JUNEAU — An oil tax overhaul under consideration in Alaska would be a “game changer” and send a signal that the state is ready to compete for investment, a BP Alaska executive said Monday.
Damian Bilbao couldn’t say how many projects would make economic sense for the company until a final bill was in place that the company could model. But he told the House Finance Committee the latest version of SB21 would make Alaska more competitive for investment dollars. If it passed, he said the state could expect to see a shift in activity within one to two years.
The committee is digging into the proposed oil tax cut with just days left in the legislative session. A fiscal analysis indicates the bill could cost the state up to $6 billion through 2019, based on a fall forecast that calls for a continued decline in production and prices between about $109 and $118 a barrel. A new forecast was released Friday, and the analysis is expected to be updated.
The proposal, like prior iterations, would scrap the progressive surcharge credited with helping fatten state coffers in recent years and revamp a suite of credits, with a goal of focusing incentives on production. Companies say the surcharge eats too deeply into their profits when oil prices are higher, discouraging new investment, and they have singled out the surcharge’s proposed elimination as a huge positive.
Supporters of the overhaul say the current system is out of whack and the state must do something to try to get more oil into the trans-Alaska pipeline. Critics say scrapping the surcharge amounts to a giveaway of the state’s oil wealth, with no guarantees the companies will reinvest it here.
Scott Jepsen, vice president of external affairs for ConocoPhillips Alaska, said the North Slope wasn’t built with Alaska dollars. He said money moves where the opportunities are.
Jepsen said ConocoPhillips knows the state will be watching the companies if a tax plan passes.
During last year’s debate on oil taxes, BP PLC and ConocoPhillips talked about a potential investment of $5 billion, collectively, if changes on the order of what Gov. Sean Parnell proposed were enacted. The Senate, then controlled by a bipartisan coalition, blocked that proposal but wasn’t able to agree to terms on a comprehensive overhaul of its own.
Parnell tried an entirely different approach this year when he introduced SB21.
The latest version of the bill, crafted in the House Resources Committee, features a 33 percent base tax rate and a $5-per-barrel credit for oil produced. The credit would apply to what would be considered new oil and production, which also would qualify for a 20 percent tax break called a gross value reduction.
Areas that don’t qualify for the gross value reduction would have a 33 percent base rate and a per-barrel allowance on a sliding scale that’s higher at lower prices and nonexistent at higher prices, around $160. An administration official has said the vast majority of legacy fields will likely fall under this category.
Representatives of the North Slope’s three major players — BP, ConocoPhillips and ExxonMobil Corp. — told the House Finance Committee on Monday that the bill would constitute a huge improvement over the current tax structure. They also said it should lead to more investment and production. None, however, could quantify that.
Some said there’s still room for improvement. Dan Seckers, tax counsel for ExxonMobil, said the base rate could be reduced and reiterated a comment he’s made in earlier testimony that he’d like to see Alaska’s structure be more attractive and competitive. Jepsen said the state would probably be on the “high end of average” for existing oil producers under the plan.
A consultant to the administration said the effective tax rate for oil not subject to the gross value reduction would be about 23 percent at prices of $100 a barrel and about 28 percent at $120 a barrel.
House Finance Co-chair Bill Stoltze said he’d like to have much more time to spend on the bill and said the House and Senate may need to work a few days longer than the adjournment scheduled for Sunday. Stoltze, R-Chugiak, said he’d rather avoid marathon sessions that extend into the early-morning hours because people don’t do their best thinking at those hours.
Public testimony is planned on the bill for Tuesday.
The committee will have to deal with oil taxes as it also takes on the state capital budget. “We’re going to do the best we can,” Stoltze said.