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BP official calls tax overhaul a game changer

Posted: April 8, 2013 - 7:51pm

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.

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jake
63
Points
jake 04/10/13 - 11:26 am
2
0
It's a game changer alright....

Oil company's make pocket more money and continue to lay off workers. Meanwhile the state cuts funding for schools. capital projects, road maintenance, etc

akal
252
Points
akal 04/11/13 - 07:38 am
0
0
game changer

yep , Alaska has been sold down the river again.politico's supposed to be for us, sell us out to the oil companies.and people just keep voting these bums back in. when will Alaskan's wake up and kick these sellouts out of office? even people working for the oil companies voted on this bill !!!!

jake
63
Points
jake 04/11/13 - 08:31 am
0
0
Game Changer

a more accurate statement would be the FEW north slope Alaskan residents that work for the oil companies voted on the bill

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 04/12/13 - 03:39 pm
0
0
irony

Does anyone else see the irony in the fact that the people griping about state oil tax restructuring use all of the states resources, pay miniscule state tax, demand more or sustained services and then get a dividend check. Maybe if we had a larger stake in our states financial health our gripes would be better understood.

Norseman
3616
Points
Norseman 04/12/13 - 05:00 pm
0
0
Keep the big oil giveways

Keep the big oil giveways coming. Keep electing people who earn a living from big oil to state government. Keep electing their spouses, family members, lobbyists, and anyone else they may be aholding too.

Why you say? When I saw how this last state election was going, with all of the people who are associated with big oil in one way or the other, I watched my bp, exxon, shell, etc., shares keep going up, up and up.

Keep up the good work joe q. public. Keep electing the big oil people to all state offices.

Same goes for the cruise ship industry. Thanks for letting them dump their wastes in our pristine waters. Now their shares are going up cause now they can make a few more bucks.

Please pass ALL of the legislation that makes big oil happy. Keep giving them all they want so us shareholders can get a little bit. After all, it is only about 6.8 billion giveaway........

Raoulduke
3058
Points
Raoulduke 04/13/13 - 06:00 am
0
0
tax breaks

President Carter started giving tax breaks ,and incentives to oil companies for the exploration,development,and production of oil fields.Which would in turn help get us off of foreign oil dependency,and put people back to work.This is what. These monies use were designed.Then it didn't take long for the oil industry to put out their hands,and expect to receive these monies for no promise of anything.Not even a promise of employment.Now 37 years later The Legislators of the state of Alaska have passed a budget.They also passed a tax break for the oil industry equal to half of the states budget for nothing more than a bribes.They did this with no accountability of the monies.I don't know about the rest of you,but I personally like to know.Where does the money go ? These oil companies have the money.They continually threaten cutbacks.Especially around Legislature tax break talks time.Cutbacks will happen.Since the oil is in an omitted decline. I ask.Why continue giving monies to an industry in decline?Why not spend monies on infrastructure?The work would employ many thousands of people.Imagine the good that would come from a road,and an adjacent rail line from Fairbanks to Nome.We must get the Legislators to derail their one track thinking of the oil industry only,and not anything else.Then again it would be easier to block out the suns light.Than it would to get an Alaskan Legislator to give up their taking of bribes.

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 04/14/13 - 07:15 pm
0
0
Raoulduke the Carter tax incentives:

In Alaska, the Carter Tax incentives were directly responsible for Lisburn field, Milne Point and to a very small degree, Endicott. Each of those created hundreds if not thousands of jobs at their inceptions and all continue to contribute to the pipeline and the economy of Alaska today.
Again, it seems sort of silly that those who pay nearly nothing in to the state coffers seem to throw the biggest fit about those who do! Maybe it's time we impose a state income tax, regardless of what happens with resource development. Then we would all have a reason and a right to complain. With a state income tax, we would have less worries over sunding education, services and infrastructure.
Simply put, I am not for a give away. But I am for a balanced and simplified tax that is fair and equitable for both the state and the oil companies. The current structure is neither.

Media Critic
87
Points
Media Critic 04/15/13 - 04:24 am
0
0
Great idea, Sam

I think a state income tax is a great idea, Sam. Give it a built-in 40K exemption for Alaska residents who actually stick around and live here, doing the underpaid jobs that leave them one step from welfare, and instead collect something instead from all the oil industry's "local hire" you see at the airport waiting to fly home to the Lower 48.

Raoulduke
3058
Points
Raoulduke 04/15/13 - 04:58 am
0
0
The fit

SVP
You are right. I pay little in taxes,but I still can not find it in myself to condone the petro-political business practices.Alaska has an obvious bought,and paid for legislature.Paid for by the oil interests.This is my "Biggest Fit" POLITICAL CORRUPTION with no ACCOUNTABILITY. I asked you a question.You haven't answered.Would you sign a blank check?

Sam Von Pufendorf
1088
Points
Sam Von Pufendorf 04/15/13 - 06:33 am
0
0
Blank check

I'm not sure I would call a non guarantee of increased production a blank check. There is no practical way a company can determine if leases will in fact hold recoverable oil in economically sound quantities or that developing technologies will in fact return greater quantities of oil.
However, there is oil in place (heavy oil) that with investment may be harvestable. Tight formation oil is another resource that with technological advances (investment) may be recoverable.
There is little doubt Prudhoe Bay is still profitable, but as the field ages and more and more maintenance is required, margins slip, profits become very slim and investment in other areas become more appealing.
Other than the unwillingness of the companies to commit to increased production, what makes a steady and stable tax rate a blank check?
Media Critic, I am an Alaskan and have been for over thirty years. I have been employed in the industry for 24 of those years and have no plans of leaving Alaska regardless of my future employment or lack there of. Easily, 70% of those I work with are Alaskan residents. One is a third generation Alaskan that recently elected to move outside and commute. I believe after 54 years in Alaska, that is his propagative. Most of those that don't live in Alaska did at one time and simply found other areas of the country more suitable to them or their spouses. Local hire laws have been found to be unconstitutional as it is very difficult to tell a US citizen where they can or can not live. However, most companies have hiring guidelines they try to fulfill concerning in state hires.
The $40K exemption based on where you work has controversy and ill feelings written all over it. How would the commercial fisherman like that? Or the government administrators, small business owners, construction workers? etc etc.

kksalm
245
Points
kksalm 04/16/13 - 07:58 am
0
0
Tax on income

How about a state income tax on non residents? Then I'd never hear "I haven't spent a dime in Alaska" at the airport.
Have a wonderful day!

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