs up what I was saying.

To me the fact that big oil can write off losses here in Alaska for things that effect them in foreign countries is just another way to screw us Alaskans while they continue to make record quarterly profits.

A company should only be allowed to write off losses that occur in the state or country they are doing that business in.

I for one am very angry that we lost tax revenue for allowing them to write off blowouts and loss of properties they incurred in other countries, here in Alaska.
That is what the very richest corporations can do with their teams of lawyers.

As a result of the way they changed the tax structure for this, we as Alaskans have lost over 60 BILLION.

Watch the video and you will see where the facts came from.

kenai_kid 03/30/12 - 05:53 pm
Although corporate income tax

Although corporate income tax is separate from the production tax we are discussing, I do agree with you ... to a degree. Yes, worldwide apportionment was a scam that cost the state money and plenty of it! However, the issue of corporate income tax and production tax are two entirely different issues. Alaska still collected their per barrel share of oil based on the price of said barrel of oil. But we shorted ourselves on the oil companies share of profit from their 31% of the oil at that time. In other words, we still had our share of per barrel oil money, however, we did not collect at the full rate of corporate income tax. Example: If a barrel of oil went for $100, Alaska would still get it's $49.10, the Feds would get their $18.90 and the oil companies would receive their $31, lest the 9.4% state corporate income tax and the Feds 35%. The tax KTUU and the Senator were speaking of is that 9.4% taken off the profits of the company, NOT the states share of a barrel of oil. Is it right? I can't say that it is! However, they are two separate issues and that is why they are being addressed in two separate bills. Separate accounting is something that we should return to! So we do agree on one thing! But again, those are two entirely separate issues.
Also, Senator Wielechowski cost estimates are somewhat misleading. He takes into account the investment of the tax collected to come to his $60 billion figure. Actual on average tax loss per year is in the neighborhood of $450 million X 30 = $13.5 billion. Still a sizable amount.
Finally, it is absolutely false that Alaska is the only oil producing province in North America that uses worldwide apportionment. 80% of those provinces use it. That doesn't make it right! I'm simply stating we are not unique in that respect.

House Bill 328 Oil and Gas corporate tax

kenai_kid 03/30/12 - 11:35 am
Thanks Norseman

By the way, thank you for bringing the worldwide apportionment issue to light. I really had no idea that existed. I think this would be a fair system if it had a minor twist. If the oil companies wish to write off worldwide losses, then they should be willing to share in worldwide net profits! The whole goose and the gander thing!!!
Discussions on these blogs can be very informative and educational as long as we all use logic and supported facts instead of emotion to bring our points of view to others. That is how reasonable decisions are made.

kenai_kid 03/30/12 - 05:17 pm
A debate worth having

And they removed the link! What's up with that? This has to be one of the top commented stories.

granny 03/30/12 - 07:45 pm
Worldwide reapportionment is

Worldwide reapportionment is a good example of what makes this debate so difficult. All the accounting tricks make it hard to determine "fairness". It's a constant battle between the oil co. accountants and state accountants. There is good reason for the people of Ak. to not trust the oil co.s. They are trying to rip everthing from us that they can. And the accounting practices and price per barrel or whatever are all related because they all affect the bottom line.
Kenai-kid, what would you consider a fair take for the state? Do you like Parnell's position (which the oil co.s call a good first step!)? Will that lead to a million barrels a day in the pipeline and if so , how soon? What happened to "no decline after 99" a projection made under a very generous tax arrangement for oil co.s. Keep in mind that in most other oil producing areas, in this country, mineral rights are not owned by the state so you have another entity in the "take". I'll admit that when ACES was passed I cringed, thinking the state was probably being too aggressive, but I certainly don't buy into Parnell's hope and a prayer approach. M Schrag

kenai_kid 03/31/12 - 11:59 am
I'm with ya granny!!!

It is definitely a sticky wicket in which we find ourselves. To trust or not to trust is a good question. To be truthful, I had forgotten about the "No decline after 99' " campaign which lends more credence to the point of trust but verify!!!.
On to do I agree with Parnells incentive package; As I know it (I haven't read it in its entirety), I can't fully support it. Essentially due to two points: #1, the previously mentioned guarantees of investment are not etched in stone in his proposal. There are just to many undefined variables to the level and time frame of investment. I believe the Governor has started at a bargaining point fully expecting not to achieve his proposal, but to agree somewhere above middle ground in the hopes of gaining bipartisan support for a lesser bill.
#2 The range of the reduction is to deep! An estimate of $1.8 billion annually in cuts with a re-investment of $5-10 billion over 10 years is not a healthy enough return on Alaska's estimated $18 billion "investment." The very minimum the companies should be willing to invest is 80% of every tax dollar saved. MINIMUM! And again, that should be in some form of written and enforceable agreement. Will that happen? I, for one, am not holding my breath.
What is "fare?" There, my friend, is the multi-billion dollar question. In most states, the rate ranges from 12.5 - 20% with an additional 3.5 to 5.8% in corporate income tax of their profits. As you have mentioned, royalties paid in ND are sort of difficult to track as they are individually negotiated with the land/mineral owner and not the state. The state indeed does take a share in production tax of about 4.5%. So, if you lump all of these taxes and royalties together for a rough figure (all high numbers) you would be looking at roughly a 30% non progressive production + royalty tax and an additional 5.8% corporate income tax. In Alaska, at the current rate, we are getting 49.1% in production/royalty plus a 9.4% corporate income tax.
The links below are not a full accounting of the tax structure of North Dakota and truthfully has little to do with the money invested in Alaska as none of the major players on the slope have investments in the Bakken field in North Dakota. However, resources that used to be used in Prudhoe, are now moving to ND.

Corporate tax ND

Oil production Tax ND

Watchman on the Wall
Watchman on the Wall 03/31/12 - 07:26 pm
It's Their way or Sanctions

Have no fear folks OUR Prez. has it all figured out for the entire World & has placed Economic Sanctions on EVERYONE that buys Irans oil.
Obama says the World has enough sources for oil without buying Irans & it will not effect the prices at the pumps in any way.
I will ask this once again, isn't it funny or strange who Big Oil & Obama are both demanding, even threatening people to do as they say, or else it's gonna be trouble for those that don't with sanctions against them.
Alaska must give lower tax breaks or else, ALL nations must not buy Irans oil or else it's Economic sanctions against them, even America's allies are not amune to these threats.

It does appear that Govt. & Big oil are both willing to place Economic Sanctions on EVERYONE if they don't get what they want.
Oil will never again go below $100 a barrel unless the Worlds economy crashes and the dollar is of no value, but that will cause it to skyrocket well above what it is now no matter form of currancy one has then.
High Oil will become the tool that allows more Global control of the Masses with a supposed oil shortage any day now. Shortages ment to drive up food prices as well as everything else.
All this to the point where people will either accept their rules, Sanctions or be economically shut out & starve.
Millions will starve to death in poorer nations unable to afford the prices after this shortage coming soon caused by the sanctions against who ever refuses to comply with the rules makers or can't afford the prices.

So what should Alaska do about these Economic Threats from Big Oil and how can we prepare for what the Sanctions against WE Alaskans will do tro us economically?

What about OUR nations soon to be ex allies, which is exactly whats gonna happen by this desire to control OIL and other nations. A World war is coming over OIL & the control it affords those powerful enough to regulate it's sales & prices Globally.
Are you hearing me, and why can't you see these very simple facts on forced sanctions to ALL that appose and reject their demands?

Jerry Baty
Jeremiah 6:17

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