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Senate unveils oil tax plan

Finance committee bill scraps state's progressivity measure

Posted: April 4, 2012 - 7:52am

JUNEAU -- The Senate Finance Committee on Tuesday released an oil tax plan that scraps progressivity as we know it.

Instead of a progressive surcharge triggered when a company's production tax value hits $30 a barrel, the Senate proposal calls for a progressive severance tax that would be levied on gross production after royalties, and levied solely on oil, thereby decoupling oil and gas for tax purposes and addressing the current dilution effect on revenues when oil prices are high relative to gas.

The bill also would have lower progressivity for fields outside the aging fields of Prudhoe Bay and Kuparuk, as a way to encourage new production. And it would have the Revenue department collect a range of non-confidential information related to oil and gas exploration, development and production that would be available to policy-makers and accessible to the public.

The bill retains the current base tax rate of 25 percent.

Industry has complained that the current surcharge eats too deeply into profits at times of high oil prices. The Senate's approach is meant to provide a fairer split of profit oil between the state and industry.

Committee co-chair Bert Stedman said a flattening of the total government take percentage would start when oil prices hit around $125- or $130-a-barrel. From there, he said, the percentage going to government and industry is intended to stay fairly constant. Analysis presented by legislative consultants PFC Energy on Tuesday ran up to $200-a-barrel oil.

North Slope crude ended Monday at about $122 a barrel.

According to a fiscal year 2013 snapshot by PFC Energy, total state take, including taxes and royalties, at $130 oil would be $10.6 billion under the severance tax proposal. That compares to about $11.4 billion under the current system. The comparison at $150 oil is $13 billion under the severance tax option and about $14.2 billion under the current system, a difference of about $1.2 billion. This scenario includes exploration tax credits.

Stedman said he would be "flabbergasted" if industry didn't consider the proposal a significant change. Industry officials are expected to testify Thursday.

A spokeswoman for Gov. Sean Parnell, Sharon Leighow, said Parnell's office was still reviewing the proposal. Parnell last year proposed a tax cut plan that is a nonstarter in the Senate. "We are concerned with the challenges of a more complicated tax structure," Leighow said in an email.

The changes had been billed as helping to make the tax structure simpler.

There was no immediate fiscal note.

The bill still could change; Stedman, R-Sitka, said work continues both on a tax floor, to ensure the state doesn't lose money if oil prices tank, and on ways to boost incremental production from Prudhoe and Kuparuk, long the mainstays of Alaska's oil industry, where production has been declining.

Stedman said the committee would meet this Easter weekend, if necessary, as could the full Senate, if needed, to vote on the bill and get it passed over to the House.

The 90-day session is scheduled to end April 15. On Monday, House Speaker Mike Chenault said it was "very unlikely" an oil tax bill could pass by then. But a special session isn't a foregone conclusion, if the House feels the bill is a bad one, for example, or that a compromise with the Senate on a tax bill cannot be reached.

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